On September 1, 2022, the Canadian Select Luxury Items Tax Act¹ was enacted.² This new legislation provides a tax on certain vehicles, aircraft and boats (Luxury Tax). The Luxury Tax was first proposed in the 2021 Canadian Federal Budget³ and targets “those who can afford to buy luxury goods”.⁴

The Luxury Tax applies in certain circumstances, including the sale, importation and lease of subject vehicles and subject aircrafts valued over CA$100,000, as well as subject boats valued over CA$250,000.

There are multiple exemptions to the application of the Luxury Tax. For example, the Luxury Tax generally does not apply in respect of the sale, the importation or the lease of a “qualifying subject aircraft”,⁵ which means an aircraft that is used at least 90% of the time for “qualifying flights.” It is important to note that the past use of the aircraft by the owner will affect the qualification of the aircraft as a “qualifying subject aircraft.”

Multiple events may give rise to the application of the Luxury Tax with respect to a subject item while it has the same owner. As an example, if an owner is subject to the Luxury Tax at the time of the importation of a subject aircraft, they may benefit from an exemption if the subject aircraft qualifies as a “qualifying subject aircraft” on the basis of the use that the owner intends to make of it. If, eventually, the subject aircraft starts being rented, the Luxury Tax may then apply.

Owners or potential owners of subject aircrafts may erroneously believe that the Luxury Tax does not apply where a subject aircraft is intended to be used for flights conducted in the course of their business (e.g. the business of leasing subject aircrafts). The exemptions required multiple conditions to be met, and so, despite the fact that the subject aircraft is intended to be used in a commercial setting. As an example, one of the conditions for a flight to qualify as a “qualifying flight” is that the flight be conducted in the course of a business of an owner of the subject aircraft  and otherwise than for the leisure, recreation, sport or other enjoyment of another person that has the right to use the subject aircraft under a lease, licence or similar arrangement. In other words, if the owner of a subject aircraft runs a business which includes the leasing of the aircraft to clients who use it for leisure (e.g.  hunting), then the flights could fail to qualify as “qualifying flights” and in such a case the subject aircraft would not qualify as a “qualifying subject aircraft,” causing for the Luxury Tax to apply.

Transactions concerning subject items must be carefully planned. The Luxury Tax framework is complex and taxpayers who seek to properly understand the impacts of the Luxury Tax on their activities should therefore seek legal advice.

For further information, please contact authors Emmanuel Sala, Shereen Cook or Victor Qian.

1. An Act Respecting the Taxation of Select Luxury Items, Statutes of Canada 2022, chapter 10, section 135.↩
2. The SLITA was enacted by subsection 135(1) of Bill C-19 - An Act to implement certain provisions of the budget tabled in Parliament on April 7, 2022 and other measures, which received Royal Assent on June 23, 2022 [“Bill C-19”], which, pursuant to subsection 135(2) of Bill C-19, comes into force, or is deemed to have come into force, on September 1, 2022. ↩
3. Budget 2021 – A Recovery Plan for Jobs, Growth and Resilience, released by the Department of Finance of Canada on April 19, 2021 [“Budget 2021”].↩
4. See page 304 of Budget 2021 and page 6072 of the House of Commons Debates’ Official Report (Hansard), 44th Parliament, 1st Session, Volume 151, No. 080, June 2, 2022.↩
5. In the case of the importation of a “qualifying subject aircraft,” a “special import certificate” must be obtained by the person that intends to import the “qualifying subject aircraft” in order to be exempt from the Luxury Tax.↩