The Final Word – Canada’s new luxury tax, explained

16 September 2022 / by Sarah Tomlinson
photo of Air Canada plane flying in sky

On the September 2 episode of The Final Word, Abby Hughes talks about Canada’s new luxury tax and how cars and boats over $100 000, and aircraft over $250 000, will be taxed an additional 10 per cent on their original sale price. She speaks with assistant economics professors Keyvan Eslami and Obeid Ur Rehman who delve into whether the federal government’s estimates make sense, why these items might be the target of a tax, and what it’ll mean for Canadians. 

As of September 1st, the federal government’s luxury tax went into effect, meaning anyone in Canada buying “selected luxury goods” — such as high-priced cars, planes and boats— will see a price increase. 

The liberal government first introduced the policy in their 2019 platform, and committed to the tax in their 2021 budget. There, they posed the tax as a way to redistribute wealth post-COVID, arguing that the pandemic widened the gap between low and high income groups. When the 2021 budget was released, the government launched a consultation with “stakeholder groups” which are luxury goods producers and consumers, ancillary service providers and interested Canadians, according to the Department of Finance.

Keyvan Eslami is an assistant professor of economics at Ryerson University who has done research in the fields of macroeconomics and public finance. He said that taxes are meant to make people realize the negative impacts their financial decisions are having on the society they live in. 

“If you want to consume 100 litres of gas a month, you have to pay this extra money for it, so that you understand the negative impact you’re having on the environment, on global warming,” he said, adding that taxes are also meant to equally spread wealth. 

However, in this case, the government is choosing to tax an action, rather than taxing a salary. In addition, this tax only applies to vessels, cars and planes intended for personal use, which means that people purchasing such luxury goods for their business will not have to pay a tax. Another exemption to the law is that retailers, importers and other kinds of people who bring in luxury cars to resell in Canada will be able to register with the government, and can thus pass along the luxury tax to the final purchaser of the item.

Obeid Ur Rehman is a professor in the Economics department at Toronto Metropolitan University. When asked why other luxury items like watches weren’t included in the policy, he said “It might play into this is that taxing these items also goes well with the sort of green energy advocates and climate change applicants.” 

The government estimates the tax on those select luxury goods will pull in over $600 million dollars over five years. Although the tax will raise the price for the luxury goods, Eslami said he doesn’t think it will affect consumer behaviour that much. 

“A lot of times people make those decisions based on the social class attached to these types of goods,” he said. 

According to the department of finance, the money collected through the luxury tax will go into the Consolidated Revenue Fund. This is a general pool of money where all kinds of taxes end up, before they’re reallocated to a wide range of government programs. However, Eslami isn’t convinced it will actually make a difference. 

“A lot of wages in Canada for a lot of people have been going down, where as for someone who was holding millions of dollars of assets, those assets have been increasing in value, partly because of inflation,” he said. 

“There definitely needs to be constant evaluation every six months to the year of essentially looking at who is actually ending up paying this be paying this tax. It will need to be adjusted at some point in time.”