Canada’s Luxury Tax on Vehicles: What Importers Need to Know
Last Updated: April 12, 2026
The Government of Canada has implemented a luxury tax on certain high-priced consumer goods. The tax applies to qualifying vehicles, although the rules have changed since the tax was introduced. As of November 5, 2025, the luxury tax no longer applies to subject aircraft and subject vessels. It continues to apply to qualifying subject vehicles priced or valued above $100,000.
As an importer, this luxury tax could significantly impact the cost of importing a high-value vehicle. And when it comes to vehicle imports, these taxes can add up quickly if not managed properly. Understanding the applicable rules, thresholds, exemptions, and calculations can help you plan for the additional cost when bringing high-end vehicles into Canada.
What is the luxury tax?
The luxury tax is a federal tax that specifically targets certain high-priced goods. When the tax was introduced, it applied to certain vehicles, aircraft, and vessels. The Government of Canada has since removed aircraft and vessels from the luxury tax regime.
The luxury tax now applies to qualifying subject vehicles priced or valued above $100,000. It is levied separately from GST/HST and other applicable taxes and duties. The Canada Revenue Agency explains the current luxury tax rules and registration requirements.
On August 10, 2021, the Canadian government announced the new luxury tax. The Select Luxury Items Tax Act received Royal Assent on June 23, 2022, and the luxury tax came into effect on September 1, 2022.
The original rules applied to vehicles and aircraft priced above $100,000 and vessels priced above $250,000. However, the Government of Canada announced through Budget 2025 that the luxury tax would no longer apply to subject aircraft and subject vessels effective November 5, 2025.
How the luxury tax affects importers
Importers looking to acquire luxury vehicles may be willing to pay a premium for their high-valued items. But how much more will they be willing to pay? The luxury tax subjects qualifying vehicles to a tax rate of 10% of the taxable amount or 20% of the amount above $100,000, whichever is lower.
That means importers must determine the taxable amount before calculating the luxury tax. The tax can increase the total cost of an imported vehicle and should therefore form part of the import cost calculation.
The good news is not all vehicles qualify for the luxury tax.
So, how to determine if your vehicle, aircraft, or vessel qualifies for the luxury tax? The rules depend on the type of item. The luxury tax currently applies to qualifying subject vehicles. It no longer applies to subject aircraft or subject vessels.
Vehicles that qualify for the luxury tax
Any motor vehicle, including sedans, coupes, hatchbacks, convertibles, sports utility vehicles, and light-duty pickup trucks that meets the criteria under the Select Luxury Items Tax Act can qualify as a subject vehicle.
If the vehicle:
- Is manufactured after 2018
- Is designed or modified primarily to carry individuals on streets and highways
- Is designed to travel with at least four wheels in contact with the ground
- Can seat a maximum of 10 individuals
- Has a gross vehicle weight rating of 3,856 kg or less
- Is not otherwise excluded under the Act
A vehicle must also have a price or value above the $100,000 threshold for the luxury tax to apply. The CRA’s guidance on subject vehicles explains the applicable criteria and exclusions.
Exclusions
Some vehicles, however, are not subject to the tax, given they meet certain criteria. The following vehicles are not subject to the luxury tax:
- Vehicles that were registered before September 2022, as long as possession of the vehicle was also transferred before that date
- Ambulances
- Hearses
- Vehicles marked or equipped for policing, emergency medical, or fire response activities
- Recreational vehicles intended for temporary residence and equipped with at least four specified features
These recreational vehicle features include:
- Cooking facilities
- A refrigerator or ice box
- A self-contained toilet
- A heating or air-conditioning system that functions independently of the engine
- A potable water supply system with a faucet and sink
- A 110-V to 125-V electric power supply or a liquefied petroleum gas supply that functions independently of the engine
Luxury tax no longer applies to aircraft and vessels
Under the original rules, certain private jets, seaplanes, short takeoff and landing planes, gliders, helicopters, and vessels could qualify for the luxury tax if they met specific criteria and exceeded the applicable price thresholds.
However, the Government of Canada ended the luxury tax on subject aircraft and subject vessels effective November 5, 2025. The CRA confirms that luxury tax is no longer payable on subject aircraft and subject vessels.
As a result, the previous aircraft and vessel eligibility criteria, including the $100,000 aircraft threshold and $250,000 vessel threshold, no longer determine whether these items are subject to the luxury tax under the current rules.
When do I have to pay the luxury tax on imported vehicles?
The luxury tax does not necessarily apply at the time of importation if you are registered with the Canada Revenue Agency (CRA) as a registered vendor of subject vehicles.
Manufacturers, wholesalers, retailers, and importers of subject vehicles may be required to register with the CRA. Once registered, a vendor can import or purchase qualifying vehicles without paying the luxury tax at that time, provided the applicable conditions are met. The vendor can then hold the vehicle as tax-free inventory until the tax becomes payable.
A registered vendor can purchase a vehicle priced above the price threshold without the luxury tax applying if the purchaser provides the required exemption certificate to the selling registered vendor. Form L100-1, Luxury Tax Exemption Certificate for Subject Vehicles, is used to certify the purchaser’s status as a registered vendor of subject vehicles.
You can find more information on registering as a luxury tax vendor with the CRA.
How much is the luxury tax on vehicles, aircraft, and vessels?
The luxury tax is calculated using the taxable amount of the vehicle.
For vehicles, the tax is the lesser of:
- The taxable amount multiplied by 10%
- The amount that results from subtracting $100,000 from the taxable amount and multiplying the difference by 20%
For example, if the taxable amount of a subject vehicle is $150,000:
- 10% of $150,000 = $15,000
- 20% of ($150,000 − $100,000) = $10,000
The luxury tax would therefore be $10,000, because the legislation applies the lesser amount.
The CRA explains how to determine the taxable amount for luxury tax purposes, including the rules that apply to imported items.
The previous $250,000 threshold for vessels and $100,000 threshold for aircraft no longer result in luxury tax because the tax on subject aircraft and vessels ended on November 5, 2025.
Reporting the luxury tax and filing returns
Registered vendors are required to report the luxury tax payable using Form B500, Luxury Tax and Information Return for Registrants.
Registered vendors and people required to be registered must file Form B500 for each reporting period, including periods when there is no luxury tax payable. The CRA’s instructions for completing the luxury tax return explain the reporting requirements.
Individuals not registered or required to be registered should report their luxury tax payable using Form B501, Luxury Tax and Information Return for Non-Registrants. Non-registrants generally file Form B501 when they have luxury tax payable.
Registered and non-registered individuals should keep the records required to determine their tax liabilities and obligations for six years from the end of the year to which the records relate.
Conclusion
Canada’s luxury tax regulations have changed since the tax came into effect in 2022. The luxury tax continues to apply to qualifying subject vehicles priced or valued above $100,000, while the government ended the luxury tax on subject aircraft and subject vessels effective November 5, 2025.
With some types of vehicles being excluded from the tax and a sliding scale applying to those that qualify, it is important to know exactly how much the luxury tax on imported vehicles will be before making any purchase.
Additionally, it pays to stay apprised of government regulations like this to avoid unexpected tax liabilities, filing issues, or additional costs.
How GHY Can Help You
At GHY, we are committed to helping you save money on your imports. Book a meeting with one of our Trade Experts below today and we can help handle all your import needs. We can advise on how this new tax will affect your bottom line, saving you time and money in the long run.
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