Written by John Grummett, Taylor Leibow LLP
The Luxury Tax (“LT”) is a new tax on the sale of road vehicles and aircraft where the consideration payable is greater than $100,000. The LT also applies to marine vessels where the consideration is over $250,000. The LT is levied on the vendor of the vehicle, aircraft or vessel. The LT applies to vehicles, aircraft and vessels where the agreement to purchase or lease was entered into on or after January 1, 2022 and where delivery takes place on or after August 31st, 2022. This article discusses the rules that apply to vehicles. Similar rules apply to aircraft and vessels.
Who needs to register?
Any individual, corporation, partnership or other entity that is engaged in the business of manufacturing, wholesaling, retailing, or importing subject vessels with a value of more than $250,000 or subject vehicles or subject aircraft with a value of more than $100,000 is required to register for LT if the vessels, vehicles, or aircraft have never been registered in Canada or a Canadian province.
In order to make sure any purchases of luxury vehicles for resale can be purchased LT exempt, the registration process should be started as soon as possible. You can access the registration application at:
What is a “subject vehicle”?
LT does not apply to sales between registered vendors of subject vehicles, supplies of emergency and military vehicles, vehicles equipped to accommodate more than 10 passengers, vehicles with a gross weight in excess of 3,856 kgs, vehicles manufactured before 2019, vehicles that have already been provincially registered and most used vehicles.
How does LT apply?
The vendor of a subject vehicle is required to remit tax equal to the lesser of:
In a case where a vehicle is being leased, rented or used for demonstration purposes, the vendor is obligated to calculate the tax based on the fair market value of the vehicle at the time the lessee first acquires use of the vehicle.
How is the value calculated?
The value of the vehicle is based on purchase price of the vehicle and any before sale modifications plus any other taxes (except GST/HST), duties, fees, delivery charges and import fees. GST/HST is to be collected on the total consideration payable for the vehicle including any LT.
After sale modifications
Any modification made to a vehicle within 12 months of purchase will require the purchaser to self-assess LT if:
LT is not payable on modifications made to accommodate wheelchairs or to allow individuals with a disability to operate the vehicle. LT is also not payable on normal repairs and maintenance, replacement of damaged or defective parts, and child safety seating or restraints.