The Liberals’ new luxury tax, which applies to the sale of new luxury vehicles and aircraft priced over $100,000 and boats with a price of over $250,000, will end up eliminating 400 to 870 full-time jobs, according to a finance department report.
“A Study on the Potential Economic Impacts of the Select Luxury Items Tax Act” said the tax will have a direct effect on Canada’s gross domestic product (GDP), a measure of a country’s economy, according to an internal federal finance department report dated March 2023.
The Finance Department acknowledged a request to provide a copy of the report, but said that “with the rush of the federal budget release on our tails, our team of experts is currently dealing with a much higher-than-average level of calls and inquiries.” The government promised a response the next day, but did not follow through.
The Epoch Times obtained the report independently from an economist associated with the Canadian Automobile Dealers Association.
The government report warns that while the stated objective of the Select Luxury Items Tax (LT) is to ensure the wealthy contribute “slightly more” to the tax system, “raising revenues to finance government expenditures creates an efficiency loss in the economy.”
Lower GDP
“Estimates suggest that the introduction of the LT could lower total Canadian GDP by between $58 million and $125 million,” said the report. It predicted a decline in GDP ranging from $19 million to $31 million for the Canadian automobile sector, with job losses mainly affecting those working in luxury vehicle retail positions.Boats and vessels are predicted to be most affected by the tax, with a GDP loss of $5 million to $16 million for the boat retail sector, and another $3 million to $9 million for the vessel manufacturing sector.
The aerospace industry in Canada will see declines of between $2 million and $4 million as a result of the luxury tax on aircraft, the report predicted.
The tax applies to any new passenger vehicle priced over $100,000 but generally does not apply to a used, previously registered vehicle, off-road and farm vehicles, and heavy-duty vehicles weighing more than 3,856 kilograms. Buses, police cars, and ambulances, as well as hearses, are exempt from the tax.
If a vessel or aircraft is subject to 90 percent or higher use in certain business activities, it may be exempt from the tax.
The government predicts it will bring in revenues of $75 million for the 2022–23 year, and $135 million for the 2023–24 fiscal year. Over a five-year period ending in 2026–27, the government will take in $630 million, the finance report indicates.
The luxury tax is also part of the consideration for calculating the goods and services tax, and that will bring in revenues of $5 million annually, and $24 million in total by 2026–27, indicates the report.
Luxury vehicles, by far, will account for the highest amount of revenue to fund government spending, at 70 percent of the total, about $95 million in 2023–24. By 2023–24, vessel tax will provide the government with $30 million, and aircraft will contribute another $10 million.
The report notes that the budget revenues are estimates, which assume customers will reduce their spending on these goods as a result of the high tax rate.
The report said the impact of the luxury tax on overall economic activity will depend on how consumers respond to higher prices. They may purchase a less expensive item to avoid the tax, purchase a different type of item not subject to the tax, or purchase nothing, suggests the report.
It notes that evidence on how customers change their behaviour is limited, especially when it comes to luxury cars, planes, and boats. The report said there was no evidence regarding the potential behavioural response from taxing privately-owned aircraft.
