A Tax Lawyer’s Guide To The Luxury Tax In Canada

This article has been updated to reflect the removal of the luxury tax on aircraft and vessels effective November 5, 2025, the subsequent Royal Assent of Bill C-15, the Budget Implementation Act, 2025, No. 1 (SC 2026, c. 3) on March 26, 2026, and associated CRA administrative guidance including Notice LTN5. All references to the current state of the law reflect these amendments. The original 2022 content on the luxury tax structure, registration, and Tax-Paid Certificate is preserved and updated throughout.

Introduction to Canada’s Luxury Tax: Origins, Revenue, and the 2025 Rollback

Effective September 1, 2022, the Select Luxury Items Tax Act imposed a luxury tax on certain vehicles, aircraft, and vessels. The tax was first proposed in Budget 2021 and originally estimated to increase federal revenues by $604 million over a five-year period. That estimate proved conservative: the tax generated over $900 million in revenue before being partially repealed in 2025, driven overwhelmingly by luxury vehicle transactions.

As of November 5, 2025, the luxury tax no longer applies to subject aircraft or subject vessels. Bill C-15, the Budget Implementation Act, 2025, No. 1 (SC 2026, c. 3), received Royal Assent on March 26, 2026, formally legislating the repeal. The Canada Revenue Agency issued Notice LTN5 on November 10, 2025, confirming the exemption for aircraft and vessels. The vehicle tax remains fully in force, unchanged.

“When tax policy begins to impair economic competitiveness, governments often recalibrate — even when the revenue results exceed expectations. High-net-worth Canadians and business owners should treat this partial rollback not as resolution, but as a signal to revisit their planning assumptions proactively. The true cost of a luxury vehicle acquisition involves at least three layers of taxation that compound on each other — and the available exemptions are more substantial than most buyers realize. Understanding both the tax and the exits from it is the starting point of sound tax planning.”

— David J. Rotfleisch, Certified Specialist in Taxation (Law Society of Ontario)

Luxury Items Tax Act: At A Glance

• Applies to passenger vehicles exceeding $100,000
• Calculated as the lesser of 10% of the vehicle value or 20% of the amount exceeding $100,000
• Aircraft and vessel luxury taxes were repealed effective November 5, 2025
• Administered by the CRA and CBSA
• Luxury tax is generally included in the GST/HST tax base

What is the Select Luxury Items Tax Act

The Select Luxury Items Tax Act (SLITA) is the federal statute that creates and governs Canada’s luxury tax regime. The Act establishes the rules for calculating, collecting, remitting, and enforcing the luxury tax, including registration requirements, exemptions, reporting obligations, penalties, and CRA enforcement powers.

The Act currently applies primarily to passenger vehicles with a retail value exceeding $100,000 and operates separately from the Income Tax Act and the Excise Tax Act.

Legislative Timeline: Evolution of the Select Luxury Items Tax Act

• Budget 2021: Luxury tax on vehicles, aircraft, and vessels first proposed
• September 1, 2022: Select Luxury Items Tax Act comes into force; CRA publishes LTN1 (Registration) and LTN2 (Subject Vehicles)
• 2022–2025: Tax generates over $900 million in federal revenue, exceeding original projections
• November 4–5, 2025: Budget 2025 announces removal of the luxury tax on aircraft and vessels effective November 5, 2025; CRA publishes LTN5 on November 10, 2025
• March 26, 2026: Bill C-15, the Budget Implementation Act, 2025, No. 1 (SC 2026, c. 3), receives Royal Assent, formally legislating the repeal
• 2026 Onward: Luxury tax continues to apply to subject vehicles above $100,000; aircraft and vessels are no longer taxable

Aircraft, Vehicles, and Vessels: What Is Still Subject to the Luxury Tax?

Following the November 5, 2025 amendments, only subject vehicles remain within the active scope of the luxury tax. The definitions of subject aircraft and subject vessels remain in the legislation for transitional and historical reference, but the tax is no longer payable on either category.

