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9 Interesting Facts Luxury Car Tax Bc 2022 | Luxury Tax Cra
- The price is calculated in reference to any excise taxes and customs duties included in the price (e.g., the $100 federal excise tax on vehicle air conditioners and any federal excise tax imposed on a fuel-inefficient vehicles). The price is calculated without reference to any provincial retail sales tax (“PST“), the Quebec sales tax (“QST“) and the federal goods and services or harmonized sales tax (“GST” or “HST“), which are imposed on the LT. The price also includes delivery or freight charges. - Source: Internet
- That distinction could impose greater risks on dealers, and could warrant the dealers addressing them in their commercial terms in their sale and lease agreements with customers. For example, under the GST/HST legislation, vendors/lessors, as the GST/HST collection agents on the Government’s behalf, have direct recourse against their customers, the “taxpayers”, to pursue payment of GST/HST. Under the Proposed Act, the LT would be imposed on the registered dealers, and absent specific terms in their agreements with customers, they could have no recourse against customers for any shortfall in recovery of the LT. If, for example, the LT was miscalculated and not fully embedded in the price, then the dealer would bear the cost of that shortfall, absent a specific indemnification or other contractual recourse mechanism against the customer. - Source: Internet
- Due to the unique nature of the LT, there are consequential challenges, concerns and risks that dealers and their financing entities need to address. In addition to what we have discussed above, non-compliance can give rise to offences and significant penalties. Dealers and their financing entities have to be pro-active in exercising appropriate due diligence, and in designing contractual terms to alleviate concerns and risks, while passing-on any potential tax savings, such as on export sales, to customers to facilitate sales. - Source: Internet
- On March 11, 2022, the federal Department of Finance released draft legislative proposals known as the Draft Select Luxury Items Act (the “Proposed Act”) to implement the Luxury Tax (the “LT”) on vehicles, aircraft and vessels as announced in the April 2021 federal Budget. The LT would apply on certain transactions involving cars and aircraft priced or valued at $100,000 or more, and boats priced at $250,000 or more. The tax would be calculated as the lesser of (1) 20 percent of the value above the applicable price or value threshold, or (2) 10 percent of the full price or value of the vehicle, aircraft or vessel. - Source: Internet
- The purchaser cannot be a registered vendor of the subject vehicles. The registered dealer has reported and accounted for the tax as part of its net tax for the reporting period in which the LT became payable. The subject vehicle is not used in Canada between the time of its sale and exportation, except to the extent reasonably necessary or incidental to its manufacture, offering for sale, transportation or exportation. The subject vehicle is not registered with the Government of Canada or any province between the time of its sale and exportation, except if the registration is done solely for a purpose incidental to its manufacture, offering for sale, transportation or exportation. The purchaser exports the subject vehicle as soon after the sale is completed as is reasonable having regard to the circumstances surrounding the exportation and, if applicable, the normal business practice of the purchaser and vendor, and The purchaser provides to the dealer, and the vendor retains, evidence satisfactory to the Minister of National Revenue ( the “Minister“) of the export of the subject vehicle from Canada by the purchaser, or Prescribed conditions are met. - Source: Internet
- Another concern is the $100,000 price threshold. There is no indexing for inflation. With annual inflation currently running at over 7% in Canada and supply chain issues worldwide, including chip shortages, how long until the $100,000 price threshold is no longer considered an adequate threshold for determining whether a vehicle is a “luxury”, as opposed to a barrier inhibiting middle class vehicle purchases and leases? - Source: Internet
- The LT is intended to be a one-time tax imposed on a “subject vehicle” above the $100,000 price threshold with a date of manufacture after 2018. A “subject vehicle” is a motor vehicle with four or more wheels designed or adapted primarily to carry individuals on highways and streets, has a seating capacity of not more than 10 individuals, and a weight not exceeding 3,856 kg. Therefore, motorcycles and commercial trucks and buses would generally be excluded, as would recreational and commercial vehicles designed for off-road use. - Source: Internet
- There is the issue of how effective this rebate mechanism would be to level the competitive landscape with foreign competitors of dealers. Certain of these conditions overlap with the point-of-sale GST/HST relief for zero-rated exported supplies of goods made by vendors (i.e. taxed at a 0% rate for GST/HST purposes). Whereas GST/HST relief is allowed at point-of-sale, the LT rebate mechanism means that the LT is still imposed by the dealer on the completion of the sale, subject to recovery by rebate at a later time, if all the conditions for the export rebate are met. - Source: Internet
- Unlike GST/HST, the LT is generally imposed directly on the registered dealer. It is not intended to be a direct tax on the consumer or end-user. The LT is imposed on the dealer at the time of the retail transaction (when the sale is completed or lease is commenced). The dealer is the “taxpayer”, unlike GST/HST where the registered dealer is a tax collection “agent” on behalf of the Federal Government for taxes payable by the dealer’s customers. - Source: Internet
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