Luxury Tax – The luxury tax will come into effect on September 1, 2022.
Scope of the luxury tax
Certain persons are required to register with the Canada Revenue Agency (CRA) as registered vendors under the Act. Such persons include manufacturers, wholesalers, retailers and importers of vehicles, aircraft or vessels that are within the scope of the tax regime and that are priced above the relevant price thresholds (new luxury cars and aircraft with a retail sale price over $100,000, and new boats over $250,000.)
A vehicle, aircraft or vessel falls within the scope of the luxury tax regime if it meets the definition of subject vehicle, subject aircraft or subject vessel, as set out in subsection 2(1). Such vehicles, aircraft and vessels are broadly referred to as subject items. Vehicles, aircraft or vessels that do not meet these definitions are not subject to the luxury tax.
Tax is calculated at the lesser of 20 per cent of the value above these price thresholds or 10 per cent of the full value of the luxury vehicle, aircraft or vessel.
Definition of subject vehicle
Under subsection 2(1), subject vehicle means a motor vehicle with a date of manufacture after 2018 that meets all of the following conditions:
it is designed or adapted primarily to carry individuals on highways and streets
it has a seating capacity of not more than 10 individuals
it has a gross vehicle weight rating that is 3,856 kg or less
it is designed to travel with four or more wheels in contact with the ground
A motor vehicle that has already been registered with a government before September 2022 is excluded from this definition, provided that possession was also transferred to the user of the vehicle before this date. A motor vehicle that is clearly marked for policing activities, a motor vehicle that is clearly marked and equipped for emergency medical or fire response activities, an ambulance, a hearse and a recreational vehicle meeting certain conditions are also excluded from the definition of subject vehicle.
Definition of subject aircraft
Under subsection 2(1), subject aircraft means an aircraft that is an aeroplane, glider or helicopter with a date of manufacture after 2018 that meets any of the following conditions:
it is equipped only with one or more pilot seats and cannot have any other seating configuration
it is equipped only with one or more pilot seats, or is not equipped with any seats, and cannot have a seating configuration of 40 seats or greater (excluding pilot seats)
it is equipped with one or more pilot seats and one or more passenger seats and has a seating configuration of 39 seats or fewer (excluding pilot seats)
An aircraft that has already been registered with a government before September 2022Footnote1 is excluded from this definition, provided that the user of the aircraft also takes possession of the aircraft before this date. An aircraft that is designed and equipped for military activities and an aircraft that is equipped solely for carrying goods are also excluded. For greater certainty, a subject vehicle is also excluded from the definition of subject aircraft.
Definition of subject vessel
Under subsection 2(1), subject vessel means a vessel with a date of manufacture after 2018 that is designed or adapted for leisure, recreation or sport activities.
A vessel that has already been registered with a government before September 2022Footnote1 is excluded from this definition, provided that the user of the vessel also takes possession of the vessel before this date. Generally, a floating home, a commercial fishing vessel, a ferry and a cruise ship are also excluded. For greater certainty, a subject vehicle and a subject aircraft are also excluded from the definition of subject vessel.
When to register
Generally, you are required to register with the Canada Revenue Agency (CRA), under the Select Luxury Items Tax Act, if you are a: manufacturer, wholesaler, retailer, importer
and in the course of your business activities you sell or import certain vehicles and aircraft priced over $100,000 and certain vessels priced over $250,000
You are required to apply to register with the CRA as a registered vendor of vehicles, aircraft, vessels, or a combination, by the earlier of:
the day of the first sale of a vehicle, aircraft, or vessel above the respective threshold
the day of the first importation of a vehicle, aircraft, or vessel above the respective threshold
Registering ahead of time ensures that you can obtain and hold tax-free inventory of vehicles, aircraft or vessels you are registering for.
Failing to apply for registration when required
If the person does not apply for registration or establish that they are not required to register, the CRA may register the person as a registered vendor of a type of subject item 60 days after the written notification was sent. If the CRA registers the person, the CRA must assign a registration number to the person for the purposes of the Act and notify the person of the registration number and the effective date of registration.
If a person is required to be registered for the purposes of the luxury tax but does not apply for registration in accordance with the Act, the person is liable to a penalty of $2,000 under section 109.
If luxury tax is payable by an importer of a subject item and at the time the tax became payable, the importer was required to be registered but has not applied for registration, the importer is liable to a penalty under section 114, in addition to any other penalty. The penalty will be the greater of $1,000 and 50% of the amount of the luxury tax that is payable.
The registration framework allows transactions between registered vendors of the same type of subject item without the luxury tax applying at the time of sale through the use of exemption certificates. However, if a person that is not registered falsely claims to be a registered vendor on an exemption certificate in order to purchase its inventory exempt from the luxury tax, the person will be liable to a penalty under section 110, in addition to any other penalty. The penalty will be the greater of $1,000 and 150% of the luxury tax that would have been payable.
Filing Returns
Under subsection 55(1), a person that is registered or required to be registered under the Act must file a return for each reporting period. In most cases, the return may be filed by mail or electronically; however, the CRA could require certain persons to file electronically.
In general, the reporting period of a person that is registered or required to be registered under the Act is a calendar quarter. The return must be filed by the end of the month that follows the end of a reporting period, and any amount owing for the reporting period is also due at that time.
Maintaining Records
Under section 88, every person that is required to file returns must keep all records necessary to determine their tax liabilities and obligations for a period of six years from the end of the year to which the records relate. Records must be kept in English or in French and must be maintained in Canada unless the person is authorized by the CRA to maintain records outside Canada. To request authorization to maintain records outside of Canada, a person must complete Form L500-1, Non-Resident – Records Kept Outside Canada, and submit it to the CRA.
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