How will Canada’s new luxury tax on boats affect you?

If you’ve been eyeing a new boat for the cottage and are worried that the new luxury tax is going to scuttle the deal, take heart. Depending on what’s on your wish list, your new boat may not even be affected. On April 19, the federal government put forth their 2021 budget and announced a luxury tax on the retail sale of new boats priced over $250,000. The new tax affects recreational powerboats, sailboats, and yachts (personal watercraft and floating homes are exempt). It also applies to new imported boats.

Though pricing varies greatly by make and model, cottage-type boats likely to retail for more than $250,000 include high end wake and tow boats (e.g., 25-foot Super Air Nautique) and center console offshore fishing boats (e.g., 28-foot Boston Whaler). It’s worth noting that there are many high-quality boats in both of these categories that cost less than $250,000. Cabin cruisers, power cruisers, and motor yachts, many of which cost over $250,000, will also be affected by the tax. These boats are popular in places like Georgian Bay, Ontario and have sleeping, cooking, and bathroom accommodations for overnighting or going on extended cruises. The prices reflect the added amenities, starting at $100,000 and running into the millions.

In practice, the tax would be calculated as the lesser of 10 per cent of the full value of the boat or 20 per cent of the value above $250,000. So, for instance, a $350,000 power cruiser would be charged $20,00 in luxury tax. GST/HST is applied to the final sales price (including the luxury tax). In Ontario, for example, the buyer would pay additional HST of $2,600 ($20,000 X 13 per cent).

From the government’s perspective, if you can afford a yacht–or any boat over $250,000–then you can afford to pay a little more tax on it.“If you’ve been lucky enough, or smart enough, or hard-working enough, to afford to spend $100,000 on a car, or $250,000 on a boat – congratulations!” wrote Finance Minister, Chrystia Freeland, in the budget’s forward, “And thank you for contributing a little bit of that good fortune to help heal the wounds of COVID and invest in our future collective prosperity.”

Industry advocates, like National Marine Manufacturers Association (NMMA) Canada, are concerned about the negative impact the luxury tax will have on boaters, dealers, and small communities with boating economies. “We are ready to work with the government to find new ways to generate revenue,” said Sara Anghel, NMMA Canada CEO, “But we simply can’t support a new tax that would severely damage the boating industry, put thousands of good jobs at risk, and potentially put government finances further into the red.” According to NMMA Canada analysis the impact would include an 18-22 per cent drop in sales volume and losses of $543 million to $670 million for businesses in the recreational boating sector. The part of the budget containing the luxury tax won’t be tabled until the fall and, in the meantime, Anghel plans to fight for amendments and removal. She encourages concerned cottagers to reach out to their local MPs on this issue.

For those eagerly anticipating the delivery of their new boats this summer, there’s no need to worry. The luxury tax comes into effect January 1, 2022.

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