Subject Vehicles — Tax Continues to Apply

Subject vehicles, with a price threshold of $100,000, include a motor vehicle designed or adapted primarily to carry individuals on highways and streets that can seat 10 or fewer individuals, weighs 3,856 kg or less, is manufactured after 2018, and is designed to travel with four or more wheels in contact with the ground. This captures sedans, coupes, hatchbacks, convertibles, sport utility vehicles, and light-duty pickup trucks.

The definition excludes ambulances, vehicles equipped for emergency medical or fire response, hearses, police cars, and qualifying recreational vehicles. A qualifying recreational vehicle must be equipped with at least four specified elements including cooking facilities, a refrigerator or ice box, a self-contained toilet, a heating or air-conditioning system, a portable water supply system, or a 110-v to 125-v electric power supply or liquefied petroleum gas supply. A motor vehicle registered and delivered to the buyer before September 2022 is also excluded.

An important and often overlooked aspect of the subject vehicle definition is the “manufactured after 2018” requirement. A vehicle that was manufactured in or before 2018 does not meet the definition of a subject vehicle and is therefore entirely outside the scope of the luxury tax, regardless of its current market value. This means that antique and classic vehicles — regardless of how valuable they are — are not subject to the luxury tax.

EXAMPLE:

A 1969 Jaguar XKE (E-Type) is one of the most sought-after classic cars in the world and may command a price well in excess of $100,000 in today’s market. Because it was manufactured in 1969, it is definitionally not a subject vehicle under the Select Luxury Items Tax Act, and no luxury tax applies to its purchase or sale, at any price. Collectors and dealers in high-value antique and classic vehicles should be aware of this threshold, but should also note that the CRA may scrutinize transactions where a vehicle is represented as a pre-2019 model to avoid the luxury tax and the actual manufacture date is disputed.

CRA Notice LTN2, Subject Vehicles under the Select Luxury Items Tax Act, remains the primary administrative guidance document for the vehicle category and should be reviewed by any vendor or purchaser involved in a luxury vehicle transaction.

Subject Aircraft — Tax Repealed as of November 5, 2025

Subject aircraft previously included aeroplanes, gliders, and helicopters manufactured after 2018 with a price threshold of $100,000. The luxury tax is no longer payable on subject aircraft as of November 5, 2025, pursuant to LTN5 and SC 2026, c. 3.

Subject Vessels — Tax Repealed as of November 5, 2025

Subject vessels previously included vessels designed for leisure, recreation, or sport activities, manufactured after 2018, with a price threshold of $250,000. The luxury tax is no longer payable on subject vessels as of November 5, 2025, pursuant to LTN5 and SC 2026, c. 3.

Before vs. After November 5, 2025: Scope of the Canadian Luxury Tax

Calculating the Canadian Luxury Tax: Formula, Examples, and the Improvements Trap

The total amount of luxury tax due is determined by the lesser of 10% of the total item value or 20% of the difference between the total item value and the applicable price threshold. While the formula appears straightforward, the total item value must include any improvements, additions, delivery charges, excise taxes, and other relevant costs incurred before delivery — which can create disputes between the taxpayer and the CRA about what costs should be included.

Worked Calculation Examples

The Improvements and Additions Trap — A Quantified Example

The timing of improvements and additions relative to delivery can materially affect the luxury tax payable. Consider a vehicle priced at $98,000 with $8,000 in dealer-installed accessories — a sport package, tinted windows, and roof racks. If those additions are installed and invoiced before delivery, the total item value becomes $106,000, and the luxury tax is the lesser of $10,600 (10% of $106,000) or $1,200 (20% of the $6,000 excess above $100,000) — so $1,200 applies, and the transaction is subject to luxury tax at all.

If the same $8,000 in accessories is purchased and installed after the vehicle has been delivered to the buyer, the item value at delivery remains $98,000 — below the $100,000 threshold — and no luxury tax applies to the vehicle acquisition. The accessories, purchased separately, are not subject to luxury tax. This difference produces $1,200 in tax savings on a modest example; on vehicles closer to but below the threshold with more significant additions, the saving can be considerably larger.

Our experienced Canadian tax planning lawyers recommend that any improvements or additions be made after receipt of the subject item so they will not be included in the total item value for luxury tax purposes. This planning step requires coordination with the dealer before the purchase agreement is finalized.

