News and Insights

Tax Alert | Canada’s Luxury Tax Arrives

Tax Development Sep 01, 2022

The Government of Canada has introduced a new Luxury Tax that takes effect on September 1, 2022. Originally announced in the 2021 federal budget, this tax applies to most new vehicles and certain personal-use aircraft with before-tax selling prices over $100,000, as well as recreational boats with before-tax selling prices exceeding $250,000. While consumers of high-end cars and boats (and most aircraft) will undoubtedly see the cost of their purchases increase because of the Luxury Tax, manufacturers and vendors of these products are also impacted by new registration and compliance requirements. 

Registration Required

The Luxury Tax has its own tax regime, including specific rules for registration, administration, and enforcement.1 Manufacturers, wholesalers, retailers, and importers that sell or import subject vehicles, aircraft, or boats priced above the relevant thresholds as part of their business activities are required to register under the Select Luxury Items Tax Act on or before the day on which they first import or sell a taxable item.

Registering for the Luxury Tax in advance of any taxable sales or imports offers the advantage of permitting an organization to obtain and hold a tax-free inventory of subject items.  Registration can be completed through the Luxury tax registration page provided by the Canada Revenue Agency (CRA). 

Liability for Tax

The Luxury Tax was initially slated to take effect on January 1, 2022, but implementation was delayed until September 1, 2022, in part to allow for the drafting of the legislation and public consultation. The resulting tax regime is similar in structure to many Canadian excise taxes. 

Liability for tax generally rests with the last person registered under the legislation that delivers a taxable item by way of sale to an unregistered person (i.e., a consumer) in Canada. Luxury Tax also applies to imports of taxable items by unregistered persons and will be collected by the Canada Border Services Agency (CBSA) at the time of import.

Luxury Tax does not apply to supplies of taxable items between registrants under the legislation, such as when a manufacturer sells subject goods to a wholesaler or retailer. It also doesn’t apply to exports. In addition, Luxury Tax does not apply to an otherwise taxable item if a written sales agreement in respect of that item was entered into before January 1, 2022.

Lessors acquiring taxable items are considered consumers for Luxury Tax purposes and, as such, will not be permitted to register under the system unless they also make supplies by way of sale of taxable items. As a result, lessors will typically acquire taxable items on a tax-included basis and will not account for the Luxury Tax on lease charges. In addition, lessors are required to self-assess tax on any items removed from a tax-free inventory for their own use or for the purpose of transferring physical possession of the item to a lessee in Canada.  

Taxable Items

Vehicles, aircraft, and boats subject to Luxury Tax are referred to as “subject items” in the legislation and occasionally as “select goods,” “select items,” or “specified items” in other publications. Regardless of the terminology used, to be considered a subject item, a good must be specified as taxable and exceed the relevant price threshold. As the intent is to tax luxury goods for personal use rather than commercial items, long lists of exclusions and exemptions are incorporated into the legislation.


For Luxury Tax purposes, subject items include all vehicles that:

  • Have a price in excess of $100,000;
  • Are equipped to carry less than 10 passengers;
  • Have a gross vehicle weight rating of 3,856 kilograms or less; and
  • Were manufactured after 2018.

This includes most passenger cars, vans, SUVs, and pick-up trucks that exceed the $100,000 price threshold. However, certain vehicles are excluded from being subject to Luxury Tax, including:

  • Ambulances, police cars, fire trucks, and other vehicles equipped for emergency-response activities;
  • Certain agricultural vehicles, such as combine harvesters;
  • Vehicles equipped for military activities;
  • Recreational vehicles, such as motorcycles, snowmobiles, motor homes, racing cars, and all-terrain vehicles not licensed for road use; and
  • Hearses.

Vehicles previously registered with a motor vehicle authority in Canada (i.e., used vehicles), unless required in connection with the delivery or importation of the vehicle, are generally not subject to Luxury Tax.


Aircraft specified as subject items include any airplane, helicopter, or glider with a:

  • Price in excess of $100,000;
  • Certified maximum carrying capacity of less than 40 seats; and
  • Manufacture date after 2018.

Exclusions are in place for aircraft designed exclusively to transport cargo or engage in military activities. Certain non-registered persons can also acquire or import otherwise specified aircraft exempt from Luxury Tax, subject to providing proper certification, including police and fire departments, hospitals, and federal, provincial, and municipal governments.

In addition, conditional exemptions are available for aircraft acquired or imported for designated uses, provided that the person certifies that the aircraft will be used all or substantially all (90% or more) in qualifying activities, including:

  • Public transportation and charter services;
  • Cargo transportation;
  • Flight training services;
  • Emergency services, such as air ambulance, firefighting, and search and rescue operations;
  • Construction and survey services; and
  • Aerial spraying and spreading services.

Relief is also provided for sales of certain aircraft intended to be exported at the time the sale is completed, even where actual export occurs later.


Subject items include boats that are:

  • Priced in excess of $250,000;
  • Designed for leisure, recreation, or sport; and
  • Manufactured after 2018.

This definition captures most types of recreational boats, including yachts, motorboats, and sailboats. However, floating homes and any vessel designed for commercial activities are excluded. For example, commercial fishing vessels, ferries, and cruise ships are not subject to Luxury Tax. An exemption is also available for otherwise taxable boats where the purchaser certifies that 90% or more of the use will be in activities not related to sport, recreation, or leisure.

The Thresholds

The Luxury Tax price thresholds for subject items are generally calculated on the total selling price before the application of GST/HST, QST, or PST. All other excise taxes and duties paid in respect of the delivery or importation of a subject item are included in the total price for threshold purposes. Any deductions for trade-ins or down payments do not affect the total price for calculation of the relevant threshold amount.

