The Government of Canada has introduced a luxury tax on the sale or importation of certain vehicles and aircraft priced above $100,000 and certain vessels priced above $250,000.
On August 10, 2021, the Department of Finance Canada (Finance Canada) published a background paper on the design of the proposed luxury tax for public consultation. On March 11, 2022, Finance Canada also released draft legislative proposals for stakeholder input.
The proposed Select Luxury Items Tax Act was included in Bill C-19, Budget Implementation Act, 2022, No. 1, which received royal assent on June 23, 2022.
Select Luxury Items Tax (SLT)
Effective September 1, 2022, you must register with the Canada Revenue Agency and begin collecting their new Select Luxury Items Tax (SLT) if you are a:
- Retailer, or
that sells or imports:
Minimum “retail value” of $100,000
- Motor vehicles manufactured after 2018 designed for road use, with 4 or more wheels, carries less than 11 people, and has a gross vehicle weight rating under 3,857 kg.
- Aircraft (including aeroplane, glider and helicopter) manufactured after 2018, has a potential seating configuration of 39 seats or fewer, and is not equipped solely for carrying cargo.
Minimum “retail value” of $250,000
- Boats, ships or craft designed for water navigation, manufactured after 2018 and designed or adapted for leisure, recreation or sport activities, and that is not a ferry, commercial fishing boat, floating home or has more than 100 sleeping facilities.
The SLT to be collected is calculated based on the sum of the price charged (actual cost plus related fees) plus any additional freight charges plus any additional federal and provincial government taxes, duties or fees (not including GST or PST) – called the “taxable amount”.
How the SLT is calculated
The SLT is, generally, the lesser of:
- The taxable amount * 10%, and
- The taxable amount less the threshold amount (so $100,000 or $250,000 depending) * 20%
Therefore a truck sold for $125,000 – total vehicle cost plus dealer fees plus freight plus tire levy – would have SLT of $5,000 based on :
- $125,000 * 10% = $12,500, or
- ($125,000 – $100,000) * 20% = $5,000
Registration for an SLT account is required by the earlier of the sale date, or by the date required in accordance with section 32 of the Customs Act. This would technically require immediate action at the time of an eligible sale to meet the deadline , so we recommend proactively registering if you have inventory for sale that could meet the criteria.
Registration can be done online or by submission of Form L500. There can be significant penalties for not registering – minimum of $2,000 plus a percentage of any SLT that would have been owing– and SLT found to have not been collected on eligible transactions will still be owing, even if collection from the customer is uncertain.
A single sale of such an item in your business creates the requirement for registration, with separate CRA registrations required for each of vehicles, aircraft and vessels. Leases of subject assets will also trigger SLT owing from the lessor, as would certain “improvements” made to the subject assets within one year (in most cases) of the purchase date.
Once registered, periodic SLT returns would be required to report any transactions and remit any SLT collected in that period. The first period is September 1 to December 31, 2022, with following returns being done quarterly on the calendar year regardless of the fiscal year end of the business, with filing and payment deadlines due by the end of the following month.
There is an exception from tax for sale of these items from one registered vendor to another, upon receipt of an exemption certificate from the purchaser. There are also exceptions for certain specialized vehicles (hearse, ambulance/first responder, policing) and certain recreational “motor homes” but caution should be exercised to ensure proper classification.
Once a vehicle has been registered under the SLT regime, the tax should not be payable again on the same vehicle on a later sale (even if that sale would otherwise meet the criteria).
As Virtus Group clients, we recommend that potentially affected businesses review these new rules to determine if preemptive registration is appropriate to avoid potential penalties and audits in the future.
As with any new legislation, there will likely be an adjustment period as the CRA adopts procedures for handling the new registrations and tax returns being filed. Further information and clarifications may be released and we will endeavor to provide relevant information as it becomes available.
Please contact your Virtus Group advisor with any questions or for assistance for your unique situation. You can also fill in the form below to get in touch with our tax team.