Budget 2021 reveals luxury tax, new hiring program
April 21, 2021
On April 19, the Deputy Prime Minister and Minister of Finance, Chrystia Freeland, released the much-anticipated federal budget 2021, which offered some good news for the automotive industry while also announcing a luxury tax on select goods.
A luxury tax on cars
The budget proposes to introduce a separate piece of legislation that will create a tax on the retail sale of new luxury cars and personal aircrafts priced over $100,000 (not including the GST/HST or provincial sales tax). The tax will take effect on January 1, 2022. Personal importations of vehicles will also be subject to the proposed tax, according to Tim Reuss, President and CEO, CADA.
“We have been advocating against the luxury tax for some time now, with the message that it will be detrimental to the automotive industry,” said Reuss in an interview with CADA Newsline. “Historically, these taxes have never achieved their main goal — which is to raise revenue — and are considered to be ineffective.”
Provinces like British Columbia, which already introduced a 10 per cent progressive luxury tax on vehicles starting at around $56,000, would also be significantly impacted by the new proposal. Outside of B.C., a number of luxury models, car sales, foreign-made vehicles, and potentially the investment dealerships have made in luxury vehicles, will be impacted by the tax.
“Our message was clear that it will be detrimental to the industry, and particularly now amid the pandemic with the sector hard-hit and down 20 per cent in 2020,” said Reuss. “Now is not the time to introduce a new tax, when the auto sector is trying to recover from the crisis.”
Reuss said he was disappointed by the announcement, and that CADA and other automotive industry associations will continue to fight the policy while the details of the tax are being finalized.
According to CADA Public Affairs Director Huw Williams, the tax comes despite intense lobbying from the embassies in Germany, the United Kingdom, and European Union, whose vehicle manufacturers will be the hardest hit.
However, there is a silver lining: CADA met with the Minister of Finance's office immediately following the introduction of the budget in the House of Commons on April 19 and discovered that the current proposal on the vehicle luxury tax is blended to avoid a tax cliff at the $100,000 price — in-line with a suggestion provided by CADA — and the tax will only be calculated on the amount exceeding $100,000, rather than the full amount.
“For luxury cars with a retail sales price of more than $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,” said Williams. “For example, the proposed tax on a $120,000 car after January 2022 would result in an additional $4,000 in taxes instead of the additional $12,000 tax that was originally proposed.”
Some good news
On the upside, CADA’s Chief Economist Oumar Dicko said the budget revealed the extension of the Canada Emergency Rent Subsidy (CERS) until September 25, 2021, and a newly-created Canada Recovery Hiring Program (CRHP).
“The new program essentially provides funding to businesses as the economy reopens, covering a portion of the costs of hiring new employees or increasing the hours or the wages of current employees,” said Dicko.
The proposed program is available for eligible employers that continue to experience “qualifying declines in revenues relative to before the pandemic,” according to the federal government. The support would only be available for active employees, and offered from June 6 to November 20, 2021. Eligible employers would either claim the higher of the Canada Emergency Wage Subsidy (CEWS) or the newly proposed CRHP subsidy.
“The goal is to make it easier for businesses to hire new workers as the economy reopens,” said Dicko. “The timing is important, as the rates for both the wage subsidy and the hiring program will slowly ramp down over time.”
For more information or to join the fight against the luxury tax, please contact Huw Williams at email@example.com or 1-800-465-3054.