Having built a successful career or business, many high-income earners like to reward themselves by purchasing a luxury car. However, the true-cost of buying a luxury car in British Columbia can be 2 to 3 times the sticker price of the car once you consider the impact of personal income tax on your earnings, and B.C. PST and GST on the purchase price of the vehicle.
Personal Income Tax
If you are purchasing a new luxury car, then you are most likely in the top tax bracket, and the income that you will use to fund the purchase is most likely being taxed in that top bracket. The top combined Federal and Provincial personal income tax rate in B.C. is 53.50% on income in excess of $220,000.
B.C. PST
Effective Apr 01, 2018, the B.C. Government implemented a tiered rate structure for PST on the purchase of passenger vehicles. Although the general PST rate is 7% in BC, the applicable sales tax rate for the purchase of passenger vehicles depends on the purchase price of the vehicle, and on how the vehicle was acquired. Vehicles purchased from a business[1] at a purchase price of $150,000 or more are subject to a PST rate of 20%.
GST
Vehicles purchased from a business are subject to a GST rate of 5%, regardless of the purchase price of the vehicle. For technical reasons, when the PST rate exceeds 7%, GST applies to the PST payable on the purchase of the vehicle.
Income Required to buy a Luxury Car
Let’s assume that you want to purchase a new sports car from a business, and that the price of the sports car is $200,000. How much income do you have to earn to purchase the sports car?
| Income Before Income Tax | $541,935 |
| Less: Income Tax at 53.50% | $289,985 |
| Income After Tax | $252,000 |
| Purchase Price | $200,000 |
| PST (20% pf $200,000) | $40,000 |
| GST (5% of $240,000) | $12,000 |
| Total | $252,000 |
You have to earn $541,935 of income to fund the purchase (2.7 times the purchase price), and will pay total income and sales taxes of $341,935. Only 36.90% of that income actually goes towards the purchase price of the car. The remaining 63.10% is lost to income and sales taxes.
Please contact you DMCL advisor in case of questions about the true-cost of buying a luxury car in British Columbia.
[1] As opposed to in a private sale.
