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Beginning September 1, 2022 certain vessels imported into Canada will be subject to Canada's new Select Luxury Items Tax Act. This Act is a revenue generating tool for the government that is directed at affluent Canadians who can afford to purchase these luxury vessels.
The tax will be payable on subject vessels, valued at $250,000.00 CAD or more, at the lesser rate of 20% of the value above $250,000.00 CAD OR 10% of the full value of the subject vessel (inclusive of any duties payable). The tax is also payable on improvements made to subject vessels as well as leased vessels.
Under subsection 2(1) of the Act, a subject vessel is a boat, ship or craft that is designed to be used solely or partially in the water, regardless of whether it has an engine and is manufactured after 2018 that is designed or adapted for leisure, recreation or sport activities.
Specific examples of vessels that could be subject to the regulations are: sailboats, motorboats, yachts, and other pleasure crafts.
A vessel that has already been registered with a government before September 2022, is excluded from this definition, provided that possession was also transferred to the user of the vehicle before this date.
In general, the following vessels are also considered exempt from the Luxury Tax:
The tax will be payable at the lesser of 20% of the value above $250,000.00 CAD OR 10% of the full value of the boat plus any applicable duties.
Pay whichever is lesser:
10% of full value
438,000 x 10% = 43,800
20% of value above 250K
188,000 x 20% = 37,600
Amount of Luxury Tax payable: $37,600 CAD
Duties, taxes and other fees also payable at the time of importation: Duty $38,000.00, GST $23,780.00 and any service fees from your service provider.
Importers, including manufacturers, wholesalers and retailers, who are in the business of selling subject vessels in Canada are required to register with the Canada Revenue Agency (CRA) either online or by submitting an L500 application. This allows for the luxury tax payment to be deferred until the sale of the vessels to the consumer or registration of the vessels for your own use. Registrants are also required to file quarterly reports informing CRA their luxury tax payable using Form B500, Luxury Tax and Information Return for Registrants.
Registration with the CRA is not required. Payment of Luxury Tax is required, unless the written contract for the sale of the vessel was completed prior to 2022.
Penalties for failing to register when required, claiming to register when not, or non-payment of the luxury tax, depend on the infraction and range from $1,000 to 150% of the luxury tax payable.
Do you need help determining if your imports are subject to this Luxury Tax, or how much you could expect to pay to import a vessel? Contact our Trade Advisor Services for assistance.