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: ######
August ##, 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 a vehicle that you intend to lease in accordance with an agreement entered in writing before 2022. 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. On [mm/dd/yyyy], you and vendor agreed to an offer to lease a new 2022 model vehicle priced over $100,000 (the initial vehicle).
2. The lease is for a term of […] months.
3. You understand the delivery of the vehicle that you intend to lease was delayed several times due to the Manufacture’s internal issues.
4. You understand the expected delivery date is [mm/dd/yyyy].
5. You understand that the dealership is changing the initial offer to lease to include the Federal Luxury Tax.
Ruling Requested
It is your understanding that you have entered into an agreement in writing with the vendor before January 1, 2022 with the intention to lease a new vehicle priced over $100,000. As such, you understand that the vendor should not be including the cost of the luxury tax in the price of the vehicle that you intend to lease.
You would like to request a ruling from the Canada Revenue Agency (CRA) on your eligibility for relief from the luxury tax on the vehicle that you are leasing.
Ruling Given
Based on the facts set out above, we rule that you are not eligible for relief from the luxury tax on the vehicle that you are leasing.
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 intend to lease 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, this 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 you did not first have the right to use before September 1, 2022 as the expected delivery date is September 21, 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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