On March 11, 2022, the draft legislative proposals relating to the Select Luxury Items Tax Act (the "Act") were released for public comment. This new luxury tax was first announced in the 2021 Federal Budget, with a detailed backgrounder released on August 10, 2021. The luxury tax was originally expected to be effective January 1, 2022, but was delayed and is now expected to come into effect on September 1, 2022.
The Act is a stand-alone piece of new legislation. As its name implies, it imposes a tax on the sale (or importation) of certain luxury goods - passenger vehicles and personal aircraft with a value of over $100,000, and boats over $250,000, manufactured after 2018. More specifically, the luxury tax is imposed on "subject aircrafts," "subject vehicles," and "subject vessels," which are each defined in the Act. It will be important for vendors to have a clear understanding of whether their inventory of vehicles, aircrafts, or boats fall within these definitions. Vendors will also need to continually monitor for any changes to the applicable regulations, as they may introduce additional types of aircrafts, vehicles, and boats that become subject to the tax.
The luxury tax is computed as the lesser of 20% of the value above the threshold (being $100,000 for passenger vehicles and aircraft, and over $250,000 for boats) or 10% of the full value of the luxury good. The liability for the luxury tax is generally imposed on the retailer, but it is expected that a retailer would pass this cost on to the purchaser or lessee, as the case may be.
The draft legislation includes registration rules that will require a vendor of these luxury goods (referred to in the Act as "subject items"), such as manufacturers, distributors, and retailers, to register under the Act. Self-assessment rules may apply where a registered person that both sells and leases subject items transfers a subject item from inventory to a leased asset.
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