Ottawa’s luxury tax on high-priced cars, planes and boats takes effect today, despite warnings from some critics that the measure will hurt the economy and prove more problematic than it not worth it.
Beginning Thursday, the tax will apply to personal cars and planes priced above $100,000 and personal-use boats priced over $250,000.
The one-time sales tax will be either 20% of the vehicle’s value above this threshold or 10% of the total value, whichever is lower.
The measure received final approval last June and is expected to generate $163 million in new revenue per year.
Deputy Prime Minister and Finance Minister Chrystia Freeland defended the tax on Wednesday on the eve of its launch after touring a transportation facility in Calgary.
She cited the vast sums Ottawa has spent “to keep Canadians healthy and safe and to keep the economy going” during the COVID-19 pandemic before specifically mentioning the new tax.
“I think it’s quite reasonable to say to someone who has $100,000 to spend on a car or an airplane, or $250,000 to spend on a boat, ‘You have to pay a 10% tax to help everyone,'” Freeland said. at a press conference after his tour.
“I think it’s great for Canadians to be successful. It’s great for Canadians to be successful. I also think people who are doing really well should feel comfortable supporting others. .”
Companies ask: why not RVs too?
Mark Delaney is a sales and marketing manager at a company in Vernon, British Columbia, that builds boats worth up to $500,000. He said the tax would undermine a boom in boat sales that began when people were stuck at home during COVID-19 shutdowns.
Delaney said the tax comes at a time when inflation is driving up the cost of parts for boats. He warned the measure would hurt tourism businesses and could make buyers, many of whom are business owners themselves, think twice before buying.
Starting this week, if you buy an expensive boat, plane or car in Canada, the federal government says you can afford to pay more. But critics of the tax say it could hurt the economy without bringing much benefit.
“They feel like they’ve paid more than their fair share of payroll taxes and everything they do every day in their business,” Delaney said. “And so being hit…with this tax is certainly not showing us very well to the customer.”
Delaney and Pat Sturgeon, who sell sailboats costing up to $700,000 in Mississauga, said it was unfair that other big-ticket items, such as recreational vehicles, weren’t also hit by the tax.
“A lot of my clients aren’t necessarily high net worth clients. In fact, most of them are just regular people trying to fulfill a dream,” Sturgeon said.
“The only thing I hope is that the government finds out that this tax doesn’t work, that it doesn’t create more revenue, that it actually costs them more money, that they will end up delete it.”
Taxing a ‘loaded approach’: Economist
Don Drummond, former federal assistant deputy minister for fiscal policy and former chief economist at TD Bank, said the tax could spawn “cottage industries” around people who try to circumvent it.
“Whatever you define as the threshold of a boat or any other luxury item, someone will do something to circumvent it,” Drummond said. “It’s a waste of time for consumers. And it’s a waste of time for tax officials.”
The luxury tax will be a tough sell, he said, because unlike a tobacco tax, it is not aimed at improving health outcomes. And there are already mechanisms to tax the rich, Drummond added.
“It’s not like these items are particularly dangerous to individuals or society,” he said of the high-priced boats, cars and planes.
“The marginal tax rate for high-income individuals is already over 50%. If you wanted 60% or 70%, that would be the right way to go.
“But [the luxury tax] is a loaded approach. It’s not just about saying, “We want the better off to pay more taxes. We’re saying we want them to pay more tax on very specific things, even if they’re not all luxuries.”
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