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Draft Luxury Tax Legislation Released!

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After our February blog post, the Department of Finance finally released draft legislation for its “luxury tax” on vehicles, aircraft and vessels (“items”). Assuming it is passed, the Select Luxury Items Tax Act (“SLITA”) is scheduled to come into force on September 1, 2022. Any business selling items to which SLITA applies will have to register with the federal government, pay the luxury tax, and file quarterly returns!

How the Luxury Tax Works

SLITA keeps the thresholds and rate of tax from the government’s initial proposal in Budget 2021.

The amount of luxury tax will be the lesser of: 20% of the item’s “taxable amount” above the applicable threshold; or 10% of the total “taxable amount” of the item. The applicable threshold remains $100,000 for vehicles and aircraft and $250,000 for vessels.

The “taxable amount” of an item will generally be the consideration payable for that item, although the proposed rules deem consideration to be equal to the fair market value of the item if it is sold for no or nominal consideration.

An important point is that the luxury tax only applies to items manufactured after 2018 and even then only if the item has not been previously registered with the federal or a provincial government (i.e., it generally does not apply to sales of used items or to previously imported items).

While the luxury tax does not apply to leases, it is expected to be passed along to lessees through increased lease prices for subject items. Registered vendors who lease directly must self-assess the tax when the item is appropriated from inventory for lease. Lessors who are not registered vendors will likely also end up building the luxury tax into lease pricing, given that they will probably have had the cost passed along to them when they purchased the item from a registered vendor.

List of Items Can be Expanded

An important point for vendors is that what counts as a “subject” item can be revised in the future by regulation. This means that vendors should keep an eye on announcements regarding additions.

The Luxury Tax is Distinct from Other Taxes

The luxury tax is its own distinct tax – registration, administration, objections, and appeals are done separately from income taxes, excise taxes, etc.

Unlike GST/HST, there is no small supplier threshold for registration, and there are no ITCs for the luxury tax. Instead, when a registered vendor sells an item to another registered vendor, they can use an “exemption certificate” to avoid paying the luxury tax. This way, theoretically, the luxury tax only needs to be paid once for any given item.

However, when the luxury tax is applied on imports, it is treated as if it were a duty under the Customs Act. If you are importing an item into Canada for the first time and are not a registered vendor (e.g., you are importing for personal use), SLITA requires that you self-assess and pay the luxury tax as part of the customs duties owing.

Commercial Use of Vessels/Aircraft

Lastly, SLITA softens the original proposals when it comes to commercial aircraft. Generally speaking, subject aircraft and vessels are not taxed under SLITA if used for commercial purposes at least 90% of the time.


Apart from changes along the margins, SLITA is in-line with what the government outlined in last year’s backgrounder.

This means manufacturers, retailers and distributors should already be finalizing their preparations for SLITA!

Anyone who has to charge or pay the tax should also remember how other taxes and duties “stack” with the luxury tax. Based on the draft legislation, the “consideration” on which the luxury tax is calculated includes all federal excise taxes, duties, provincial levies, and fees, except GST/HST and specified provincial taxes (e.g., QST, British Columbia PST, Manitoba RST, and Saskatchewan PST).

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