Amounts paid for modifications acquired from the same registered vendor in relation to the delivery of a select good are generally included in the total price for threshold purposes and subject to Luxury Tax. Where such modifications are purchased after the time of delivery or importation of a select good, self-assessment of Luxury Tax is required if the modifications are made or installed within 12 months of the transfer of physical possession to the purchaser or the date of importation and the total amount paid for all modifications is $5,000 or more. 

However, after-sale improvements acquired separately for a vehicle, aircraft, or boat originally purchased for a price below the applicable threshold are not subject to tax. Consequently, a purchaser is not required to self-assess Luxury Tax on either the total price of an item or the price of any modifications because of the cost of modifications by a third party bringing the combined cost of an item above the relevant threshold.

Exceptions are in place to exclude vehicle modifications designed to facilitate use or operation by an individual with a disability (i.e., with an auxiliary driving control) from the total price in determining the threshold amount.

In all cases, the relevant price threshold (i.e., $100,000 for vehicles and aircraft; $250,000 for boats) must be exceeded for an item to be subject to Luxury Tax.

Calculation of Tax

Luxury Tax is calculated as the lesser of 10% of the total price and 20% of the total price exceeding the relevant threshold. Tax is levied upon delivery to the final purchaser in Canada or at the border at the time of import where no further sale is intended. 

Any Luxury Tax applicable to a taxable item should be included in the tax base for GST/HST purposes.    


An individual in Calgary, Alberta purchases a new car from a registered dealership. The Luxury Tax is calculated as follows:

Purchase price of vehicle (per dealer) $100,000
        Automated driving package 8,000
        Freight & PDI 2,000
Total price of vehicle for Luxury Tax purposes 110,000
Luxury Tax calculation:  
      (a) 10% of total selling price                              11,000  
      (b) 20% of total price above $100,000           2,000  
       Lesser of (a) and (b) 2,000
Subtotal 112,000
GST @ 5% 5,600
Total price  $117,600


Compliance Obligations

Registered vendors are responsible for remitting Luxury Tax to the CRA on the supply of subject items, whether purchased, financed, or leased by unregistered purchasers (i.e., consumers).  Technically, this tax is paid by the vendor, rather than the purchaser. However, in practice, the expectation is that many vendors will pass this additional cost onto their customers, likely showing the tax amount as a separate “Luxury Tax” line on invoices and purchase agreements.


Luxury Tax returns must generally be filed quarterly, with returns due at the end of the month following each quarterly reporting period. Any net tax payable, as determined in the return, must be remitted on or before the due date. In certain circumstances, registered vendors may also be required to maintain security with the Minister of National Revenue. 

Vendors of taxable aircraft and boats are also required to provide certain information about these supplies, including unique identification numbers, as part of the reporting process. A tax-paid certificate system has been put in place to help prevent the remittance of Luxury Tax on a subject item more than once, such as when an aircraft or boat is subsequently supplied to another purchaser.

The reporting process has been simplified for registered automobile vendors by eliminating certain information return requirements. Tax-paid certificates are unnecessary for supplies of taxable vehicles, as the CRA can generally rely on motor vehicle authority licensing requirements to establish when a subject vehicle has been put into service.

In addition, registered vendors are required to file information returns for reporting periods in certain circumstances, such as when a subject item has been sold or imported but no remittance of Luxury Tax is required. 

Persons not registered for the Luxury Tax may also be required to file a return for a reporting period in which tax becomes payable, such as when an unregistered person stops using a subject item in an exempt manner. However, it remains to be seen how effective the CRA will be in enforcing such “self-assessments” of Luxury Tax.

Documentation of Exports

Registered vendors exporting subject items are required to retain adequate proof of export to avoid payment of Luxury Tax. Where a subject item is delivered in Canada to an unregistered person who subsequently exports the good, relief is generally available to the vendor where the following conditions are satisfied:

  • Tax was payable on the good and accounted for by the registered vendor in its return;
  • The unregistered purchaser exports, as soon as is reasonable under the circumstances, the subject item and, prior to export, does not put the item into service or use it in Canada, except to the extent reasonably necessary or incidental to its transportation outside the country; and
  • The registered vendor obtains satisfactory evidence of export from the unregistered person.


Relief in respect of exports may be claimed by way of a rebate to net tax, which must be filed in prescribed form with the Luxury Tax return for the reporting period in which the rebate is taken into account. The deadline for such a rebate claim is the due date for the return for the last reporting period of the person that ends within two years of the end of the reporting period in which the tax was originally payable. 

Relief is also available for certain temporary importations into Canada, subject to various conditions, including international commercial transportation equipment exported within 30 days or imported into or diverted in Canada for maintenance or repairs; vessels stored temporarily in a Canadian port facility for a period not exceeding 12 months; and non-commercial transportation equipment exported by a resident within 30 days or a non-resident within 12 months.

Rebate claims may also be made for tax paid in error in other circumstances. These rebate applications must be filed within two years of the earlier of the day the tax was accounted for in a return for a reporting period and the day the tax was paid. Claimants are limited to one rebate application per calendar quarter.

More Information

To learn more about the Luxury Tax and its potential implications for your business or next luxury vehicle, boat, or aircraft purchase, please check out Ryan’s on-demand webinar: The Luxury Tax – Planes, Boats and Automobiles. The CRA has also created a Luxury Tax page to provide taxpayers with access to various technical documents (e.g., notices, memoranda, and forms). Taxpayers are encouraged to refer to this page frequently as new information continues to be made available.

1 Technical information provided in this article is based on the Department of Finance publication, “Consultation on the Select Luxury Goods Tax” (issued for public consultation in 2021), draft legislation for the Select Luxury Items Tax Act, and CRA Luxury Tax Notices published as at the time of writing.