When it comes to taxes, there aren’t very many original thoughts on the subject. The same old methods, occasionally with a smear of lipstick, rise and fall with the same platitudes about why they work when they’re introduced and why they don’t work on the rare occasions when they’re pulled.
For most of us, the teeth gnashing that accompanies these measures is largely irrelevant, at least when we’re filling out our tax forms. The taxes become part of vast lexicon of economic balderdash that gives form to the contributions we almost all make and we sometimes watch being wasted with shocking skill.
But Canada’s Liberal government isn’t trying to gloss over or justify its new luxury tax on new airplanes, boats and expensive cars. The tax, which is triggered by a threshold of $100,000 for cars and planes and $250,000 for boats, will raise a paltry $614 million, barely worth mentioning in the grand scheme of things, yet it was front and center in the government’s pitch to the people who will pay the bills.
“If you’ve been lucky enough, or smart enough, or hard-working enough, to afford to spend $100,000 on a car, or $250,000 on a boat—congratulations! And thank you for contributing a little bit of that good fortune to help heal the wounds of COVID and invest in our future collective prosperity,” Finance Minister Chrystia Freeland wrote in the budget’s foreword. I think she omitted airplanes because she thinks most people can’t relate to the extravagance of actually owning an airplane.
The little swipe at the lucky, smart and hard-working folks who do choose to spend their money this way played well in the media and became the chief talking point in a budget that is clearly scrambling for revenue without upsetting the markets or putting millions of Canadians into bankruptcy.
The message is clear: COVID made us poor so we’re taxing the rich.
Without trying to sound like a whiny rich guy, something I’m unlikely to ever be, the tax is demonstrably unfair to prospective aircraft purchasers. The measure will ladle the lesser of 10 percent of the total value of the aircraft or 20 percent of the amount the price exceeds $100,000 on the purchase price and the tax addition will be taxed itself up to 13 percent with value added and sales taxes, which vary among provinces. Most aircraft for commercial service are exempt.
Other than a few gliders and ultralights, there really aren’t any new aircraft available for less than $100,000. And there are plenty of pretty ordinary cars and trucks that are getting close to that $100,000 threshold by the time the fancy rims and extended warranties are thrown in.
The $250,000 threshold for boats perhaps speaks to a better lobbying effort by the marine industry. You can get a hell of a boat for that money.
The tepid response from Canada’s alphabet groups perhaps reflects how ineffective the tax will be. Most of the buy and sell market is in used aircraft and the comparatively few folks who will buy a new SR22, Bonanza or even a 172 will either suck up the tax or register it in the U.S.
There are dozens of questions about how the tax will be applied and probably there will be loopholes big enough to fly a Baron through.
But the tax won’t go away and the Canadian government will get better at generating real income from it and that’s where the danger lies for the U.S. industry.
Canada has so far gotten away with implementing the tax (the budget survived votes it needs to pass) and will do the hard work of turning it into a money machine and you can bet the U.S. and other jurisdictions are taking notes.
If I was in the executive offices of AOPA, NBAA and EAA I’d be keeping an eye on it, too.
Because if it keeps working the way it has in Canada, it will be irresistible to that cash-hungry government to the south.
Seems to me that a version of this same game was tried in the US some years ago. The result was a resounding drop in sales of the affected luxury items resulting in job layoffs plant cutbacks and damn little tax revenue. Say what you will about rich people, they are not totally stupid, they can recognize when they are being screwed and will shift buying and investing patterns in a heartbeat. The scheme quickly faded into the oblivion which it richly deserved.
Like France, Western governments are no longer interested in GA. Making money while suppressing private aviation is a “win-win” policy for them.
We have seen this before-remember the Federal Luxury Tax on Cars, Planes, and Boats? Implemented in 1991? 10%?
The tax on aircraft and boats was dropped after 2-3 years, in part because the “Billions” in revenue expected turned out to be widely optimistic, but the car component lasted until 2001 or 2002.
I would be extremely surprised if we do not see efforts to revive this on the federal level, it’s a great sell for the politicos to be making “The rich” “Pay more of their fair share”, and at least in terms of aircraft impacts a vanishingly small number of constituents. The trick will be to set the boat and auto thresholds so high that they will also only impact a minority of voters.
