In its 2021 budget, under bill C-19, the Liberal government announced plans to impose a luxury tax on the sale of new cars, boats and aircraft, bought for personal use. The tax is to be applied as the lesser of either 10% on the vehicle’s purchase price or 20% on its final value over the threshold. This week, the government announced estimates that over a five-year period, from its imposition in September 2022, the luxury tax would boost tax revenues by around $779 million.
The Parliamentary Budget Office (PBO) costing note broke down this revenue stream with $87 million expected to be collected during the remainder of the current fiscal year, and a further $163 million during 2023-24, with a peak amount of $183 million predicted in the 2026-27 period.
The PBO further added that the tax may also result in a loss of about $2.88 billion in sales to the economy, in addition to hundreds, possibly thousands of job losses in the sales, manufacturing and maintenance segments. This would account for a 15% decline in sales over the next 5 fiscal years. An effect that would be especially harsh to the struggling aviation industry that was just beginning to recover from the devastation wrought by the pandemic.
This tax is set to be imposed on a sliding scale on luxury cars and vehicles valued at over $100,000 and on boats and yachts valued at over $250,000. It will also apply to improvements or other aftermarket modifications made at the time of the vehicle’s sale. The amount will be added to the final sale price which will then allow for the calculation of GST and other provincial sales taxes. Those involved in the sale or importation of these luxury vehicles are also expected to register with the federal government. This is to allow for tracking of sales and imposition of the new tax.
Critics are however highlighting that the luxury tax is not likely to address wealth inequities as its impact is more on the manufacturers of the vehicles rather than those that purchase them. In an Op-ed on the Financial Post, General Vice President of the International Association of Machinists and Aerospace Workers (IAMAW), David Chartrand, noted that during the pandemic there was an increase in the sales of pre-owned and leased aircraft while the sale of new private jets had declined by 20%.
The tax is only to be imposed on new aircraft, meaning that local aircraft manufacturers are on the losing end, taking on the liability of paying the tax which would cause them to increase prices and consequently lose their business to foreign competitors whose governments do not impose the same tax. Chartrand is urging the government to undertake wider consultation and study on the impact of the luxury tax, and on how to develop measured and thoughtful policies to tax wealth.
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