The air tax on new cars in Canada is a flat $100 federal excise tax charged on every new vehicle sold with an air conditioning unit. It shows up as its own line on your bill of sale, applies whether the AC is factory-installed or added separately, and does not vary with the price or brand of the vehicle.
What the $100 Charge Covers
The tax comes from Schedule I of the Excise Tax Act, which imposes $100 on every air conditioner designed for use in a car, station wagon, van, or truck.1Department of Justice Canada. Excise Tax Act The statute defines the taxable item broadly to include evaporator units that form part of an automotive air conditioning system.
Legally, the tax is imposed on the manufacturer or importer at the time of sale or importation, not on you directly.2Canada.ca. Excise Taxes, Excise Duties, Air Travellers Security Charge and Fuel Charge In practice, the manufacturer passes it through to the dealership, and the dealership passes it through to you. Because nearly every new vehicle sold today comes with air conditioning, most buyers pay it.
The statutory language does not distinguish between compressors powered by a combustion engine and those powered by an electric motor. That means the $100 charge applies to electric vehicles with AC as well.
Which Vehicles Are Exempt
The list of exemptions is narrow. The $100 tax does not apply to air conditioners installed in ambulances or hearses.3Department of Justice Canada. Excise Tax Act Vehicles exported from Canada are also zero-rated.
One point of confusion is worth clearing up. The green levy on fuel-inefficient vehicles has broader carve-outs, including pickup trucks, vans seating ten or more, and vehicles bought for police or fire-fighting service.4Canada.ca. X3-1 Goods Subject to Excise Tax3Department of Justice Canada. Excise Tax Act Those carve-outs don’t extend to the air conditioning tax. A pickup truck with factory AC still owes the $100.
How You Actually Pay It
You never remit this tax yourself. For domestically produced vehicles, the excise tax is payable by the licensed manufacturer or wholesaler when the goods are delivered to the purchaser. For imported vehicles, the importer pays at the border under the Customs Act, and the $100 is assessed at the time of importation.2Canada.ca. Excise Taxes, Excise Duties, Air Travellers Security Charge and Fuel Charge5CBSA. Memorandum D19-12-1 – Importing Vehicles into Canada
What you see is the charge folded into the price and listed as a separate line on your bill of sale. If you’re financing, it gets rolled into your loan or lease. Check the receipt: the $100 should appear on its own, so you can confirm you’re only being charged what the statute requires.
Other Federal Taxes on the Same Purchase
The $100 AC tax is one of three federal taxes that can appear on a new-vehicle bill of sale. Buyers often bundle them together mentally as “the air tax,” so it helps to know what else may be there.
The Green Levy on Fuel-Inefficient Vehicles
The green levy is a separate excise tax on new passenger vehicles with a weighted average fuel consumption of 13 or more litres per 100 kilometres.4Canada.ca. X3-1 Goods Subject to Excise Tax It runs on four tiers:
- 13 to under 14 L/100 km: $1,000
- 14 to under 15 L/100 km: $2,000
- 15 to under 16 L/100 km: $3,000
- 16 L/100 km or more: $4,000
The weighted average uses a 55% city and 45% highway blend based on Natural Resources Canada ratings.1Department of Justice Canada. Excise Tax Act Large SUVs, big-engine sedans, and high-performance sports cars are the vehicles most likely to trigger it. Electric vehicles consume no liquid fuel and avoid the tax. Pickup trucks are exempt regardless of consumption, so a full-size pickup at 16 L/100 km pays zero green levy while a large SUV with identical consumption owes $4,000.
The Luxury Tax on Vehicles Over $100,000
Since 2022, the Select Luxury Items Tax Act has applied a luxury tax to any vehicle priced above $100,000. It’s calculated as the lesser of 10% of the full price, or 20% of the amount over $100,000.6Canada Revenue Agency. LTN2 Subject Vehicles Under the Select Luxury Items Tax Act
On a $120,000 vehicle, that’s the lesser of $12,000 or $4,000, so you’d owe $4,000. At higher prices the 10% figure becomes the lower one, and the tax effectively caps at 10% of the total. The tax covers vehicles designed to carry passengers on roads, with seating for ten or fewer people and a gross vehicle weight rating of 3,856 kg or less, which takes in sedans, coupes, SUVs, and light-duty pickups.7CBSA. Memorandum D18-4-1 – Select Luxury Items Tax on Importation The $100,000 threshold is fixed and not indexed for inflation.
Stacked together, a fuel-inefficient luxury SUV with air conditioning could carry all three federal charges: $100 for the AC, up to $4,000 for the green levy, and a luxury tax scaled to the price. For a mainstream new car with AC, though, the only federal excise you’ll see is the $100.