Don’t blame me…I didn’t vote for the alzheimers puppet we have now. But your entire statement is true. And you can bet on this happening. Democrats love stealing money.
No amount of taxation or incentives can come close to the effects of dwindling sales and the dwindling interest and understanding that underlies it.
Of course it will turn up in the US before too long. If I was rich I would be buying used late model low-hour examples of the most popular singles in the market right now. The market prices of used almost-new airplanes will rise to comparable (pre-tax) levels of new airplanes. Sell them then and make a few bucks playing the market.
A fine example of how a government tries to soak those with money and those with money outsmart the gov’t every time. 🙂
One thing for sure,if such a tax is once again initiated in the US, the lawmakers will write in a way to exempt themselves from it.
The US will certainly follow… With our new Idiot in Chief, taxes all around will be going up. And as we have become a nation that allows this theft to continue, we will bend over and take it like we already do. When of ever will we get our country back?
Watch Fox News much?
What else do you call making a new tax “oh, just because”.
As the owner of a 50+ year old airplane I have no objection to a reasonable tax, as long as it is not computed by using an inflated valuation.
In otherwords. If it doesn’t affect you. How liberal of you….
Capital gains tax will apply. Not kidding. If you bought it for $1000 and fixed it up, and now say it is worth $201,000, you will pay income taxes on $200,000 when you sell it. Even worse, if you die, the tax is demanded on the capital gains value by who ever you leave it to immediately.
Do you miss Trump yet?
I do… very much so.
Din’t really miss Trump. Like new guy less.
Stopped watching news and falling for click bait. Don’t miss it at all. Hope that catches on and sends the scoundrels elsewhere looking for easy money.
Richard,
No you won’t. You need a better accountant.
But I still miss Trump
Another good argument for the Alternative Maximum Tax. In a survey some years back, a sizeable majority of US voters said no-one should pay more than 25% of their income in total taxes. I don’t think they have any idea how much the smart, hardworking and, yes, lucky pay in tax already.
To be clear, the Alternative Maximum Tax would mean that if you could demonstrate total taxes exceeded X% of your income, you could get a tax refund. It’s the flip side of the Alternative Minimum Tax, which allegedly makes sure that no-one pays less than a certain amount of taxes; and its purpose would be to ensure that no-one got caught in weird tax traps (such as happened during the dotcom boom when ordinary tech workers were bankrupted by tax bills on worthless stock options).
Separately, many of us are familiar with the phenomenon of receiving a property tax bill each year for our airplanes. Depending on where you live, you may look at the value the tax office assigns to your airplane and think “I wish”. So, another proposed rule of taxation really ought to be that if a tax assessor or customs agent says an asset is worth “$Y,” that needs to be an actual binding offer, giving the owner the right to say “heck, yes – sold!”
And now, back to work. The older I get, the more I feel like Boxer the horse.
“ I don’t think they have any idea how much the smart, hardworking and, yes, lucky pay in tax already.”
There’s few Americans period, that have any idea how much they pay in taxes already.
I challenge everyone to add it all up: federal income tax, State income tax, local income tax, property tax, cell phone tax, land line tax, ISP tax, fuel tax, electricity tax, heating tax, sales tax, automobile tax, rain tax…et. al…..25% is paltry nowadays.
My suggestion: Get rid of the automatic payroll detections. Make everyone write a check every April for what they owe. You’ll firstly get rid of the “I don’t pay taxes, I get back $2k every year” and secondly, Americans will have some modicum of an idea what they pay just in income taxes. That’d wake a few up.
Could I suggest one that might actually be able to be implemented in some states? Transparency in Labor Taxes.
Even the smartest among us mostly have no idea the cost of all the taxes that an employer pays based on our salaries. Not even the employers seem to know. My mom spent years in charge of payroll and couldn’t list all the taxes, fees, and charges without notes.
People think they make $20 an hour, produce $40 worth of value, and their boss is a greedy bastard. Even if they count benefits they underestimate the costs. Add in all the matching, unemployment insurance, employer shares, etc. and that $20 employee is likely a cost center and doesn’t know it.
Would really like to see employee cost added to the check stub with a list of all the greedy bureaucratic gangs out there getting a cut.
At least in the USA, the wealthy are already paying the bills. If they were to pay their fair share they’d get a huge tax cut.
