Canada’s Luxury Tax Explained: What Is It How To Calculate It?

Demystifying Canada's Luxury Tax: A Comprehensive Guide

Last year in September 2022, Canada’s luxury goods tax came into effect, taxing certain vehicles, aircrafts, and vessels that exceeded certain price thresholds. If you are planning to buy any of the items listed in the tax act, this blog is worth your time. 

Luxury tax was introduced as a part of the Government of Canada’s commitment toward a fairer tax system. Also, if you are a  manufacturer, wholesaler, retailer, or importer, you have to register with CRA under the Select Luxury Items Tax Act.

Keep scrolling to find out in-depth details about luxury items tax.

What is Canada’s Luxury Tax?

Canada's luxury goods tax is a tax on the sale or importation of certain luxury items, such as personal aircraft, passenger motor vehicles, and leisure boats. The tax applies to items that are priced above certain thresholds: $100,000 for aircraft and vehicles, and $250,000 for boats.

The luxury tax came into effect on September 1, 2022. It is administered by the Canada Revenue Agency. There are a few exemptions to the luxury tax, such as items that are used for commercial purposes, items that are donated to a charity, and items that are imported for personal use and are not resold.

Tip: CPA in Surrey Canada can help you register with CRA for luxury tax. 

What Kind Of Goods Fall Under Canada’s Luxury Tax?

The luxury tax in Canada is a tax on the sale or importation of certain high-value goods that are considered to be luxury items. The goods that are currently subject to the luxury tax are:

• Vessels: Watercraft that are intended or modified for fun, relaxation, or sporting events and that can accommodate 100 or fewer people. This includes boats, yachts, and other watercraft that are used for recreational purposes.
• Aircraft: Aircraft with a passenger capacity of 39 or less, unless they are used for certain business-related travel. This includes private jets, helicopters, and other aircraft that are used for personal transportation.
• Vehicles: Four-wheeled motor vehicles with a highway design rating and a passenger capacity of ten or less. This includes cars, SUVs, and other vehicles that are used for personal transportation.

Talk to accounting consultants to find out if your vessel/ aircraft/ vehicle fallsu under the ambit of this tax. The luxury tax applies to these goods if they are priced above certain thresholds:

• $250,000 for vessels
• $100,000 for aircraft and vehicles

For example, if a boat is priced at $300,000, the luxury tax would be $20,000 (10% of the taxable amount). If a private jet is priced at $150,000, the luxury tax would be $15,000 (20% of the amount above the price threshold).

The amount of tax is calculated as the lesser of:

• 10% of the taxable amount of the item
• 20% of the amount above the price threshold

The taxable amount of an item is its total price, including charges and fees, but not including GST/HST or provincial sales tax. Talk to tax accountant surrey for more details. 

Who Is Obligated To Pay Canada’s Luxury Tax?

The luxury tax in Canada is a consumption tax that is paid by the person who ultimately consumes the luxury item. In most cases, this will be the purchaser of the item. However, there are some cases where the vendor may be liable for the tax, such as if they are not registered to collect the tax.

Manufacturers, wholesalers, retailers, and importers of certain luxury items are required to register for the luxury tax. This includes vehicles and aircraft priced over $100,000 and vessels priced over $250,000. The purchaser of a luxury item is liable for paying any applicable luxury tax on after-sales improvements made to the luxury item. This includes consumers, leasing or rental companies, and charter or time-share providers.

The luxury tax is paid by the vendor who sells or imports the luxury item. The vendor is responsible for collecting the tax from the purchaser and remitting it to the Canada Revenue Agency. Sales of luxury items to manufacturers, wholesalers, and retailers are exempt from the tax, so the items won't be taxed twice.

Note: Find a CPA under the “tax return accountant near me” search and ask the business advisors

to review the numbers before paying the tax. 

How is the Luxury Tax Calculated?

The luxury tax in Canada is a consumption tax that is applied to the sale or importation of certain luxury items. The tax is calculated as the lesser of:

• 10% of the price of the item, or
• 20% of the price of the item subtracted by the threshold (either $100,000 or $250,000)

The taxable amount excludes the PST, GST, HST and QST, but includes any customs fees and tariffs the item may be subject to.

For example, a luxury car priced at $110,000 would be subject to a $2,000 tax, given that 20% of $10,000 is smaller than 10% of $110,000. However, a $560,000 yacht would be subject to a $56,000 tax, as 10% of $560,000 is smaller than 20% of $310,000.

The luxury tax is applied at the time of purchase, based on the dealer invoice price. The tax applies if the final sale price paid (including applicable duties, charges, and taxes other than GST/HST or provincial sales tax) is above the price threshold. Consult a chartered professional accountant for accurate information. 

CJCPA: Your Partner in Understanding Canada's Luxury Tax

At CJCPA, we understand that Canada's luxury tax can be a complex and confusing topic. That's why we offer Corporate Tax filing Surrey Canada to our clients to help them understand their obligations and minimize their liability.

We can help you understand the luxury tax and how it applies to your business, calculate the luxury tax on your purchases, register with the Canada Revenue Agency (CRA) as a registered vendor, and file the necessary tax returns. We also offer a variety of other services, including bookkeeping, business management, and filing corporate tax Canada.

Our team of experienced professionals is dedicated to providing our clients with the highest quality service. We are committed to helping you understand your tax obligations and minimize your liability. Contact us today to learn more about how we can help you with Canada's luxury tax.

We're here to help you navigate the complex world of taxation so you can focus on what you do best: running your business. Keep following our blog post for more such content.