Luxury boat tax hits the boating industry in Canada
Luxury taxes are typically imposed on goods or services that are considered non-essential or indulgent and are often applied to high-end or luxury items such as expensive cars, jewellery, yachts and airplanes. The boating industry in Canada has been hit with the Luxury Goods Tax and was implemented by the Federal Government in September 2022. Some say the luxury boat tax will be detrimental to the boating industry in Canada.
In a market already reeling from Covid restrictions, supply chain issues and inventory shortages implementing a luxury boat tax in the current market is another way to sink the industry in Canada. Even though the industry lobbied the government, they proceeded to implement the tax even with data that indicated that it would not achieve their objectives.
History shows that when a luxury tax is implemented, it will discourage the consumers from purchasing high-end items. This affects boat manufacturers, wholesalers, retailers, brokers, dealers, and employees.
Decrease in demand driven by luxury boat taxes
For example, if a luxury boat tax leads to a decrease in demand for high-end boats and yachts, businesses in the pleasure craft industry may be forced to lay off workers, reduce production, or even go out of business, leading to job losses and a slowdown in economic activity.
A luxury tax could discourage foreign investment in the Canadian luxury industry, investors may choose to invest in countries without such taxes. This could limit growth opportunities for the industry and reduce the overall competitiveness of the Canadian economy.
he boating industry in Canada is diverse and includes a range of products and price points, from small inflatable boats to luxury yachts. impact of luxury taxes on the boating industry in Canada is complex and will depend on a variety of factors.
Liberal government to tax the “rich”
According to the Toronto Sun, Deputy Prime Minister Chrystia Freeland, stated, “I think it is entirely reasonable to say to someone who has $100,000 to spend on a car or a plane, or $250,000 to spend on a boat, ‘You need to pay a 10% tax to help everybody else.” However, history has shown this does not work for the intended revenue generation scheme. And it seems that certain industries were targeted – boats, airplanes, and high-end cars but not recreational vehicles or high-end jewelry. If someone can afford a Ulysse Nardin Freak S 45 mm watch for $186,000, should that be taxed under the luxury tax rationale? You cannot generate revenue from a watch, but you sure can contribute to the GDP by owning a boat. Owning a boat continually generates economic benefits: marina fees, fuel, staff, insurance, repairs, tourism, recreational fishing, and the list goes on. The criteria for the current Luxury Goods Tax do not make sense.
Historical statistics on luxury boat taxes
Bill Yeargin, reporting for Boating Industry Canada says, “New Zealand, Italy, Norway, Turkey, and Spain have all tried to implement luxury taxes on boats but ended up repealing them. They realized that the luxury tax had a serious negative economic impact on their country while decreasing government revenue. However, the luxury tax lesson that was clearest to me was right here where I live, in the United States.” After implementing a luxury tax in1990 over 25,000 jobs were lost. The same USA government that implemented it repealed it two years later. But by then it was too late, many businesses had already shuttered their operations.
According to the paper by Dr. Mintz – An Economic Evaluation of the Proposed Luxury Boat Tax – written in collaboration with Fred O’Riordon (National Leader, Tax Policy – EY Canada), the proposed tax would lead to a minimum $90 million decrease in revenues for boat dealers and potential job losses of at least 900 full-time equivalent employees.
We are already seeing how the September 2022 tax has affected the boat industry. At the recent boat shows in Toronto and Vancouver, there was a noticeable lack of larger boats at both shows. This is just the tip of the iceberg. More lobbying is in the works, and we encourage you to write you MP to help keep the momentum going. n the interim, here is your (What is “Coles Notes”? Coles Notes on the luxury tax on boats.
Luxury goods tax 101
There are many rules, subjects, and exemptions to the luxury tax bill. We will try to pare them down to the important information, but we advise that you do your own research or get the advice of a tax accountant.
According to the Canada Revenue Agency, this applies to the sales or importation of boats valued above $250,000. However, the luxury tax could also apply if a person leases out, uses, or has improvements made to the items that are priced or valued above the threshold.
Who must register under the Select Luxury Items Tax Act?
Any manufacturer, wholesaler, retailer, and during business you sell or import vessels (boats) priced over $250,000 is required to register with the CRA (Canada Revenue Agency).
- The luxury tax applies to boats that meet the definition of subject vessel under the Act and are priced or valued above the $250,000 price threshold unless an exemption applies.
- The boats in question are intended for leisure, recreation, or sport activities.
- The vessel has a date of manufacture after 2018.
- Examples of subject vessels include yachts, cruisers, sailboats, deck boats, waterskiing boats, and houseboats.
- Note that boats valued under $250,000 that have had upgrades or improvements may also be subject to the luxury tax
What qualifies as an exemption?
- A floating home.
- A vessel designed and equipped solely for commercial fishing.
- A vessel designed and equipped solely for ferrying passengers or vehicles.
- A vessel with sleeping facilities for more than 100 individuals who are not crew members.
How is the retail value determined?
- The fair market value (FMV) of the boat.
- The total amount of any transportation or freight fees for the transportation that is not already included in the FMV.
- The total amount of any duties, taxes, and fees (other than the GST/HST).
- The total amount of any provincial levy and other amounts imposed under an Act of the legislature of a province that is payable on the subject vessel and that is not already included in the FMV.
What is the general calculation of the luxury tax on boats?
The luxury tax is calculated using the taxable value of the boat. The tax rate is 10 percent of the total price paid or 20 percent of the price on boats valued at $250,000 or more, whichever is less. And then you will also pay GST and/orHST on the retail price plus the luxury tax. Yes, taxes on top of taxes.
Of note: The first quarterly reporting period for 2023 is January to March and filing and payment are due April 30.
Reporting and filing returns for luxury boat taxes
Filing the luxury boat tax is like how to file GST. Registered persons or vendors must report their luxury tax payable for each reporting period on Form B500, Luxury Tax and Information Return for Registrants. This form must be filed every reporting period even if they do not have luxury tax payable.
Resources for luxury boat tax
Government of Canada: Luxury tax
Boating Industry: The luxury tax myth
The Toronto Sun: Freeland bings in luxury tax
Boating Industry: NNMA explains the impact of Canadian luxury tax
Financial Post: Jack Mintz, tax the rich won’t work
Business Examiner: Proposed luxury tax on new boats will be a job killer