On April 19, 2021, the Canadian federal government announced a proposed luxury tax on certain aircraft, cars and boats (the Proposed Luxury Tax). The Proposed Luxury Tax has not yet come into force but the legislation setting out its details is expected to be released in early 2022. The following is an overview of the Proposed Luxury Tax:

Specified Aircraft

The Proposed Luxury Tax would apply to aircraft (airplanes, helicopters and gliders) that meet the following conditions (Specified Aircraft):

  • manufactured after 2018;
  • total price (including charges and fees, but excluding applicable GST/HST or provincial sales tax) upon delivery or total value (as determined for the purposes of calculating GST/HST on imported goods) upon importation into Canada exceeding C$100,000; and
  • certified maximum carrying capacity of less than 40 seats.

A Specified Aircraft could still be exempt from the Proposed Luxury Tax if (i) it has been acquired by a "qualifying user" such as police or fire departments, hospitals, municipalities, Indigenous governing bodies and Crown entities, or (ii) if the purchaser or importer certifies that "all or substantially all" of the aircraft's use will be a "qualifying exempt activity", which includes commercial passenger service to the general public, flights to and from remote, fly-in communities, cargo flights, air ambulance service, aerial fire-fighting service, flight training service and certain other specified aerial services. Any future sales to non-"qualifying users" and for uses other than "qualifying exempt activities" would be subject to the Proposed Luxury Tax.

Application and Calculation of Tax

If the proposed legislation passes into law, the Proposed Luxury Tax would apply to the delivery or importation of any Specified Aircraft in Canada on or after January 1, 2022, except for deliveries or importations that were agreed to in writing prior to April 20, 2021.
Owners or importers would also be required to self-assess and remit the Proposed Luxury Tax if modifications (other than accessibility modifications) are made to aircraft within 12 months of delivery or importation where the total price paid for such modifications exceeds C$5,000 and the cost of such modification plus the total price or total value, as applicable, exceeds C$100,000.
The Proposed Luxury Tax is calculated as the lesser of:

  • 20 per cent of the total price or import value of the Specified Aircraft that is above C$100,000; and
  • 10 per cent of the sale price or import value of the Specified Aircraft.

For deliveries in Canada, in most situations, the registered vendor that delivers the Specified Aircraft would be responsible for withholding and remitting the Proposed Luxury Tax to the Canada Revenue Agency. For importations of Specified Aircraft by non-registered importers, the Proposed Luxury Tax would be payable at the border to the Canada Border Services Agency by such non-registered importer at the time of importation. Exports of Specified Aircraft are not subject to the Proposed Luxury Tax.
The Proposed Luxury Tax would not apply to leases of Specified Aircraft in Canada, since leasing an aircraft is not considered a delivery for the purposes of the Proposed Luxury Tax regime.
Stakeholders and interested members of the public were asked to provide feedback to the Department of Finance during a public engagement process that ran from August 10, 2021 to December 2, 2021. We will provide an update should this legislation come into effect.

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