Luxury Tax on $100,000 Cars Coming Into Effect Today

Today is the day the new Select Luxury Items Tax Act, which was announced by the Canadian government in the spring of 2021, is coming into effect.

The luxury tax applies to the sale or importation of certain vehicles and aircraft priced above $100,000 and certain vessels priced above $250,000. Exceptions include police and emergency vehicles, as well as RVs designed or adapted to provide temporary residential accommodations.

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This is for new vehicles only. Used cars and trucks that have previously been registered in Canada are not subject to the luxury tax.

How Does it Work?

The new tax will be a 10-percent fee on the total cost of the vehicle or a 20-percent fee on the amount exceeding $100,000, whichever amount is smaller.

For example, a brand new Porsche 911 costing $150,000 will carry a luxury tax of $10,000, or 20 percent of the extra $50,000. On the other hand, someone who buys a Rolls-Royce at $500,000 will pay a luxury tax of $50,000, since 10 percent of the total cost is cheaper than 20 percent of the extra $400,000 ($80,000).

Naturally, said tax is added to the existing GST and other provincial taxes where applicable. A key point to add is that all upgrades made to a vehicle after the purchase—like performance tires, a powerful sound system, a custom exhaust—will also be subject to the luxury tax the next year.

Ottawa expects the Select Luxury Items Tax Act to increase federal revenues by over $600 million over five years.