Finally… someone that GETS IT….
If Warren Buffett’s secretary pays a lower tax rate than he; did it ever occur to anyone to lower the tax rate for the secretary?
If the Democrats think you have anything of value, get ready to be taxed.
I’m guessing if you own an airplane, you likely didn’t screw up in life and have many other things of value… if you bought these things years ago and they have gained value, get ready to be taxed. Even worse… we are about to be hit with massive inflation and you will be taxed the inflated value of what ever you have.
Miss Trump yet?
Simplified tax code:
How much money do you have?
Send it.
OK
1) get a base aircraft , virtually no instruments. Register as a basic.
get the Garmin, Dynon etc suite delivered to your FBO and then installed.
2) for homebuilders, get the EXP kit, do the assembly yourself or ‘assisted’, eg a Jabiru 430 as I did but many others. Get all the gear needed freighted up and get installed.
By the way, if you are a resident and citizen of Canada Im pretty sure it is not illegal to register your aircraft in the US or have a US ‘N’ number on your aircraft. I remember in the 90s the FAA was going after those planes.
The current and well used phrase we must tax the rich, make them pay their fair share, is the current political mantra. Naturally, many nod their collective heads in agreement. The “rich” is always somebody else, not any of us average citizens. The mean average income is about $62K according to 2019 figures. Using US tax Adjusted Gross Income numbers which are the figures that determine how much we pay regarding income tax, 95% of all the income taxes are indeed paid by the “rich”. Just who are the “rich”? Anybody making more than $42K AGI.
50-100K pays 14.1% of all income taxes
100-200K pays 21.7% of all income taxes
200-500K pays 20.6% of all income taxes
500K-2 Million pays 17.9% of all income taxes
and 2 million on up pays 20.4% of all income taxes
The rest of the US making 42K or less AGI pays the remaining 5%. So, the current administration’s well worn slogan of making the “rich” pay more of their fair share makes 95% of the US working class their prime tax target. Unfortunately, many here do not realize, they are the “rich” class much bandied around by our mainstream media and tax target of our political leadership. So, another round of luxury tax levies on high end products such as supercars, boats, and the ultimate sign of abhorrent luxury, the private plane will provide virtually zero tax benefits as the usual shift from domestic production will instantly go overseas as it has in the past.
But at least through these well worn shenanigans, the US perception of excessive luxury, the private plane, has moved up from the proverbial yellow, all encompassing, universally spoken by the masses Piper Cub ( spoken in a single syllable), to now an equally encompassing called universally the “private jet”. So, for all of these continuing escalating taxes, spiraling inflation, followed with the oft used phrase “making the rich pay their fair share”, my airplane impression to the masses has moved up considerably. From the ubiquitous tube and fabric high winger to a low wing, leather wrapped, faux wood ensconced, aerial, super sonic ( all jets fly faster than the speed of sound) kerosene burner…aka as the the equally ubiquitous “Learjet”…also spoken rapidly as a single syllable word. This is real progress, at least image wise, for those of us rich enough to make above $42,000 Adjusted Gross Income, still own an airplane, and are and always will be the prime tax target.
With all the state, county, local, regional, gasoline ( oops, almost forgot JET-A ), real estate, personal property taxes in additional taxes we pay combined with the fact that Cirrus, Diamond, and Piper are foreign owned, it will be an easy switch from US production to Chinese or Indian ordained locations. So, no worries here in the States about a luxury tax. Virtually all of us are “rich”.
50-100K pays 14.1% of all income taxes
100-200K pays 21.7% of all income taxes
200-500K pays 20.6% of all income taxes
500K-2 Million pays 17.9% of all income taxes
and 2 million on up pays 20.4% of all income taxes
Jim, would you happen to have the percentage of taxpayers in each of those income categories?
These sorts of taxes are well known to raise very little money and have large negative effects as jobs are lost and the price of the tax gets passed from the powerful to the less powerful. If your country is trying this stuff, it’s clear your government is out of hand.
The key is to make sure they don’t get their teeth too far into your healthcare sector. Once they do that, they got you good. It’s still recoverable though if you have access to enough firearms.
Good Luck!
Most liberals believe the myth that all pilots are rich. All the pilots I know who own an aircraft own old crappy automobiles.