The GST/HST Stacking Effect: Paying Tax on a Tax

GST/HST is applied to a price base that already includes the embedded luxury tax. Because the luxury tax is imposed at the vendor level and built into the total sale price, provincial and federal sales taxes are calculated on the luxury-tax-inclusive amount.

On a $150,000 vehicle in Ontario, the luxury tax of $10,000 is embedded in the transaction, creating a $160,000 taxable base for HST purposes. Ontario HST of 13% on $160,000 is $20,800, compared to $19,500 on the $150,000 pre-tax price — an additional $1,300 in compounded HST. This is consistent with the original article’s example: a $120,000 vehicle with $5,000 in additions producing a $5,000 luxury tax, with HST calculated on the full $130,000 — 13% of $130,000 = $16,900.

Provincial Tax Comparison: All-In Acquisition Cost on a $150,000 Vehicle

British Columbia applies a tiered PST rate on vehicles: 7% under $55,000, rising to 10% on $55,000–$124,999, 15% on $125,000–$149,999, and 20% at $150,000 and above, making BC by far the highest-tax jurisdiction for luxury vehicle acquisitions. Alberta, with no provincial sales tax, is the lowest-cost province, with a difference of $30,000 in total taxes on a $150,000 vehicle compared to British Columbia.

Luxury Tax Exemptions: When the Tax Does Not Apply to Vehicle Transactions

The Select Luxury Items Tax Act contains a number of exemptions that can eliminate or reduce luxury tax exposure on vehicle transactions. These exemptions are underutilized, primarily because buyers and vendors are unaware they exist or fail to satisfy the procedural requirements to claim them. Understanding the available exemptions — and documenting eligibility correctly before the transaction closes — is an important part of luxury tax planning.

Resale Exemption: Registered Vendors Acquiring for Resale

The luxury tax generally does not apply to the sale of a subject vehicle where the purchaser is a registered vendor acquiring the vehicle for the purpose of resale in the ordinary course of a business of selling subject vehicles. To access this exemption, the purchaser and vendor must enter into a written agreement — typically an exemption certificate — in which the purchaser attests to eligibility. The exemption certificate must be provided to the vendor before or at the time of the sale. A vendor who accepts an exemption certificate in good faith is relieved of liability for the uncollected luxury tax.

This exemption is particularly important for automobile dealerships and fleet resellers. A dealership that purchases inventory from a manufacturer or wholesaler does not incur luxury tax on those purchases, because it is acquiring the vehicles for resale. The luxury tax arises only on the ultimate sale to the end purchaser.

Export Exemption

The luxury tax does not apply to vehicles that are sold for export outside Canada, provided the export occurs within a prescribed period and the export is documented. The vendor must obtain evidence of export and retain it in their records. This exemption is relevant for Canadian dealers selling to foreign purchasers and for buyers who are non-residents acquiring vehicles for use exclusively outside Canada.

Diplomatic and Government Exemptions

Vehicles supplied to accredited foreign representatives, international organizations, and certain federal and provincial government departments may be exempt from the luxury tax under the Foreign Missions and International Organizations Act and related provisions. The procedural requirements to claim these exemptions are specific and must be satisfied at the time of the transaction, not retroactively.

Commercial and Fleet Use: The Business-Use Distinction

The luxury tax regime draws an important distinction between vehicles acquired for personal or shareholder use and vehicles acquired for genuine commercial fleet operations. A vehicle that falls outside the definition of a subject vehicle — for example, because it is not designed or adapted primarily to carry individuals on highways and streets, or because it exceeds the weight threshold — is not subject to the luxury tax at all.

Within the category of subject vehicles, certain commercial fleet acquisitions may qualify for exemptions or reduced tax exposure depending on the specific use and the applicable regulatory exemptions. Businesses that operate fleets of vehicles in active commercial operations — as opposed to making vehicles available for the personal use of shareholders or executives — should obtain legal advice on whether their specific acquisition qualifies for an exemption before the transaction closes. The documentation requirements are strict and must be satisfied proactively.

