man with laptop computer on sailboat

The luxury vehicle tax could bring in $779 million over five years but cause a $2.9-billion drop in sales of the vehicles over the same period, a new government report finds.

In an updated legislative costing note, the Parliamentary Budget Officer estimated the tax, which is set to take effect Sept. 1 pending parliamentary approval, would bring in less than $200 million per year for the five years ending in 2026-27.

Taxing luxury cars would make up the bulk of that five-year revenue: $572 million.

However, the PBO estimated that sales of luxury aircraft, boats and cars would drop by $2.9 billion or 15% over the five years ending in 2026-27. On a percentage basis, aircraft sales would be hardest hit, with the tax expected to result in a 24% drop in sales over the period.

In making that estimate, the PBO assumed that the luxury vehicle industry would recover from the effects of the Covid-19 pandemic this year.

The luxury vehicle tax is a measure the Liberals campaigned on in the 2019 election and was first introduced in the 2021 federal budget. Bill C-19 from the current legislative session, if passed, would enact the Select Luxury Items Tax Act, which applies to the sale of new cars and aircraft priced over $100,000, as well as new boats priced over $250,000.

The tax would be the lesser of 10% of the total price of the item and 20% of the total price of the item above the threshold. The tax will not apply when a bona fide, written purchase agreement was entered into for the item prior to 2022.

Bill C-19 has passed second reading and is being considered by the Standing Committee on Finance.