British Columbia

'25 per cent is a big number': B.C. luxury car dealers brace for impact of new surtax

The mood in B.C.'s auto industry has soured in the wake of the NDP government doubling the surtax on luxury cars in its 2018 budget.

'Where a consumer can go to another jurisdiction to save money, they will'

A saleswoman shows customers an Aston Martin at a luxury car dealership in Vancouver, British Columbia on October 10, 2015. (Julie Gordon/Reuters)

The mood in B.C.'s auto industry has soured in the wake of the NDP government doubling the surtax on luxury cars in its 2018 budget. 

Starting April 1, PST will go up from 10 per cent to 15 per cent on vehicles priced between $125,000 and $149,000.

Buyers shelling out more than $150,000 for a vehicle will pay 20 per cent in PST, also up from 10 per cent.

With the five per cent GST, that makes for a total of 25 per cent tax, meaning a person buying a $300,000 vehicle would pay $75,000 in taxes. 

The NDP government — which first introduced a luxury car surtax in the '90s — says the revenue will "help pay for better services for British Columbians." 

But high-end car dealers and industry observers are calling it a "punitive" tax in Canada's luxury-car mecca. 

"My phone has not stopped ringing," said Blair Qualey, president and CEO of the New Car Dealers Association of B.C., which represents nearly 400 dealerships and 36,000 workers. 

"Our members who sell in the market are gravely concerned." 

Blair Qualey, president of the New Car Dealers Association of B.C., Qualey said the province should have instead increased the threshold for the surtax. (CBC)

High demand for luxury cars

Luxury vehicles now account for one-third of automobiles sold in B.C., according to DesRosiers Automotive Consultants. 

Sales in the province have also surged in the past decade. Roughly 35,500 luxury vehicles were purchased in B.C. in 2017, a nine per cent jump from 2016. 

BMWs, Mercedes and Range Rovers are a common sight in Metro Vancouver, which boasts the highest number of luxury vehicles per capita in North America.

But local car dealers worry that affluent buyers in B.C. will now will turn to other provinces.

Ontario, which commands the second-largest share of luxury-car sales, charges 13 per cent HST. Buyers in Alberta pay five per cent GST. 

"The automotive sector is incredibly competitive. Where a consumer can go to another jurisdiction to save money, they will," Qualey said. 

'This is reckless'

Buoyed by rising sales, luxury car dealers in Vancouver have poured money into sprucing up their facilities.

Burrard Street, between 2nd and 8th Avenue, has become a hotbed for gleaming, multi-level showrooms, including the Ferrari Maserati dealership. 

General manager Mark Edmonds said he expects sales to fall, even if buyers can afford the vehicles.  

"It's a psychological thing for people. Twenty five per cent is a big number," he said.

"Maybe now they'll buy a boat instead of a car, or maybe a vacation property. ... Then the province will lose out on the sale completely." 

Luxury car parked in downtown Vancouver on a sunny January day. (David Horemans/CBC)

Vancouver's Weissach dealership, which sells luxury sports brands like Lamborghini and Bugatti, has ramped up its staffing in the past two years. But CEO Asgar Virji says the tax will affect its growth. 

"This is reckless," Virji said. "It hasn't been vetted and gone through consultation." 

Qualey, with the New Car Dealers of Association B.C., said the province should have instead increased the threshold for the surtax.

The first bracket is a one per cent surtax, plus the seven per cent PST, for vehicles priced from $55,000 to $59,999.

But Qualey said pickup trucks now cost that much.

When considering a new threshold, he pointed to the cutoff vehicle price — $77,000 — for the province's clean-energy-vehicle rebate program.

'Strategic' tax increase for the government

But the car dealers acknowledged that many British Columbians are unlikely to be sympathetic. 

"It's one of those tax increases that are kind of tough to defend," Dan Baxter, policy director with the B.C. Chamber of Commerce, said on CBC's B.C. Almanac.

"If you can afford a $150,000 vehicle, you can probably pay a little more." 

The move is part of the NDP government's strategy of resurrecting sin taxes to fund its new programs, said Hamish Telford, a political science professor at the University of the Fraser Valley.

"These are obviously strategic tax increases because they don't offend a lot of people and raise a modest amount of revenue," he said. 

With files from CBC's B.C. Almanac