Federal budget 2021: Ottawa proposes luxury tax on pricey cars, boats, planes

OTTAWA — A luxury car or expensive boat will soon cost more thanks to a new tax proposed in Monday's federal budget, which also raises taxes on tobacco and looks to put a little more money in the wallets of older and low-income Canadians.

Starting Jan. 1, Ottawa plans to charge a luxury tax on new cars and personal aircraft priced over $100,000, and boats, for personal use, priced over $250,000.

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Federal Finance Minister Chrystia Freeland said it is fair to ask those who have prospered in this bleak year to do a little more for those who still need help.

"That is why we are introducing a luxury tax," Freeland said in the prepared text of her speech.

"This budget lives up to our promise to do whatever it takes to support Canadians in the fight against COVID, and it makes significant investments in our future. All of this costs a lot of money."

The Liberals promised a luxury tax in their 2019 campaign platform.

The new tax will be calculated as 20 per cent of the value above the threshold or 10 per cent of the full value of the luxury car, boat, or personal aircraft, whichever is lower. The GST/HST would apply to the final sale price, inclusive of the proposed tax.

The proposed rules would exempt motorcycles and certain off-road vehicles, such as all-terrain vehicles and snowmobiles, as well as motor homes.

Tim Reuss, president and CEO of the Canadian Automobile Dealers Association, said he was disappointed with the proposed tax.

"The people that will be hurt the most by this are repair technicians and small businesses," Reuss said in a statement.

NDP Finance critic Peter Julian said the NDP supports the idea of a luxury tax, but that the Liberals should have instituted a so-called wealth tax that taxes someone's total assets rather than a specific purchase.

"I think Canadians are questioning why the prime minister is so opposed to the ultra-wealthy paying their fair share," Julian said.

"A luxury tax is not a bad idea, but it is so small in terms of the challenges that Canada is facing."

Smokers are also going to pay more under the budget.

The budget increases the tobacco excise duty rate by $4 per carton of 200 cigarettes, along with corresponding increases on other tobacco products. The measure takes effect on Tuesday.

However, there are more than tax increases in the budget.

The Liberals want to put more money in the pockets of older Canadians with an increased Old Age Security payment for those 75 and older.

In addition to a proposed one-time payment of $500 in August to OAS pensioners who will be 75 or older as of June 2022, Ottawa says it will increase OAS payments for those over 75 by 10 per cent on an ongoing basis.

Low-wage workers also stand to benefit from changes to the Canada Workers Benefit that extend income top-ups to about a million more Canadians.

Ottawa wants to change the rules so that Canadians can earn more before the benefit starts being reduced such that for the first time, most full-time workers earning minimum wage will receive significant support from the benefit.

The government also wants to extend the Canada Recovery Benefit, which was created to help Canadians not covered by employment insurance, to provide an additional 12 weeks of benefits to a maximum of 50 weeks, and extend the Canada Recovery Caregiving Benefit by an additional four weeks, to a maximum of 42 weeks.

This report by The Canadian Press was first published April 19, 2021.

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