During the federal budget last year, a bill concerning the application of a new tax for luxury goods was announced. This tax came into effect on September 1st. The least we can say is that it is not unanimous.
It affects all luxury goods, including cars, boats, and jets, you get the idea.
The government's goal is to have the wealthiest Canadians pay their fair share. Not everyone is happy with the measure, as you might guess. It has drawn criticism from aircraft and boat manufacturers who say the tax could kill jobs in their industries.
For vehicles and airplanes, the tax applies if the sale price is at least $100,000. For boats, the invoice must be at least $250,000 for the tax to apply.
With respect to vehicles, certain details are important. For example, if the vehicle weighs more than 3856 kilograms, it is exempt. The same applies if it has at least 10 seats. Motorcycles, ATVs, snowmobiles, trailers, ambulances, police cars, fire trucks and military vehicles are exempt from the tax.
However, there is no exemption for electric vehicles. Some critics argue that the tax could affect vehicles intended to help the environment, which goes against other measures the government has taken to combat climate change.
For aircraft, the products that fall under the law are airplanes, helicopters, and gliders that seat less than 40 people. Commercial aircrafts, such as airliners or cargo planes, are exempt.
Boats covered by the act include yachts, sailboats, deck boats, water ski boats and houseboats. Floating homes, fishing vessels, ferries and cruise ships are not subject to the tax.
Now, the tax can be calculated in two different ways. Either an additional 10% of the price of the item purchased is added to the invoice, or an amount of 20% on the excess over the threshold ($100,000 or $250,000).
Let's take the case of a $120,000 car. If you apply a 10% tax to it, you're talking about $12,000. On the other hand, if we go with the 20% excess of the $100,000, we are talking about an excess of $4,000. This is the scenario that would be applied because the cheaper tax is the one that must be applied.
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Conversely, if we look at the case of a $400,000 Rolls-Royce, we would apply the 10% tax, or $40,000. Why? Because 20% of $300,000 (the amount more than $100,000) is an additional $60,000 to the bill.
The taxable amount does not include GST or QST, for example, but does include any customs fees and tariffs to which the item may be subject.
The tax must be paid by the manufacturers, wholesalers, retailers, and importers of the luxury goods concerned. Sales of these items to manufacturers, wholesalers and retailers are exempt from the tax, so the items will not be taxed twice.
Critics
The luxury goods tax has drawn widespread criticism from aerospace and marine manufacturing executives as a direct threat to jobs.
As CTV News reports, the National Marine Manufacturers Association of Canada (NMMA) has released a document outlining how the tax could result in at least $90 million in lost revenue for boat dealers, as well as the loss of 900 full-time jobs.
"Unfortunately, the government has failed to recognize that a luxury tax will not target the wealthy. Instead, it will punish dealers, manufacturers and middle-class workers who will become collateral damage", said association president Sara Anghel via a press release.
The industry groups also pointed to a report by the parliamentary budget officer that said the tax could result in $2.8 billion in lost sales over the next five years.
It remains to be seen how the auto industry will be affected. In theory, anyone who buys a car worth more than $100,000 can afford to pay the tax, but perhaps an $80,000 or $90,000 vehicle will be chosen instead to avoid the additional costs.
We will have an opportunity to analyze this once we have accurate data to show the situation.