From posh cars to London-made aircraft, new federal luxury tax could sting

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London’s Diamond Aircraft will be hit hard by a new luxury tax proposed by the federal government.

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London’s Diamond Aircraft will be hit hard by a new luxury tax proposed by the federal government.

The aircraft manufacturer at the London International Airport has sold more than 20 aircraft in the past 16 months to Canadian pilots, but adding a 10 per cent tax to the price may be enough to slow future orders, said chief executive Scott McFadzean.

“It is significant and we are part of the Canadian economy. We want to contribute jobs and tax revenue for years to come,” he said.

“If government taxes us heavily, there will be jobs lost across the aviation sector.”

Recently, the federal government unveiled its 2021 budget that included a new luxury tax on new cars and private aircraft valued at more than $100,000 and boats worth more than $250,000. Recreational vehicles are exempt from the tax that will apply on sales on or after Jan. 1, 2022.

The tax will amount to the lesser of either 10 per cent of the full value or 20 per cent of the value above $100,000. The tax will apply whether a vehicle is purchased, financed or leased.

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Diamond sells most of its planes to flight schools in the U.S. and overseas and those sales are exempt from the tax. But some are sold in Canada, 21 in the last 16 months. Future sales will see a 10 per cent hike. That will increase the price by about $40,000 to $175,000, depending on the plane purchased.

“We are very concerned. I got a call from a friend of mine in a glider club. These are not rich people and they will feel it,” McFadzean said. The cost of a new glider will be passed on to students and club members.

McFadzean has been having daily calls with business groups such as the Ontario Aerospace Council, Aerospace Industries Association of Canada and Canadian Business Aviation Association on what action they can take to oppose the tax.

COVID-19 has hurt commercial plane sales, but private sales have increased during the pandemic. Diamond employs about 300 workers and has plans to hire more as orders increase, but the tax may slow sales in 2022, he fears.

“I can see jobs moving to the U.S. It is not right,” he said.

Diamond manufactures three different planes: the two-seater DA20 that sells for $400,000, the four-seater DA40 ($600,000), and the $1.75 million DA62.

It did not sell any DA20s in 2020, but this year has forecast orders of 10, including to some flight schools and McFadzean hopes commercial sales are exempt from the tax, but that is not yet certain.

“We have not had anyone confirm that for us yet,” he said.

The impact of the new tax may be more widespread than aviation, with the London and region boasting boat manufacturer Kanter Marine in St. Thomas that makes yachts. The city also has a Porsche and a Maserati dealer.

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Businesses selling vintage cars, such as RM Classic Cars in Chatham, won’t be impacted as the tax is only on new vehicles.

“Our challenge at Maserati is that we don’t have a product under $100,000. It will impact consumer behaviour,” said James Bennett, owner of Maserati of London and the Oxford Dodge Chrysler dealership.

“We are anticipating a 40 to 50 per cent drop in sales. That is significant. It means sales people will not make a sale, technicians will miss work.”

He may have to focus on selling used Maserati, just below the $100,000 total.

“I sell one model over $200,000 and I have an order for it. My customer is reconsidering that,” said Bennett. “It is poor policy. It is playing to a certain message they are taxing the wealthy.”

His dealership also sells Alfa Romeo. He has about 20 Maserati on the lot with another six on order, he said. In 2020 he sold about 60 of the high-end Italian sports cars to drivers from Toronto to Windsor.

“We will be busy this year, people want to avoid the tax. Next year will be a challenge for sure.”

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