There was no mention of a wealth tax in the federal budget, which was released this past week. Instead, the federal Liberals implemented a luxury tax.
The federal NDP has been advocating for months for a wealth tax. Their most recent proposal—a 1% tax on anything over $20 million—could’ve generated $70 billion over 10 years. The NDP had hoped it would fund a guaranteed livable basic income, a national dental care programme, a universal pharmacare programme, and increased housing for Indigenous people.
That wealth tax proposal was voted down by Liberal and Conservative MPs this past November, but supported by NDP and Green MPs. Which is why it’s probably not surprising that the Liberals didn’t include a wealth tax in this budget.
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What they did implement—as mentioned above—is a luxury tax.
This tax would be either 10% of the full value of a luxury car, boat, or personal aircraft or 20% of the value above a threshold ($100,000 for cars and aircraft and $250,000 for boats), whichever is less.
A $200,000 airplane, for example, would have a $40,000 luxury tax attached to it.
This new tax comes into effect next January and will increase federal revenues by about $600 million over 5 years ($140–145 million each year). That’s only 1.7% of the amount that the proposed NDP wealth tax would’ve raised during the same period.
Excluded from the tax will be motorcycles, certain off-road vehicles (e.g. ATVs vehicles and snowmobiles), racing cars (e.g., non-street legal and owned solely for on-track or off-road racing), motor homes designed to provide temporary living, sleeping, or eating accommodation for travel, vacation, seasonal camping, and off-road, construction and farm vehicles.
The federal government anticipates that this new tax will primarily affect “high income individuals (more likely male) between 30–60 years old in Ontario, Alberta, Quebec, and BC”.
Other taxes introduced by the feds include a digital services tax and foreign homeownership tax.
The digital services tax will be a temporary 3% tax on revenue from digital services that rely on data and content contributions from Canadian users. It would apply to businesses with gross global revenue of €750 million euros or more and in-scope revenue associated with Canadian users of at least $20 million. It also kicks in next January.
The government expects to bring in $3.4 billion in revenue over the first 5 of it being in effect, ranging from $700 million in the first year to $900 million in the fifth.
In contrast, Ottawa forecasts generating just under $1 trillion in personal income tax during that same 5-year period.
The tax on unproductive use of Canadian housing by foreign non-resident owners will be a 1% tax on the value of any vacant or underused residential real estate that is owned by non-residents who aren’t Canadian.
That works out to $5,000 on a property worth half a million dollars, or a little over $400 a month.
Effective next January, anyone property owner other than Canadian citizens or permanent residents of Canada must declare the current use of that property, or they face a significant penalty.
As of 2016, Canada had 65 homes sitting vacant for every 1 person who was homeless. Buying real estate without renting it out is a way to minimize costs while also increasing wealth as the property accumulates equity.
The government hopes either that this tax will motivate such property owners to start making their properties available to market demand or that they will make money off these property owners.
Ottawa anticipates that this new tax will generate $700 million over 4 years, starting with $200 million in 2022–2023 and dropping to $165 million in 2025–2026.