That's correct.
Evidence of meeting #27 for Industry, Science and Technology in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was luxury.
A video is available from Parliament.
Evidence of meeting #27 for Industry, Science and Technology in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was luxury.
A video is available from Parliament.
1:45 p.m.
Conservative
Michael Kram Conservative Regina—Wascana, SK
This person could still sail around the Great Lakes all summer long with an American-purchased boat instead of a Canadian-purchased boat. Is that correct?
1:45 p.m.
Conservative
Michael Kram Conservative Regina—Wascana, SK
Okay, thank you for explaining it so well and so succinctly.
You also mentioned that in the 1990s, the U.S. government introduced a similar luxury tax on boats. If I understood you correctly, the U.S. government's tax revenue actually went down as a result.
Is that correct?
1:45 p.m.
President, National Marine Manufacturers Association Canada
Yes. I think the projection was that they were expecting to collect something like $24 million yearly from the luxury tax. It ended up being negative $8 million, because by the time all the job losses occurred.... One boat manufacturer went from 1,400 employees down to 80. There's the ripple effect. The luxury tax is not being collected on the sales, and now there's a huge unemployment issue in the U.S. economy, which requires employment insurance being paid to all those who lost their jobs.
1:45 p.m.
Conservative
Michael Kram Conservative Regina—Wascana, SK
All of these workers in the industry who used to pay income tax to the government are no longer paying that income tax, and the new luxury tax is not making up for the shortfall. Is that correct?
1:45 p.m.
President, National Marine Manufacturers Association Canada
That's what happened.
1:45 p.m.
Conservative
Michael Kram Conservative Regina—Wascana, SK
Was it the same case in several other countries as well? Is that what I heard in your opening statement?
1:45 p.m.
President, National Marine Manufacturers Association Canada
Yes, it was in Norway, Italy and New Zealand. There were a number of countries that attempted it to gain additional revenue for the government. In all of the cases, after 12, 18 or 24 months, they realized they were destroying their local manufacturing, the boating industry and the economy. All of it was repealed everywhere.
1:50 p.m.
Conservative
Michael Kram Conservative Regina—Wascana, SK
It was repealed everywhere because, in all of those cases, it generated negative tax dollars for the government? Is that correct?
1:50 p.m.
President, National Marine Manufacturers Association Canada
That's according to the study that we have, yes. That's correct.
1:50 p.m.
Conservative
Michael Kram Conservative Regina—Wascana, SK
You also touched on international trade agreements. If I understood you correctly, this tax would be a violation of our commitments under the new NAFTA agreement. Can you elaborate a little on why that would be?
1:50 p.m.
President, National Marine Manufacturers Association Canada
It's inadvertently a tariff. To be honest, as much as we're doing our best to protect Canadian manufacturing, about 80% of the boats that are sold in Canada are made in the United States.
If we're going to say we have free trade between our countries, but we're imposing a luxury tax on boats that are manufactured in the U.S. it's a quasi tariff. It applies similarly to our agreements with the U.K. and with the European Union. Any vessels that are imported from those regions are subject to the luxury tax, which kind of defies our trade agreements with those three partners.
1:50 p.m.
Liberal
1:50 p.m.
Liberal
Han Dong Liberal Don Valley North, ON
Thank you very much, Chair.
I want to thank all of the witnesses for coming today. These are very interesting topics.
I'm a fisherman. I have a very small fishing boat, so I have a particular interest in the boating industry. I was listening to the conversation.
Help me out here, Ms. Anghel. Do you have the number of total boats sold annually prepandemic, boats valued over $200,000? Give me a ballpark figure.
1:50 p.m.
President, National Marine Manufacturers Association Canada
I'll have to look that up for you and provide you with an exact number. About 15% to 20% of the industry is boats, vessels, valued at above $250,000.
1:50 p.m.
Liberal
1:50 p.m.
Liberal
Han Dong Liberal Don Valley North, ON
I was listening to the comparison. Can you tell us what the tax is on a boat in Minnesota? I'll use the example that my colleague just used. What's the state tax there?
1:50 p.m.
President, National Marine Manufacturers Association Canada
I'm not sure what the state tax is in Minnesota, but it's state by state. There would be whatever the sales tax—
1:50 p.m.
Liberal
Han Dong Liberal Don Valley North, ON
I just did a quick Google. It's 6.8%, and it's 6% in Florida.
For a $200,000 boat.... What's the exchange rate? Let's say it's 0.8%. That's $160,000 U.S. dollars. With 6.8% tax, that's just over $10,000. A boat owner who buys the same value of boat in Ontario today, paying 13% tax, is about $20,000 U.S. In comparison, buying a boat in Florida at 6% is $9,600 U.S.
You can see my point. There's already a significant saving in taxes for anyone to buy a boat in the U.S., without talking about the luxury tax that's proposed in this current budget.
My question is: What's the incentive for Canadian boat clients to buy a boat in Ontario right now, without the luxury tax, if you think that this tax is going to affect this choice of location in terms of buying a boat? What's the incentive for them to buy a boat right now in Canada?
1:50 p.m.
President, National Marine Manufacturers Association Canada
It's a matter of convenience as well. Obviously, it is a little more complicated, if you choose to purchase a boat in the U.S., in Florida or anywhere, to bring it here.
I think what the luxury tax will do is prompt people to deal with that inconvenience to save a significant amount of money. It was 6% or 13%, but now, all of a sudden, it's an additional 10%, plus there is HST being added to the luxury tax. I think the incentive is that, the more there is to save, the more they're willing to be inconvenienced by going to the U.S.
1:50 p.m.
Liberal
Han Dong Liberal Don Valley North, ON
By the way, in the States they have a cap on tax at $18,000 U.S., which means that for boats over $300,000, they'd be paying the same amount of tax. I'm just saying that for the small percentage that you mentioned, 15% to 20%, and for those boats at over half a million dollars, there's greater incentive right now—I'm not talking about with a luxury tax—to buy that boat in Florida, because the cap is at $18,000.
I just want your thoughts on this. Do you think a luxury tax will really have a huge impact on the sales of luxury boats in Canada?
1:55 p.m.
President, National Marine Manufacturers Association Canada
I do. There are many, many dealers around this country, from B.C. to Ontario, to Quebec, where 80% of the product that they sell is above $250,000. They are all hearing from their customers, repeat or new customers, who have clearly said, “Cancel my order if the luxury tax comes in.” It's been dragging for a little while, because we've been waiting for it to be implemented, so many orders have already been cancelled, not even with the luxury tax in place.
Add the supply chain disruption to that, and some dealers are going to have to start laying off people before the luxury tax comes in, because they don't have any supply and the luxury tax is being put on top. I do feel there will be—
1:55 p.m.
Liberal
Han Dong Liberal Don Valley North, ON
That's great. I look forward to the information you're going to offer to the committee on the sale of boats. As well, can you do a modelling of how much the gas costs would be from Minnesota to Ontario, let's say, to Thunder Bay? How much would that cost? Just give us an idea, including the travel cost. That would be very helpful.
