The Canada Luxury Tax

In Budget 2021, the federal government proposed a tax on the sale of new luxury goods purchased for personal use, such as boats, cars, and aircraft (the Proposed Luxury Tax). Today they’ve updated their plans and have indicated that, subject to Parliamentary approval (which is all but certain), the proposed Canada Luxury Tax would come into effect on September 1, 2022.

The draft legislative proposals contained two notable provisions:

  • Relief will be provided to after-sale improvements that are made to aircraft purchased below the CAD $100,000 price threshold; and
  • Relief for aircraft will be expanded to take into account qualifying flights that are conducted in the course of a business with a reasonable expectation of profit.

While the imposition of a tax appears to be unprincipled, namely other luxury goods such as RVs, high-end watches and shoes arenā€™t even considered, the exclusion of aircraft used in a business is a notable change in the proposed tax. The truth of the matter is that business jets are time machines. Their use is necessary to ensure that large-scale enterprises are able to nimbly respond to an ever-changing world.

The devil is now in the details – what are “qualifying flights that are conducted in the course of a business with a reasonable expectation of profit”? If the same rules that are already well established under the Excise Tax Act in respect of GST/HST refundability are applied, that would provide some consistency in the market.

To Which Aircraft Would It Apply?

The Proposed Luxury Tax would apply to aircraft ā€“ airplanes, gliders and helicopters ā€“ that meet the following criteria:

  • Aircraft manufactured after 2018;
  • With a certified maximum carrying capacity of less than 40 seats; and
  • With a total price (which includes charges and fees, but does not include the applicable GST/HST or provincial sales tax) exceeding CAD $100,000.

Calculating the Canada Luxury Tax

The Proposed Luxury Tax would be calculated as the lesser of:

  • 10% of the total price of the aircraft; or
  • 20% of the total price of the aircraft which is above the price threshold of CAD $100,000.

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