Trade Talk Blog L
one are the days when you could import a luxurious vehicle into Canada without paying additional taxes because a new luxury tax is here — and it’s going to impact anyone who owns or purchases a vehicle or aircraft that costs more than $100,000 and a vessel that costs more than $250,000. If you buy or import a vehicle valued above these thresholds into Canada during 2022, you will be required to pay an additional 10-20% of your vehicle’s value as part of the new luxury tax.
What is the luxury tax?
The Select Luxury Items Tax (luxury tax) is a new tax on the sale and importation of high-value vehicles. As part of Canada’s 2021 Federal Budget, the Government proposed introducing this tax on the sale of certain new luxury vehicles, aircraft, and vessels.
Following the release of a draft legislation in March 2022, the Select Luxury Items Tax Act was enacted on June 23, 2022, and officially came into effect on September 1, 2022. The new tax applies to vehicles and aircraft valued above $100,000 and vessels valued above $250,000 (before GST/HST) with a written sales agreement dated on or after January 1, 2022.
What motor vehicles are subject to the luxury tax?
For motor vehicles, the luxury tax applies to vehicles that meet the definition of a subject vehicle under the Select Luxury Items Tax Act and are priced or valued above the $100,000 price threshold unless an exception applies. A subject vehicle is a motor vehicle that meets all of the following conditions:
- It is designed or adapted to carry individuals on highways and streets
- It has a seating capacity of not more than 10 individuals
- It has a gross vehicle weight rating that is 3,856 kg or less
- It has a date of manufacture after 2018
- It is designed to travel with four or more wheels in contact with the ground
Examples of subject vehicles include sedans, coupes, hatchbacks, convertibles, sport utility vehicles, and light‑duty pickup trucks.
Are there exclusions to the luxury tax?
Yes, certain motor vehicles do not fall under subject vehicles and are excluded from the new luxury tax. These include:
- Ambulance vehicles
- Motor vehicles that are clearly marked and equipped for policing, emergency medical response, or emergency fire response activities
- Recreational vehicles (RVs) that are designed or adapted to provide temporary residential accommodations
- Motor vehicles that are registered before September 2022 with a government
It is worth noting that only new vehicles are subject to the new luxury tax. Used cars and trucks are not – provided they are already registered in Canada.
How is the luxury tax calculated?
The amount of the tax is calculated as the lesser of:
- 10% of the taxable amount of the subject item, or
- 20% of the taxable amount above the relevant price threshold of the subject item.
For example, if you purchase a vehicle worth $125,000, you will pay a luxury tax of $5,000 (20% of the additional $25,000). And, if you purchase a vehicle, aircraft, or vessel worth $400,000, you will pay a luxury tax of $40,000 (10% of the total vehicle cost).
What is required to import a vehicle valued at more than $100,000?
Compliance with the Select Luxury Items Tax Act is required when importing luxury vehicles into Canada. Under the new law, importers, manufacturers, wholesalers, and retailers of luxury vehicles, aircraft, and vessels will have to register with the Canada Revenue Agency (CRA) on the first day of sale or importation — even if they’re already registered as a vendor. They will also need to file a quarterly Luxury Tax and Information Return, which GHY can help you with.
Penalties will apply for non-compliance, such as:
- Failing to register with the CRA
- Failing to pay the tax (interest will also be charged)
- Failing to file the information returns
- Making false declarations or statements
If you’re importing a luxurious vehicle into Canada, you must ensure that you comply with the new luxury tax. Book a meeting with one of our Trade Experts below today to discuss how we can help you stay compliant and seamlessly import your vehicle, aircraft, or vessel into Canada.