What Is Canada’s Luxury Tax and How Is It Calculated?

Canada’s luxury tax is a federal charge that applies when you buy a new vehicle priced above $100,000. You pay either 10% of the full price or 20% of the amount above $100,000, whichever is less. The tax took effect on September 1, 2022 under the Select Luxury Items Tax Act, and as of November 5, 2025 it applies only to vehicles; aircraft and vessels were removed from its scope.¹

How the Tax Is Calculated

Two formulas, and you pay the lower result:

10% of the vehicle’s full taxable price, or
20% of the amount above $100,000.

Take a vehicle priced at $150,000. Ten percent of the full price is $15,000. Twenty percent of the $50,000 above the threshold is $10,000. You pay $10,000, the smaller figure.²

The two-formula design keeps the tax gentle just over the threshold and heavier as the price climbs. At exactly $100,000, no tax is owed. At $105,000, you owe $1,000, because 20% of the $5,000 excess is less than 10% of the total. Once the price gets high enough, the 10% figure becomes the smaller one and effectively caps the rate.

Watch the GST/HST Stacking

GST or HST is calculated on the final price including the luxury tax. If your vehicle costs $120,000 and the luxury tax adds $4,000, the GST/HST applies to $124,000, not $120,000.³ A quick mental estimate will understate the total; budget for the stack.

Which Vehicles Are Subject to the Tax

A vehicle is a “subject vehicle” only if every one of these is true:

It’s designed primarily to carry people on highways and streets.
Its seating capacity is 10 people or fewer.
Its gross vehicle weight rating is 3,856 kilograms or less.
Its date of manufacture is 2019 or later.
It’s designed to travel with four or more wheels on the ground.

Miss any one and the tax doesn’t apply.² A heavy-duty truck or SUV rated above 3,856 kg is outside the tax no matter how expensive it is. A pre-2019 collector car is exempt on the manufacture date alone.

Vehicles That Are Carved Out

Even when a vehicle meets the definition, several categories are excluded: ambulances, hearses, vehicles clearly marked for police work, and vehicles marked and equipped for emergency medical or fire response.² Vehicles used exclusively for military or government service purposes are also exempt.

Recreational vehicles have their own exclusion. A motorhome or similar RV escapes the tax if it’s designed to provide temporary living quarters and includes at least four of the following six features:

Cooking facilities
A refrigerator or ice box
A self-contained toilet
A heating or air-conditioning system that runs independently of the vehicle engine
A potable water supply with a faucet and sink
An independent electrical power supply (110–125 V) or liquefied petroleum gas supply

This is a practical test, not a marketing label. A luxury camper van that meets four of the six is out. A pricey SUV with a fold-down bed that meets only two is in.⁴

What Counts Toward the $100,000 Threshold

The price for tax purposes includes accessories, options, and custom work bundled into the sale agreement.² Buy a vehicle listed at $95,000 and add $8,000 in dealer-installed upgrades in the same deal, and the $103,000 total crosses the line and triggers the tax. The calculation happens before GST/HST or any provincial sales tax.

For imported vehicles, the taxable amount is the customs value plus any duties owed, measured against the same $100,000 threshold.

Used Vehicles

The luxury tax generally does not apply to a used vehicle that was previously registered with a provincial or federal government. Whether you’re buying from a private seller or a dealer, a genuinely used vehicle is typically exempt.⁴ One catch: if the vehicle was registered solely because of the sale itself and had no real prior use, the tax still applies. That rule is aimed at brand-new vehicles briefly registered as a paperwork step in the selling process.

Leasing

Leasing doesn’t sidestep the tax. When a registered vendor leases a subject vehicle priced above $100,000, the tax is triggered at the start of the lease rather than spread across your monthly payments.⁴ The taxable amount is generally the greater of the sale consideration and the retail value at the time the lessee gets the right to use the vehicle.⁵ The dealer or leasing company owes the tax legally, but that cost typically shows up in your lease pricing.

Upgrades After You Buy

The purchase isn’t the only taxable event. If you have improvements done to a subject vehicle after the sale, and those improvements total $5,000 or more within the improvement period, an additional luxury tax charge can apply.⁵

The improvement period runs for one year after the sale, or until the vehicle is sold to an arm’s-length buyer, whichever comes first. Routine repairs, cleaning, and regular maintenance don’t count. Custom bodywork, premium audio, performance modifications, and similar value-adding enhancements do. The additional tax is calculated on the improvement amount, not the whole vehicle price a second time.

Aircraft and Vessels No Longer Apply

When the tax launched in 2022, it also covered aircraft priced over $100,000 and vessels priced over $250,000. That ended on November 5, 2025 through Bill C-15, the Budget 2025 Implementation Act, No. 1, which received royal assent on March 26, 2026.¹ Any tax owed for aircraft or vessels for periods before that date still applies. Registrations tied solely to aircraft or vessels will be automatically cancelled on February 1, 2028.

If You Overpaid

If you paid the luxury tax by mistake or paid too much, the Act provides for a full refund of the excess. Rebate applications must be filed within two years of the end of the reporting period in which the tax was originally paid, on the CRA’s prescribed form.⁶

1
Canada Revenue Agency. LTN5 Luxury Tax Not Payable on Subject Aircraft and Subject Vessels
2
Canada Border Services Agency. Memorandum D18-4-1 Select Luxury Items Tax on Importation
3
Canada.ca. Consideration and Retail Value
4
Canada.ca. LTN2 Subject Vehicles Under the Select Luxury Items Tax Act
5
Justice Laws. Select Luxury Items Tax Act Full Text
6
Justice Laws. Select Luxury Items Tax Act – Rebates