Luxury tax will kill jobs and cost Canadian business billions, committee hearsJune 9, 2022
Upcoming ‘toy tax’ looks good on paper, industry says, but Canada’s fragile aerospace industry is already feeling the pain
Published Jun 08, 2022
Canada’s aerospace industry is urging the Trudeau Liberals to reconsider plans to impose a luxury tax, describing it as a move to score easy political points at the expense of billions in lost business and thousands of Canadian jobs.
Testifying before the Senate national finance committee, Aerospace Industries Association of Canada (AIAC) president and CEO Mike Mueller described the move as a tax on Canadian manufacturing and a devastating blow to an already crippled aerospace industry.
“Despite perhaps being well-intentioned, this tax, as currently drafted, will penalize manufacturers and Canadian workers,” Mueller said.
“This is a tax on manufacturing, this new tax will render Canadian manufacturers less competitive, directly translating into lost business and even more lost jobs.”
Estimates on losses, Mueller said, could reach as high as a thousand lost jobs, and potentially over a billion dollars in lost business by firms across Canada.
Part of last year’s federal budget, taxing high-ticket cars, boats and planes will generate just under $780 million in new tax revenue over five years, according to a Parliamentary Budget Officer (PBO) costing note released last month.
That same note warned that imposing a luxury tax would actually constrict both domestic manufacture and sales of such goods, and would end up costing Canada’s economy around $2.8 billion over the same period.
“These are substantial losses, and that’s in addition to the 30,000 jobs lost through the pandemic for this industry.”
The tax, expected to come into effect on Sept. 1, will be levied on importers and manufacturers the moment the finished product is completed or arrives on Canadian soil.
The tax applies to either 10 per cent of the total post-tax purchase price, or 20 per cent of value over a certain threshold, whichever is lesser.
Those thresholds are set at $100,000 for new ground vehicles and aircraft, and $250,000 for new boats and yachts.
Worth around $7.5 million, a new Cessna Citation Jet would leave the importer on the hook for $750,000 the instant the aircraft arrived in Canada — regardless if it had a buyer or not.
Companies of all sizes stand to lose out on this tax, Mueller explained — and that’s even before it comes into force.
“We are told that some manufacturers are already experiencing order cancellations,” he said.
“This will put industry at a significant disadvantage compared to our international competitors.”
The industry got an uncertain reprieve Tuesday after the House of Commons adopted an NDP motion tabled by Elmwood-Transcona MP Daniel Blaikie, delaying implementation of aircraft levies until an undetermined time, but no earlier than Sept. 1.
With both the 2021 and 2022 budgets weighed down with costly support and bail-outs for pandemic-wracked businesses, Mueller said it makes no sense to include something so damaging to Canadian manufacturers as a luxury tax.
Sara Anghel, president of the National Marine Manufacturers Association, agreed with Mueller that a luxury tax would likewise inflict serious damage on Canada’s boatbuilding industry.
“The history of luxury taxes shows that consumers will simply take their discretionary spending elsewhere,” she said.
The tax, she said, would be easy for consumers to avoid — simply by purchasing and docking their boats outside of Canada.
Attempts by other countries to impose luxury taxes have been met with mixed results.
In 1991, former U.S. President George H.W. Bush signed a luxury tax into law passed by Congress that November.
The American luxury tax placed a 10 per cent levy on furs and jewellery costing more than $10,000, cars over $30,000, boats over $100,000, and aircraft with price tags greater than $250,000.
Despite promising revenue of over $9 billion over five years, America’s luxury tax only lasted two years.
Heavy job losses and lobbying by America’s ship and boat building industry prompted President Bill Clinton to repeal the tax in 1993.