If you've ever wondered why so many exotic vehicles in the United States have a Montana license plate, there's a logical explanation. Montana does not charge sales tax on new cars, so buyers can set up a shell LLC (a company that only exists on paper) there to avoid hefty taxes when they purchase six- and seven-figure vehicles. Things are much different in Canada, where high taxes fund the social democratic nation, and from next month, luxury and exotic vehicles will cost more across the country.

The Canadian government approved its 2022 tax budget, which includes a Select Luxury Items Tax Act. The new tax goes into effect on 1 September 2022 and will impact buyers of various luxury goods, including cars.

So if you're one of the 63 lucky customers who purchased a Lamborghini Sian with the matching luxury yacht, this news impacts you.

Any passenger vehicles (cars or aircraft) over $100,000 or vessels (boats) over $250,000 (and built after 2018) will be hit with a 10% on the full value. It's worth remembering that $100,000 CAD is around $77,000 USD and $250,000 CAD is approximately $195,000 USD.

Vehicles designated for off-road or racing only are not subject to the tax, nor are ambulances, hearses, and "vehicles marked for policing activities." Revenue Canada will also collect the tax retroactively on any "written sales agreements" made after January 1, 2022.

But that's not all. Buyers will be taxed 20% of the retail sale price above the $100,000 or $250,000 price threshold or 10% of the full value, whichever is lower. In the case of the aforementioned Lamborghini Sian, which costs $3.6 million, the buyer would pay $360,000 (10% of the full cost). For something less outrageously expensive, like a $150,000 Acura NSX, they would pay $10,000 (20% of $50,000) rather than $15,000 (10% of $150,000).

Opponents of the act claim it will hurt the luxury goods industry and cost valuable jobs. Proponents of the Select Luxury Items Tax believe it will raise funds from individuals who have thrived during a period of pandemic-driven uncertainty that has disproportionately hurt the middle and lower classes. "That's why it is fair today to ask those Canadians who can afford to buy luxury goods to contribute a little bit more," the government said in a statement.

Such a law would almost certainly never pass in the United States, where tax loopholes like the Montana LLC workaround exist to make it cheaper for wealthy individuals to purchase luxury goods. At the very least, our new EV tax credit bill won't be available for individuals who make over $150,000 per year.