As previously discussed in our Customs & Trade Blog, the Government of Canada (“GoC”) has been preparing a “luxury tax” on cars/trucks, personal aircraft and personal boats. The luxury tax was initially proposed in the 2019 Liberal Party of Canada platform, as a 10% tax on cars, boats and personal aircraft over $100,000.

Budget 2021 outlined that the luxury tax would be the lesser of 20% of the vehicle’s value above a threshold, or 10% of the full value of the luxury vehicle. The threshold proposed was $100,000 for cars/trucks and aircraft and $250,000 for boats. The timeline for coming-into-force was January 1, 2022.

 The last time we discussed the luxury tax, it had been undergoing a consultation process, which started on August 10, 2021 and had a September 30, 2021 deadline for comment.

Ultimately, the expected January 1, 2022 implementation date came and went uneventfully, with no legislation in place, or even introduced in draft. At this point, it is not entirely clear what the status of the luxury tax is, or when exactly the Government expects it to take effect.

What we do know is the following:

What consultation feedback is the Department of Finance working to incorporate? Ultimately, time will tell. However, CADA notes both ongoing semiconductor shortages, and existing BC and Quebec luxury vehicle taxes, as important considerations for the industry. The boating and aviation industry, on the other hand, appear to be concerned about the impacts of cancelled contracts and shifts in sales and manufacturing to other jurisdictions.

While we have yet to see draft legislation, businesses which could be affected by the luxury tax should continue to monitor the situation, and understand that Canadians have essentially been put “on notice” that a luxury tax is coming. The Government therefore might not go through the same lengthy notice and consultation process that they did with the initial announcement, and potential collectors should be prepared to implement a luxury tax reasonably promptly.

Likewise consumers, who may be expecting that they will have time to order luxury vehicles before legislation comes into effect, should not assume that the Government will grandfather transactions that were entered into after April 20, 2021.

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