New Luxury Tax: On Bentleys, Boats and Some Items Over $100,000

Walter Harder

In the April 2022 Federal Budget, the government announced its intention to add an additional tax on “luxury items.”  This new tax was included in Bill C-19, which became law on June 23, 2022, and collection of the tax began on September 1.  Items sold prior to September 1 are not subject to the tax even if delivery takes place after September 1.

The new tax applies to the sale, importation, registration or lease of most new (i.e. not previously registered) motor vehicles and personal aircraft, which cost over $100,000, as well as new vessels acquired for personal use, which cost over $250,000.  The cost of improvements made by the vendor or by a third party (if made within one year of the purchase of the vehicle if still owned by the original purchaser and costing more than $5,000) is included in the amount subject to tax.

The amount of the luxury tax is the lesser of:

• 20% of the value of the item in excess of the $100,000 or $250,000 threshold and
• 10% of the value of the item

Vehicles include:sedans, coupes, hatchbacks, convertibles, SUVs and light-duty pickups.  Specifically, the criteria in the Select Luxury Items Tax Act are:

• The vehicle is designed to transport individuals on highways and streets
• The seating capacity is limited to 10 passengers or less
• The GVW of the vehicle is 3,856 kg or less
• The vehicle was manufactured after 2018
• The vehicle is designed to travel with four or more wheels in contact with the ground

Specifically, excluded from the tax are vehicles which are:

• A hearse, ambulance, marked police vehicle or emergency medical or fire response vehicle
• A recreational vehicle that is equipped with at least four of the following:
• Cooking facilities
• A refrigerator
• A faucet and a sink
• A self-contained toilet
• Heating or air conditioning that does not depend on the vehicle engine to operate
• An electric power supply or gas supply that is independent of the vehicle engine

Example: Purchase and Improvement of a Luxury Vehicle

In September 2022, Jeremy purchased a new 2022 Bentley Bentayga for $399,439.  At the time of the sale, the luxury tax is the lesser of:

•             $399,439 x 10% = $39,943.90

•             ($399,439 - $100,000) x 20% = $59, 887.80

The luxury tax is thus $39,943.90.

In January of 2023, Jeremy paid an additional $6,000 to have the vehicle wrapped.  Since the improvement was made within one year of the original purchase (by the original purchaser), the improvement is subject to the luxury tax as well.  The tax on the improvement is based on the luxury tax on the improved vehicle (original cost plus improvements) less the luxury tax already paid:

The total tax is the lesser of:

•             ($399,439 + $6,000) x 10% = $40,543.90

•             ($399,439 + $6,000 - $100,000) x 20% = $61,087.80

So, the tax on the improvement is $40,543.90 - $39,943.90 = $600.

Come to the September 21, 2022 CE Summit to learn more about the latest tax changes affecting Canadians, CRA audit defense preparations and investing in an inflationary and potentially recessionary environment.