Canada: Luxury tax on aircraft effective 1 September 2022

CRA guidance for businesses that may be subject to the new tax required to register as “registered vendors”

Effective 1 September 2022

The new luxury tax on certain aircraft is set to become effective 1 September 2022—the same effective date that applies to vehicles and boats included in the scope of the new tax.

Further, the Canada Revenue Agency (CRA) released guidance for businesses that may be subject to the new tax (e.g., manufacturers, wholesalers, retailers and importers of subject items) required to register as “registered vendors.”

Background

The new luxury tax applies to subject vehicles and aircraft priced over $100,000,* as well as subject boats priced over $250,000. In general, the tax will equal the lesser of:

  • 20% of the amount of the total sale price in excess of $100,000 for subject vehicles and subject aircraft and in excess of $250,000 for subject boats
  • 10% of the total sale price

However, the new tax may not apply to vehicles, boats and aircraft that are purchased by qualifying entities or that are to be used for qualifying activities.

The new tax was enacted on 23 June 2022, with an effective date of 1 September 2022 for subject vehicles and boats (subject to transitional rules), but the effective date for subject aircraft was to be fixed by order of the Governor in Council (but no earlier than 1 September 2022). Read TaxNewsFlash

Effective date for aircraft

The Governor in Council on 14 July 2022 established 1 September 2022 as the effective date for application of the new luxury tax to subject aircraft—the same effective date that applies to subject vehicles and boats.

Finance has also recently announced that it intends to release draft regulations related to the new tax to:

  • Clarify that the existing transitional rules for the new tax will continue to apply to all subject items, including aircraft
  • Relieve the new tax on sales of certain aircraft for export at the time the sale is completed by a registered vendor, even if the exportation occurs at a later time
  • Simplify and reduce the reporting requirement for certain automotive vendors

Luxury tax registrations for vendors

Businesses are generally required to register under the CRA's Luxury Tax system before selling or importing items subject to the new luxury tax. These businesses may also need to be registered prior to purchasing inventory of subject items in order for these purchases to qualify for exemption certificates and relieving of the new tax. Based on its guidance, the CRA notes that the registration application process may take up to 30 days.

In addition, the CRA notes that businesses required to register for the new tax must indicate whether they are registering for:

  • Subject vehicles
  • Subject aircraft
  • Subject boats

As a result, some businesses may have to register under more than one type of subject item. Businesses may use the new registration form L500 "Luxury Tax Registration Application" or register online.

Read a July 2022 report prepared by the KPMG member firm in Canada

*$=Canadian dollar

 

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