The new luxury tax came into force on September 1, 2022, in Canada to enhance government revenues and alleviate economic inequalities. The new tax is levied on the sale and importation of specified luxury properties that include those classified as high-value, namely vehicles and aircraft priced over $100,000 and vessels costing above $250,000. The tax can be very complicated; hence, consumers contemplating the purchase of the relevant items and traders for the New Zealand importation of such items into Canada should have a sound understanding of it, often referred to as the Canadian luxury tax explained. This article tries to explain how this new tax works, what things are affected, and what the working mechanisms are. 

In essence, the Canadian luxury tax explained is an additional burden on certain high-end purchases. The tax is not a regular percentage of every dollar spent but is a function of crossing a threshold. For vehicles and aircraft that exceed the $100,000 mark, the tax is determined on the basis of the lesser of two amounts: being either 10% of the retail price or being 20% of that portion of price exceeding the $100,000 threshold. The same calculation is used in relation to vessels priced over $250,000 with the $250,000 threshold. This policy of “lesser of” will mean that the tax burden is more heavily placed against the most expensive luxury item prices. 

To provide an illustration, let us assume that a vehicle in Canada sells for a retail price of $120,000. Thus, the first calculation would be performed, which takes 10% of $120,000, equaling $12,000. The 20% calculation would thus apply to $20,000 (i.e., $120,000 – $100,000), which would equal $4,000. In this case, the luxury tax owed would be lesser between the two, which is $4,000. However, when dealing with a much larger tax item, such as a $300,000 aircraft in Canada, the two calculations would be: 10% of $300,000 (which equals $30,000) and 20% of the amount that exceeds $100,000 (which equals $40,000). Here, the luxury tax would be $30,000. 

Canada’s description of the luxury tax applies to certain categories of items. For vehicles, in general, they are geared toward organized passenger vehicles designated for personal use such as cars, SUVs, and light-duty pickup trucks made since just after 2018, wherein the vehicle seating clique is 10 or less while the grade of the gross vehicle weight rating does not exceed 3,856 kilograms. Certain vehicles are exempt, including ambulances, hearses, police cars, and some qualifying recreational vehicles. In terms of aircraft, it means all airplanes and helicopters and gliders which have a maximum seating of less than 40 (excluding those for the pilot), manufactured since just after 2018, and excluding those capable of being used for any military contract or designed solely for carriage of cargo. Vessels included are those meant for leisure, recreation, or sport with manufacture after 2018, like yachts or motorboats with accommodation facilities but not floating homes intended for living, commercial fishing vessels, and ferries. 

Usually, registered sellers – manufacturers, wholesalers, and retailers of luxury items in Canada before importation and sale – are responsible for collecting and remitting the Canadian luxury tax explained. They are supposed to register with the Canada Revenue Agency (CRA) and remit and report the applicable tax on sales or importations made by non-registered individuals (i.e., end consumers). This is simply an indirect taxation method; in effect, the consumer bears the cost; however, it is the vendor who has legal accountability to the government to repay the tax. 

Anything worth noting when it comes to how “total price” is defined is that it includes, generally speaking, the price of the property itself and any improvements or changes being made by the vendor in connection with the property sale, as well as duties, charges, and any fees owed for the sale or importation, excluding GST/HST or provincial sales tax. The latter will all be calculated after the assessments of the so-called luxury tax. Yet, accessibility modifications done to the vehicle in question are exempt from the luxury tax assessments. 

The Canadian luxury tax explained incited the industry players to discuss the matter. The supporters argue that it allows for tax equity, since the tax assures that those who can afford high-end goods contribute more to the national revenue, which can be used to, for instance, fund social programs, thereby lifting the tax burden from other segments of the population in Canada. On the contrary, some critics raised concerns regarding its supposed impact on sales, competitiveness, and the economy in general, particularly in the automotive and marine fields. 

Therefore, the new luxury tax in Canada is notable in the realm of high-value goods taxation. As such, consumers in Canada and firms may gain clarity as to how they can understand and work within the new fiscal realm through understanding the threshold amounts, calculation methods, types of items involved, and obligations of the vendors in question. The work of keeping track of its nuances will be paramount for sound choices in the Canadian marketplace as the tax works through its operationalization and its effects unfold.

Last Updated on April 22, 2025 by soubhik