Q&A: Canada’s new luxury goods tax

April 4, 2022 BDO CANADA

The Luxury Tax, originally proposed in the 2021 budget, is now one step closer to enactment with the release of draft legislation. This tax is set to apply to new cars and aircraft with a retail sales price over $100,000 and to boats over $250,000. It will be calculated at the lesser of 20% of the value above a set threshold ($100,000 for cars and personal aircraft, and $250,000 for boats) and 10% of the full value of the item subjected to tax.

On March 11, 2022, the government released revised draft legislative proposals that build on and replace the backgrounder that was dated August 10, 2021. Stakeholders are invited to share comments on the draft legislation by April 11, 2022. If enacted, this tax will come into effect on September 1, 2022.

What is considered a luxury good for purposes of the new tax?

The new Act—to be called the Select Luxury Items Tax Act—introduces the term “subject item” which, at this time, includes subject vehicles, subject aircraft, and subject vessels:

  • Vehicles - Passenger vehicles, with a date of manufacture after 2018, typically suitable for personal use including coupes, sedans, station wagons, sports cars, passenger vans, and minivans with seating capacity of not more than 10 passengers, SUVs, and passenger pick-up trucks will be subject vehicles for purposes of the new tax. Motorcycles and certain off-road vehicles, such as all-terrain vehicles and snowmobiles, racing cars (i.e., vehicles that are not street legal and are owned solely for on-track or off-road racing), and certain motor homes are not subject vehicles and are not in the scope of Luxury Tax. Similarly, ambulances, hearses, vehicles clearly marked for policing activities or marked and equipped for emergency medical, and fire response will also fall outside the scope of the tax.
  • Aircraft - Aircraft, with date of manufacture after 2018, including any airplane, helicopter, or glider with a maximum carrying capacity of less than 40 seats (including corporate aircraft) will be subject aircraft. Aircraft typically used in commercial activities, such as those equipped for the carriage of passengers or designed exclusively for cargo flights, will be excluded.
  • Boats - Vessels, with a date of manufacture after 2018, and designed for leisure, recreation, or sport activities—such as a yacht, a houseboat, or any sailboat or motorboat with sleeping amenities— will be subject vehicles. Floating homes, commercial fishing vessels, ferries, and cruise ships will be excluded.

Who is required to pay the Luxury Tax?

The Luxury Tax is payable by registered vendors on the sale of subject items delivered in Canada that exceed the price threshold of $100,000 for vehicles and aircraft and $250,000 for vessels. Sales of subject items to manufacturers, wholesalers, and retailers that are registered for the Luxury Tax will qualify for exemption. Non-registered importers will also pay the Luxury Tax on the importation of subject items.

How is the Luxury Tax calculated?

The tax is calculated as the lesser of:

  • 20% of the retail sale price above the relevant price threshold ( $100,000 for vehicles and aircraft; $250,000 for vessels); or
  • 10% of the retail sale price of the subject vehicle, aircraft, or vessel.

The tax will apply at the point of purchase if the final sale price paid (including applicable duties, charges, and taxes other than GST/HST or provincial sales tax) is above the price threshold.

Modifications made within 12 months of purchase may also be subject to self-assessment of the tax where certain conditions are met. Accessibility modifications are generally excluded.

Does the Luxury Tax apply to leases?

Leases of subject items would not be considered a sale under the Luxury Tax regime. Lessors that carry on the business of leasing, but not selling, will not be required to register and the Luxury Tax would, instead, apply when the lessor purchases a subject item. The tax would then likely be built into the periodic lease payments charged by the lessor to the lessee. Registered vendors that lease subject items would be required to self-assess the tax when moving the subject item out of inventory to lease. This reporting requirement will need to be closely tracked by registered dealerships that also lease subject items.

When will the Luxury Tax come into effect?

If the legislation passes into law, the tax will apply to subject items delivered or imported on or after September 1, 2022. However, the tax will not apply where the vendor of the subject item and the non-registered purchaser entered into a bona fide agreement in writing for the sale of the subject item prior to April 20, 2021. Registration will be required before the first importation or delivery of a luxury good is made.

Final thoughts

As we wait for final legislation and the registration process to be established, consider what you and your organization need to do to prepare for the collection or payment of this new Luxury Tax. If you need additional information about this new tax, contact your BDO advisor.


The information in this publication is current as of March 30, 2022.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

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