Proposed luxury tax would apply to cars and trucks costing more than $100K.
Tax would amount to either 10% of full price or 20% of price exceeding $100K.
If the budget is accepted, the tax would go into effect on January 1st, 2022.
The Canadian government announced its proposed 2021 budget today, and buried within the 739-page document is a new luxury tax, which would apply to new high-priced cars, aircraft and boats destined for personal use.
The tax would affect new cars and trucks with an MSRP of more than $100,000, either purchased in Canada or imported from other countries. There are two ways of calculating it, the buyer paying the lesser of two options: 10% of the vehicle’s total cost, or 20% of the amount exceeding $100,000. The luxury tax will be applied before adding sales taxes.
How much does that amount to? Here are some examples.
$100,000: $0 luxury tax (20% of 0 is, well, 0)
$110,000: $2,000 luxury tax (20% of $10,000)
$125,000: $5,000 luxury tax (20% of $25,000)
$150,000: $10,000 luxury tax (20% of $50,000)
$200,000: $20,000 luxury tax (20% of $100,000 or 10% of full price)
$250,000: $25,000 luxury tax (10% of full price)
$300,000: $30,000 luxury tax (10% of full price)
So essentially, on cars and trucks costing between $100K and $200K, the 20% rule would apply. Past the $200K mark, the 10% rule would produce the lesser amount.
Will that prevent high-end luxury brands from selling their vehicles in Canada? Highly unlikely, and the goal isn’t to discourage sales anyway, which would be counterproductive. In the case of the $122,000 Porsche Taycan 4S, on which a $4,400 luxury tax will be added before sales taxes, we find options such as Special Colour paint ($3,590 for Carmine Red, Neptune Blue, Chalk, Ice Grey Metallic), 21” Taycan Exclusive Design Wheels with Aeroblades in Carbon Fibre ($10,010), Olea Club leather ($8,150) and Porsche Ceramic Composite Brakes with High-Gloss Black callipers ($11,370). What are a few thousand bucks more on the invoice?
If the new federal budget is supported by the opposition, the luxury tax would go into effect on January 1st, 2022, and the Canadian government estimates it will increase federal revenues by $604 million dollars over five years, which will help soak up the massive deficit caused by the COVID-19 pandemic. Motorcycles, recreational off-road vehicles, racing cars (which aren’t street-legal), RVs, construction and farm vehicles are not subject to the proposed tax. Final details will be announced at a later date.