Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and Specialty Tax Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Client]
[Client Address]
Case Number: ######
November ##, 2023
Dear [Client]:
Subject: LUXURY TAX RULING
Luxury tax on a vehicle for lease with an agreement before 2022
Thank you for your letter dated [mm/dd/yyyy], concerning the application of the luxury tax on vehicles intended for leasing in accordance with an agreement entered in writing before 2022.
All legislative references are to the Select Luxury Items Tax Act (the Act) unless otherwise specified.
Statement of Facts
From the documents that you have provided, we understand the following:
Case 1
1. A customer places an order to purchase a vehicle from a dealership and signs an agreement before January 1, 2022 under their personal name.
2. Rather than take delivery of the vehicle under their personal name, the customer takes delivery under the name of a corporation that they are the sole shareholder of.
3. Customers must place a purchase at least 12 to 36 months before actual delivery.
4. The customer has no intention of reselling the vehicle for profit.
Case 2
1. A customer places an order to purchase a vehicle from a dealership and signs an agreement before January 1, 2022 under their personal name.
2. Rather than purchasing the vehicle, the customer decides they are going to lease it from a third-party leasing company.
Case 3
1. A customer orders and signs an agreement for a vehicle under their personal name before January 1, 2022.
2. The customer will lease the vehicle from the dealership.
3. The dealership retains ownership of the vehicle.
4. The vehicle will be registered and plated under the customer’s name.
5. The lease agreement includes an option for the customer to buyout the vehicle at a price listed in the agreement.
Interpretation Requested
Case 1
You would like to request an interpretation from the Canada Revenue Agency (CRA) on whether you are required to charge the luxury tax on the sale of the vehicle.
Case 2
You would like to request an interpretation from the Canada Revenue Agency (CRA) on whether the luxury tax applies if:
a) the third-party leasing company is a luxury car dealership that has a leasing division and is also registered for the luxury tax; or,
b) the third-party leasing company is only in the business of leasing and is not registered for the luxury tax.
Case 3
You would like to request an interpretation from the Canada Revenue Agency (CRA) on whether the luxury tax needs to be charged to the customer in full at the time of the lease.
Interpretation Given
Based on the facts set out above, we provide the following rulings:
Case 1
Luxury tax is not payable on the sale of a subject vehicle that is sold by a vendor to a purchaser if the purchaser entered into an agreement in writing before 2022 with the vendor for the sale of the subject vehicle. Since the corporation in this case is not the purchaser that entered into the written agreement with the dealership, relief from the luxury tax is not available and the dealership would become liable for the luxury tax payable at the time of delivery.
Case 2
Situation a)
Luxury tax relief for written agreements made before 2022 applies to sales, but not to leases. In this case, the 3rd party leasing company, if registered, could purchase the subject vehicle from the dealership tax-free by providing an exemption certificate, however, when leased, the 3rd party leasing company will become liable for the luxury tax payable.
Situation b)
Luxury tax relief for written agreements made before 2022 applies to sales, but not to leases. In this case, the dealership will become liable for the luxury tax payable on the sale of the subject vehicle to the 3rd party leasing company.
Case 3
Luxury tax relief for written agreements made before 2022 applies to sales, but not to leases. In this case, the dealership will become liable for the luxury tax payable when the subject vehicle is leased.
Explanation
The luxury tax applies to vehicles that meet the definition of “subject vehicle” under the Act and that are priced above the $100,000 price threshold. Based on the information that you have provided, we understand that the vehicle presented in each of the above cases meets the definition of subject vehicle.
The Budget Implementation Act, 2022, No. 1, which implemented the new luxury tax, includes transitional rules to facilitate the transition to the new luxury tax regime. These rules include provisions on the tax treatment of subject vehicles where a vendor sells a subject vehicle before 2022 but the sale is not completed until after the luxury tax regime came into effect on September 1, 2022. As you are aware, luxury tax is not payable at the time the sale is completed if a purchaser and a vendor enter into a written agreement for the sale of a subject vehicle before January 1, 2022 in the course of the vendor’s business of selling subject vehicles. However, any such agreement is not transferrable from one customer to another for purposes of the transitional rules. For example, a transfer of an agreement between one legal entity to another legal entity is considered a transfer between two different customers. In addition, relief is not available to leases of subject vehicles as they do not constitute as a sale under section 7 of the Act.
Moreover, the transitional rules include separate provisions on the tax treatment of subject vehicles that are being leased. For leases, luxury tax applies to subject vehicles if the lessee first has the right to use the subject vehicle on or after September 1, 2022, regardless of the date on which a written agreement for the lease of subject vehicle was entered. For leases, tax would not apply if the lessee first had the right to use the subject vehicle before September 1, 2022. Based on the information you provided, we understand that in each case, the customer does not have the right to use before September 1, 2022.
If you require clarification with respect to any of the issues discussed in this letter, please reach me directly at 343-572-4194.
Yours truly,
Alfonso Capretta
Acting Manager
Luxury Tax Unit
Excise Tax and Fuel Charge Division
Excise and Specialty Tax Directorate
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