One Year Later: How Has the Luxury Tax Impacted Canadians?
In September 2022, the imposition of a luxury tax sparked significant interest and concern amongst Canadians. This new tax policy raised questions about its potential impact on Canadian consumers and the overall economy.
In this article, we cover the effects of the luxury tax on Canadians and explore its implications for individuals, businesses, and the broader economy over the past year. By examining both the positive and negative consequences, we aim to provide a comprehensive understanding of how the luxury tax has influenced the lives of Canadians.
What is The Luxury Tax Act
As a refresher, the (up to) 10% Select Luxury Tax Act came into effect on September 1st, 2022. As stated in section 10.1 of the 2021 Budget, the Luxury Tax is applicable to personal vehicles and aircraft priced over $100,000 and vessels priced over $250,000 (“subject items”), to ensure people pay their fair share of taxes.
Earlier this year, we covered the topic of who would be impacted by the implementation of the Select Luxury Tax Act and what the feared implications would be. The two most discussed fears included the fear of job loss and a loss in revenue.
The Effects of The Luxury Tax Act on Canadians
The most notable changes that have occurred since the introduction of the Luxury Tax Act include changes in people’s spending habits around luxury vehicles, aircraft, and vessels, and the sale of these items for businesses.
Anna Pangrazzi, President of Apex Aircraft Sales, stated earlier this year, several months after the Tax was implemented, that they have lost $4-5 million in sales since its implementation. People have moved towards purchasing these items at price points below the luxury tax bracket, pre-owned leasing rather than buying, buying them used at a decreased value, and purchasing and storing them out of the country.
The Trillium Automobile Dealers Association (TADA) has expressed its great concern for the implemented of the Tax, saying “consumer confidence remains low and inflation is hitting 30-year highs, [making it] particularly ill-timed and ill-advised”.
What’s Next
On August 4, 2023, the Canadian Federal Government introduced new draft legislation to implement various tax measures, update previous draft legislations, and make other changes. This new draft legislation includes proposed updates to the Luxury Tax Act which, if enacted, will:
- exclude aircraft or vessels from being subject aircraft or vessels in certain circumstances;
- provide new rules addressing transfers of partial ownership of a subject item, and the determination of the taxable amount on such a transfer;
- prescribe circumstances under which an exemption certificate would apply, or the tax would otherwise not be payable, on the sale of a subject aircraft for export; and
- provide some transitional relief in respect of agreements entered into before 2022.
Furthermore, industries are still fighting with the government to make more changes to the Luxury Tax Act to make it more reasonable and fair. Until both parties can come to an agreement, it is strongly recommended that you remain educated on the practicalities of the taxes.
This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.