Canada enacted a new tax on luxury goods, raising the price of six-figure vehicles. The tax became effective on September 1 for new vehicles built after 2018 and costing more than $100,000. Boats and aircraft with fewer than 40 seats are also subject to the luxury tax, though the value threshold for those items rises to $250,000.
It is not a one-size-fits-all tax. Commercial vehicles, as well as motorhomes and anything weighing more than 8,501 pounds, are exempt from the fee (3,856 kilograms). Motorcycles and recreational vehicles such as ATVs and snowmobiles are also exempt. The tax will be levied on vehicle manufacturers and companies that sell or import them, but it will only be assessed once. That tax will presumably be passed on to the consumer.
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How much are we discussing? That is determined by the vehicle’s price. The fee is calculated using one of two methods: 10% of the total price or 20% of the difference between the price and the $100,000 threshold. The lower of the two will be used, with the 20% threshold favouring vehicles worth more than $100,000.
As an example, consider a $110,000 vehicle. A tax of 10% of the total value would be $11,000. The difference between the price and the $100,000 threshold, on the other hand, is only $10,000. Taxing that at 20% is $2,000, which is significantly less than taxing the entire enchilada. A little more basic math tells us that $200,000 is the point at which everything balances out. Aside from that, the ten percent tax on the entire vehicle is less expensive. Alternatively, you could simply purchase a GMC Hummer EV, which, at 9,000 pounds, is tax exempt.
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According to CTV News, Canadian industry groups claim the tax will result in $2.8 million in lost sales over the next five years. That figure, however, applies to all industries affected, not just automotive.
