Federal luxury tax update
May 10, 2021
The luxury tax included in the federal budget 2021 is far from ideal for automotive retailers, as the sector works to recover from an ongoing pandemic. However, there are a few silver linings that indicate the government implemented some of the suggestions provided by CADA and lessened the impact on the sector.
The luxury tax will only take effect on January 1, 2022, and although the tax is meant to impact the retail sale of new luxury cars, priced over $100,000 — it will not be applied to the total cost, according to Oumar Dicko, Chief Economist at CADA.
“While we are disappointed in the government’s decision to move ahead with the tax during a recovery period, we are encouraged that it will not apply to the total amount of the vehicle,” said Dicko in an interview with CADA Newsline, adding that “It will be applied to a marginal amount over the $100,000 threshold.”
Specifically, for luxury cars with a retail sales price over $100,000, the tax would be calculated at the lesser of 20 per cent of the value above the $100,000 threshold or 10 per cent of the full value of the luxury car. This means the proposed luxury tax on a $120,000 car, for example, after January 2022 would be $4000 extra taxes as opposed to the $12,000 tax originally proposed.
“The decision by the government to not apply the tax to the full cost of the vehicle is something that the association strongly advocated for,” said Huw Williams, CADA Director of Public Affairs.
Furthermore, the government will introduce a separate piece of legislation with the details around the luxury tax, which will only be presented in the fall of 2021. Typically, new announcements in the federal budget apply immediately when passed, but the fact that the luxury tax will be introduced in a separate bill provides an opportunity for the automotive industry to participate in the shaping of the legislation and engage with the government.
It also allows CADA more time to advocate for dealers across Canada and ensure that for jurisdictions such as BC and QC, where a provincial luxury tax is already in effect, double taxation is avoided.
“The bill will be introduced in a few months, which provides us with an opportunity to shape those details and to work to minimize the impact on dealerships,” said Williams.
CADA is also working closely with the manufacturers’ associations on an industry-wide advocacy effort against the new levy. According to Mr. Williams, the overwhelming majority of the vehicles targeted by the proposed luxury tax are European brands. Williams added that the association will be engaging the Embassies of Germany, the United Kingdom, Italy and the Delegation of the European Union to Canada in the coming months on an advocacy strategy to help limit the impact of the proposed new tax.
More details about CADA’s advocacy efforts will be revealed as they become available.