The Canadian government first announced the Select Luxury Items Tax Act (SLITA) in the 2021 Federal Budget, and it came into effect on September 1, 2022.

The SLITA imposes a Luxury Tax on the sale, importation, and lease of subject vehicles and aircrafts valued over $100, 000, and subject vessels valued above $250, 000.

The SLITA sets out the method by which the Luxury Tax is calculated. A tax of either (1) 10% of the taxable amount of the subject item or (2) 20% of the amount by which the taxable amount of the subject item exceeds the applicable price threshold (whichever is less) is applied to subject vehicles, aircrafts and vessels that exceed the price threshold and do not qualify for an exemption.

It also provides various exemptions from the Luxury Tax for subject vehicles, vessels and aircrafts that exceed the price threshold.

For example, exempting subject aircrafts that exceed the price threshold if, at the time of transfer, they meet the definition of "qualifying subject aircrafts". A qualifying subject aircraft is defined as a subject aircraft that is "for use at least 90% of the time in Canada for qualifying flights".

Draft Regulations

The Select Luxury Items Tax Regulations were initially proposed in August 2022. To provide greater clarity, the Canadian government announced draft legislation on August 4, 2023, as part of the 2023 Federal Budget, which included updates to the earlier Regulations.

Some of the updates to the Regulations include the following:

Transitional Relief

The Draft regulations provide transitional relief in certain circumstances. The Draft regulations provide exclusions from the definitions "subject aircrafts" and "subject vessels" if they had been purchased pursuant to an agreement made prior to January 1, 2022.

Exemption Certificates

The SLITA provides that tax is not payable on the sale of a subject vehicle, aircraft, or vessel if an exemption certificate applies to the sale. The Draft regulations provide clarity to the Act by describing the circumstances where an exemption certificate would apply to the sale of a subject aircraft for export.

Partial Ownership

The Draft regulations also address sales of partial ownership of subject items. Where a vendor sells partial ownership of a subject item, the taxable amount is the sum of either the consideration for the sale of the subject item or the retail value of the subject item at the time of sale (whichever is greater), and the total value of improvements made to the subject item by the vendor.

Overall, the Draft regulations aim to provide greater clarity on the application of the SLITA.

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