TORONTO -- The federal government’s first budget in two years proposes a new tax on luxury goods such as yachts, personal aircraft and cars.

The tax would be applied to cars and personal aircraft that retail over $100,000; and boats for personal use that retail over $250,000. If the budget passes, the tax would come into effect on January 1, 2022.

The budget document estimates this measure will boost federal revenues by $604 million over five years, starting in the 2021-2022 fiscal year.

“Even as Canadians have sacrificed to keep our economy going through the pandemic, some of the wealthiest have done well,” the budget document says.

“Those who can afford to buy luxury goods can afford to pay a bit more. To that end, the government is following through on its commitment to introduce a tax on select luxury goods.”

The tax is calculated at the lesser of:

  • 20 per cent of the value above threshold ($100,000 for cars and personal aircraft; $250,000 for boats) ; or
  • 10 per cent of the full value of the luxury car, boat or personal aircraft.

The tax would affect all new passenger vehicles including sports cars, coupes, sedans, station wagons, SUVs, passenger pick-up trucks, and passenger vans and minivans that seat less than 10 people.

Motorcycles and certain off-road vehicles such as ATVs and snowmobiles, racing cars (used solely for on-track or off-road racing) and RVs are exempt from the luxury tax. Also exempt are off-road, construction and farm vehicles; certain commercial vehicles such as some trucks and cargo vans; and public sector vehicles such as buses, police cars, ambulances, and hearses.

New aircraft affected include airplanes, helicopters and gliders. Commercial aircraft and aircraft equipped to carry more than 39 passengers are exempt.

Boats affected include yachts, recreational motorboats and sailboats, although smaller personal watercraft, such as water scooters, are exempt. Cruise ships, ferries, commercial fishing vessels and floating homes will not be affected by the tax, either.

The measure is expected to bring in $34,000,000 of revenue in the 2021-2022 fiscal year, rising to $140,000,000 in 2022-2023. After 5 years, the luxury tax will bring in $604,000,000 total in revenue, the budget document projects.

Based on vehicle retail sales data, Canadians most affected by the luxury tax would be high-income people (more likely male) between 30-60 years old in Ontario, Alberta, Quebec and British Columbia, says the budget document.