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Boat Regulations / April 4, 2021

Luxury tax on boats: How it will impact the Canadian boating industry

The Canadian government is running an enormous deficit to support many Canadians through the Covid-19 pandemic. It is a dire situation for the younger generations to have to carry this burden. We all know that the wealthy pay a higher proportion of tax to help fund programs across our great country. But a luxury tax on boats over $250,000 will have a detrimental impact on many businesses, owners and employees. The luxury tax may not even have a net positive gain on the income tax revenues.

Worldwide history of luxury tax on boats

History shows that many customers will just simply not buy an item if it is tagged with a luxury tax. The Washington Post wrote that U.S. production of $100,000-plus yachts peaked at 16,000 in 1987 and by 2020 down to 4,250. Employment at the two North Carolina factories of the largest luxury-boat manufacturer, Hatteras, has dropped from 1,550 to 500 since 1987.

According to Boating Ontario, “Luxury taxes have backfired many times before. In the early 1990s, the U.S. introduced a similar luxury tax on boats that devastated the industry. One yacht builder went from 220 to 50 employees, another, from 95 to 8. The tax was eventually repealed…but not before destroying thousands of jobs and resulting in a net revenue loss of $8 million to the government. New Zealand, Italy, Norway, Turkey and Spain have previously introduced luxury taxes on boats, all of which were ultimately repealed due to the net-negative economic effects.”

The NMMA has research that explains how every cruiser, or yacht is its own microeconomy with spinoff economic benefits from service, storage, fuel sales and more. A $500,000 Canadian boat has a local economic impact of approximately $40,000 each year

Negative effects of luxury tax on boats

Originally, the proposed threshold was $100,000, but the lobby efforts of the NMMA were successful in moving the tax threshold up to a level where most family or cottage type boats will not be in the tax bracket, but many cruisers or keel boats will be over the threshold.

In March of 2022, the Canadian Government announced that the new luxury tax will be postponed.  The proposed luxury tax on boats over $250,000 is 10% of the full value of the boat. And will come into effect in September 1,  2022.

In Canada the luxury tax on boats may have the following impacts:

        • Drop in boat sales and revenue for Canadian companies
        • Cancellation of orders on boats over $250,000
        • Job cuts and layoffs
        • Permanent closure of businesses
        • Less inventory in the future used boat market
        • Reduced tax revenues

For consumers, it is now time to upgrade your boat if you are thinking of moving to a bigger category and if you have a pleasurecraft business, and your book of business has “luxury boats”, we encourage you to research what the luxury tax will mean to your business and bottom line.

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