Highlights from the much-anticipated draft legislation for the proposed Canadian luxury tax.


As part of the 2021 Federal Budget, the Government of Canada proposed the introduction of a tax on the sale of certain new luxury cars, aircraft, and boats. Draft legislation for the Select Luxury Items Tax (“Luxury Tax”) was released on March 11, 2022. The Luxury Tax, once enacted, will generally come into effect on September 1, 2022.

Luxury tax rate

The proposed Luxury Tax will apply to certain vehicles, aircraft, and boats (“Subject Items”) exceeding established price thresholds ($100,000 for vehicles and aircraft, $250,000 for boats) before GST/HST. The Luxury Tax rules will apply whether the Subject Item is delivered in Canada by way of sale or similar arrangement, certain lease arrangements[1], or by importation into Canada. The Luxury Tax will be determined as the lesser of:

  • 10% of the total price; and
  • 20% of the total price exceeding the price threshold.

For example, consider a luxury car with a pre-tax price tag of $140,000. The lesser of the two rates is determined as follows:

  • 10% x $140,000 = $14,000; or
  • 20% x ($140,000 – $100,000) = $8,000.

All other improvements (excluding accessibility modifications), additions, taxes, duties, charges, fees, and amounts paid in respect of the delivery or importation will be included in the total price. The resulting Luxury Tax is then added to the cost of the Subject Item for the purposes of calculating the GST/HST. This results in GST/HST being calculated on the Luxury Tax.

Items subject to luxury tax

The following Subject Items are subject to the Luxury Tax where the price thresholds are exceeded.


Passenger motor vehicles manufactured after 2018 that are equipped to accommodate 10 or fewer passengers and have a gross vehicle weight rating of 3,856 kilograms or less. Exceptions apply for certain types of vehicles (e.g., hearses, certain recreational vehicles) as well as vehicles equipped for police, military, or other emergency services activities.


Any airplane, helicopter, or glider manufactured after 2018 that is equipped with a certified maximum carrying capacity of less than 40 seats excluding the pilot cockpit area. Exemptions will apply for aircraft designed for military activities and for other qualifying uses (e.g., emergency services, activities conducted for business purposes with a reasonable expectation of profit). The Luxury Tax will apply on delivery in or importation into Canada unless the applicable certificates (discussed below) have been obtained.


Any boat designed for leisure, recreation, or sport activities manufactured after 2018. Exemptions are available for certain types of boats (including cruise ships and boats equipped for commercial use) as well as boats used in qualifying activities. The Luxury Tax will generally apply on delivery in or importation into Canada unless the applicable certificates (discussed below) have been obtained. 


Relief from the Luxury Tax is available for aircrafts and boats that are used in qualifying activities; however, an exemption certificate or a special import certificate must be obtained by the purchaser or the importer, respectively, for the relief to apply. Where an aircraft or boat was previously subject to the Luxury Tax, a tax-paid certificate must be obtained in order for the tax to not apply again.

The purchase and sale of Subject Items previously registered for use (for example, a motor vehicle registered with a provincial authority to be driven in that province) are generally not subject to the Luxury Tax.

Transactions involving Subject Items between certain parties registered with the CRA (Canada Revenue Agency) are not subject to the Luxury Tax (discussed in the following section).

Special rules apply for exported Subject Items, as well as temporarily imported Subject Items.


As the Luxury Tax is intended to apply to the sale of Subject Items to end consumers, the proposed legislation introduces the category of “registered vendors” to facilitate earlier transactions that may take place, such as the manufacturing and wholesaling of Subject Items. Registered vendors will typically be persons that, in the course of their business activities, manufacture, wholesale, retail or import Subject Items that exceed the Luxury Tax price thresholds. They will generally be permitted to import, acquire, and hold Subject Items as part of their business inventory without application of the Luxury Tax. Registration will be required where certain conditions are met (generally, for persons that sell or import previously unused/unregistered Subject Items exceeding the Luxury Tax price thresholds). 

In most situations, the registered vendor that delivers a Subject Item to a non-registered end consumer will be responsible for paying any applicable Luxury Tax and completing the related returns. For most registered vendors, Luxury Tax returns must be filed on a quarterly basis.

In some situations, self-assessment and payment of Luxury Tax will be required. For example:

  • Where a Subject Item held as inventory is subsequently leased to a third party, the owner must self-assess and remit any applicable Luxury Tax on the Subject Item.
  • A person that pays for certain improvements exceeding $5,000 total to a previously purchased Subject Item that was subject to the Luxury Tax would be required to self-assess and remit applicable Luxury Tax on the cost of the improvements incurred within a specified period (generally, within a year from when the Subject Item was delivered in or imported into Canada).

A security deposit for Luxury Tax that is payable or may become payable could be required for certain persons importing Subject Items into Canada, as determined by the Minister of National Revenue.

Penalties will apply for non-compliance, including failure to pay Luxury Tax amounts due (interest will also be charged on late payments), failure to file required returns, failure to register as a registered vendor, and making false statements or declarations in applying for certificates, among others.

Effective date

Subject to Parliamentary approval, the Luxury Tax rules would come into effect on September 1, 2022 and apply to deliveries and imports into Canada on or after that date. Exceptions will apply to such deliveries or imports of Subject Items arranged under a bona fide agreement in writing prior to April 20, 2021. 

What does all this mean?

As the Department of Finance did not provide explanatory notes on the draft legislation, and as the draft rules could be subject to further changes, uncertainty remains as to how the proposed Luxury Tax rules will be technically and practically applied once enacted. However, businesses that produce, import, or sell luxury goods that would be considered Subject Items should be aware of their obligations under the proposed Luxury Tax rules and start thinking about changes to existing businesses processes that may be needed once the rules come into effect. 

[1] Lease arrangements between non-arm’s length parties or certain sale and lease-back arrangements.

Jeff Hanley, CPA, CA | MNP | Partner, Ontario Provincial Dealership Leader| 613-546-3111| Jeff.Hanley@mnp.ca