Dealers call Liberal pledge of 10% luxury-vehicle tax 'very concerning'

Canadian luxury vehicle dealers will have to add and explain to their customers a new 10-per-cent sales tax on new vehicles priced above $100,000 if the newly elected minority Liberal government sticks to its platform and implements the fee.

That’s “very concerning” to dealers in British Columbia, where a similar provincial tax already exists.

In a single line in the party platform, the Liberals promise to “introduce a new 10-per-cent tax on luxury cars, boats and personal aircraft over $100,000.”

But, because the party holds fewer than half the seats — 177 — in the House of Commons, implementing any budgetary measures would require support from opposing parties. However, the tax aligns with the economic philosophy of the NDP, which holds 39 seats and arguably the balance of power.

The NDP had promised to “ask the very richest multi-million millionaires to pay a bit more towards our shared services with a new one-per-cent wealth tax on wealth over $20 million.”

At a provincial level, the B.C. NDP on April 2018 raised the provincial sales tax to 15 per cent from 10 per cent on new and used vehicles priced between $125,000 and $149,999. On vehicles priced at $150,000 or more, the tax increased to 20 per cent from 10. 

Blair Qualey, head of the New Car Dealers Association of B.C., says another tax is going to hurt business — and government coffers.

“In a province where we already have a luxury tax and luxury supertax, up in those high levels, it’s very concerning,” he said of the proposal. “We’re seeing this layering of tax burdens by jurisdictions that don’t seem to be talking to one another. The burden is getting pretty difficult.”

One year after the B.C. NDP instituted the new taxes, dealers noticed fewer sales.

“Not only were the effects real, they were immediate,” Paul Killeen, customer-relations supervisor at Brian Jessel BMW in Vancouver, told Automotive News Canada in April 2019. “Watching the PST go up as high as it did ... made people think differently about how they are fiscally, and that pause is what’s really brought the market down.” 

At Ferrari-Maserati of Vancouver, General Manager Mark Edmonds said sales declines of between 15 and 20 per cent led to staff cuts.

Qualey claims tax remittance to the B.C. government by his member has fallen by a third since the implementation of the taxes.

However, the new tax also came into effect as total new-vehicle sales across the country began to fall. Monthly auto sales have declined for 19 consecutive months, according to the Automotive News Data Center in Detroit. Total luxury sales are down more than five per cent through September, according to the data centre. And, Dennis DesRosiers of DesRosiers Automotive Consultants said there is also “a glut of used luxury vehicles in the marketplace.”

Still, Qualey and his members say luxury taxes deter people from buying high-priced vehicles in B.C.

That’s because there is also the five-per-cent federal GST, bringing the total tax bill on a $150,000 car to $37,500, a full 25 per cent. 

As a result, Qualey said people who can afford high-end cars are finding ways to avoid paying additional taxes on them.

“People are creative. Those people that can afford vehicles at that level either are pretty bright folks or have surrounded themselves with pretty bright folks who can guide them in ways,” he said. “They might have a home in another jurisdiction where they can register the vehicle. They still buy it in British Columbia but don’t have to pay the tax.”

In Canada, when a non-resident of a province purchases goods or services and takes possession of them in the province, the provincial sales tax is charged.  However, there are a few exceptions, such as motor vehicles or aircraft, in some provinces.

“And the money they save in tax, they can ship the vehicle back and forth from British Columbia for many, many years; drive it in the summer and ship it back in the winter,” Qualey said. “They buy it somewhere else and we lose the tax because of that.”

Dealers also lose, he said.

“Just layering on another tax isn’t going to help the cause of our members,” Qualey said. “What continues to happen is that you don’t make additional investments, you don’t replace people who leave [your dealership], you don’t make investments in technology or training. It’s not a good situation at all.”

Qualey said he hopes the Canadian Automobile Dealers Association, which is based in Ottawa, will speak to MPs about not moving forward with the tax.

Tim Reuss, head of the association, wasn’t immediately available for comment.