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, 5th floor
320 Queen Street
Ottawa ON K1A 0L5
[Client].
[Address]
ATTN: [Client]
Case Number: 9000334
October 10, 2024
Dear [Client]:
Subject: LUXURY TAX RULING
Luxury tax on a vehicle being sold with an agreement before 2022
Thank you for your letter dated [mm/dd/yyyy], concerning the application of the luxury tax on a vehicle you sold. We apologize for the delay in our response.
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:
1. [Client] is a registered vendor in respect of subject vehicles.
2. [Client] is writing the Canada Revenue Agency (CRA) on behalf of their customer, [Customer].
3. [Customer] paid [Client] a deposit in the amount of $[…] on [mm/dd/yyyy] so he could be placed on a waiting list to purchase a [subject vehicle].
4. On [mm/dd/yyyy] a list of options were made available on the [subject vehicle] are provided to the [Customer].
5. On [mm/dd/yyyy] the preliminary order on the [subject vehicle] was accepted by the manufacturer. No estimated delivery date was provided.
6. On [mm/dd/yyyy] [Customer] picks up the [subject vehicle] from the dealership.
7. Luxury tax was payable by [Client] on the sale and passed on to [Customer] as part of the purchase price.
Ruling Requested
You would like to request a ruling from the CRA on your eligibility for relief from the luxury tax on the subject vehicle you sold to [Customer].
Ruling Given
Based on the facts set out above, the sale of the subject vehicle is not eligible for the relief from the luxury tax.
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 that you sold [Customer] meets the definition of subject vehicle.
Under the Act, the vendor of the subject vehicle is generally the person who is liable for the luxury tax on the sale of a subject vehicle priced above the price threshold. Accordingly, any relief from the luxury tax is generally only available to the vendor who would have been liable for the luxury tax if the tax relief had not been available.
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. Under the transitional rules, luxury tax relief is available on the sale of a subject vehicle priced over $100,000 if a purchaser and a vendor enter into an agreement in writing before 2022, and the transfer of ownership as well as the delivery of the subject vehicle to the purchaser occurs on or after September 2022, in the course of the vendor’s business of selling subject vehicles.
An agreement in writing is generally a document detailing the agreed upon obligations of a purchaser and a vendor and is legally binding. A waiting list, in contrast, is a list of people who have asked for something that cannot be immediately provided and who must therefore wait until it is available. A waiting list is generally not recognized as an agreement in writing.
It is incumbent on the vendor to determine what documents or documentation constitutes as an agreement in writing in respect of the sale of a subject vehicle in accordance with the transitional rules. For the tax relief to apply to the sale, the vendor will need to establish that there is an agreement in writing before 2022 for the sale of a subject vehicle priced over $100,000. Otherwise, luxury tax will be payable on the sale of the subject vehicle at the time the sale is completed pursuant to section 18 of the Act.
If luxury tax is payable by the vendor, the vendor may decide to pass the cost of the luxury tax to the purchaser by including the luxury tax in the purchase price of the subject vehicle. As a tax administrator, the CRA does not regulate industry pricing of goods for consumers. If your customer has concerns relating to the purchase price of a subject vehicle, you may wish to discuss the matter with them.
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
Manager
Luxury Tax Unit
Excise Tax and Fuel Charge Division
Excise and Specialty Tax Directorate
Legislative Policy and Regulatory Affairs Branch
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