Penalty Exposure for Failure to Register or Improperly Claimed Exemptions

A vendor who is required to register under the Select Luxury Items Tax Act and fails to do so is exposed to penalties under the Act. Similarly, a purchaser who provides a false or incorrect exemption certificate to a vendor may be liable for the luxury tax that was not collected, plus penalties and interest. The CRA has indicated that compliance with the registration and exemption certificate requirements is an enforcement priority.

Vendors or purchasers who have failed to register or have improperly claimed exemptions in prior transactions should consider whether the Voluntary Disclosure Program is available before the CRA identifies the issue. The VDP provides a mechanism for proactive correction with potential penalty relief. Guidance on the VDP process is available through the firm’s Canadian tax amnesty and voluntary disclosure practice.

Lease-to-Own, Conditional Sales, and Other Complex Acquisition Structures

The Select Luxury Items Tax Act applies to qualifying sales, which include conventional outright purchases. The Act’s application to lease-to-own structures, balloon payment arrangements, and conditional sales — where legal title does not pass to the buyer until a future event or payment — requires careful analysis.

Under the Act, the luxury tax generally becomes payable at the time of the qualifying sale, which is the point at which the vendor transfers possession or control of the vehicle to the purchaser in exchange for consideration. In a standard lease arrangement, where the lessee never acquires ownership, the luxury tax is embedded in the lease pricing by the registered vendor at the commencement of the lease. The lessee does not separately remit luxury tax, but bears the cost through the lease payments.

In a lease-to-own or conditional sale structure, however, the analysis is more nuanced. Where the arrangement is structured such that the lessee or conditional buyer acquires an option or obligation to purchase the vehicle at the end of the term, the CRA’s position on whether the luxury tax arises at commencement or at the exercise of the option or satisfaction of the condition depends on the specific contractual terms. Transactions where the parties have structured the arrangement in a way that defers the qualifying sale to a date after the applicable threshold is exceeded — for example, after the vehicle’s market value has declined below $100,000 — are likely to attract CRA scrutiny.

Taxpayers entering into balloon payment arrangements, sale-leaseback transactions involving luxury vehicles, or conditional sales should obtain independent legal advice before the transaction closes. The structuring of the arrangement can have material luxury tax consequences that are not always apparent from the face of the contract.

Luxury Tax Registration: Who Must Register, How, and Consequences of Non-Compliance

The luxury tax registration obligation applies to any Canadian business that is a manufacturer, wholesaler, retailer, or importer that sells or imports subject vehicles priced above $100,000. Following the 2025 amendments, registration in respect of aircraft or vessel transactions is no longer required for those categories. Vehicle vendors remain subject to the obligation.

Registration must be completed by the earlier of the day of the first sale or first import of a subject item. The CRA administers this through Notice LTN1. Businesses register via the Business Registration Online portal, through the CRA My Business Account by completing Form L500, or by postal mail with the completed Form L500. Where applicable, Form L500-1 (Non-Resident — Records Kept Outside Canada) or Form L500-2 (Authorization for Separate Returns for Branches and Divisions) may also be required. There is no registration fee.

Registered vendors remit using Form B500 (Luxury Tax and Information Return for Registrants). Non-registrants who are nonetheless liable — including importers in certain circumstances — use Form B501.

Consequences of Failing to Register

A vendor who is required to register and fails to do so is liable under the Select Luxury Items Tax Act for all luxury tax that should have been collected and remitted, plus penalty and interest. The penalties for failure to register are separate from — and in addition to — the underlying tax liability. A vendor who collects luxury tax without being registered also faces specific penalties. These are not minor administrative infractions: the CRA has indicated that registration compliance is an enforcement focus, and the luxury tax revenue generated by the vehicle segment means that non-registered vendors who have transacted on luxury vehicles above the threshold are likely to be identified through CRA data-matching of vehicle registration and title transfer records.

As of October 2025, the scope of the Voluntary Disclosure Program was formally expanded to cover the Select Luxury Items Tax Act, in addition to the Income Tax Act, Excise Tax Act, and Underused Housing Tax Act. This expansion directly addresses the question of retroactive dealer registration: a vendor who has failed to register under the SLITA and has collected no luxury tax on transactions that required it can now file a VDP application specifically to correct that position, disclose the unremitted luxury tax, and seek relief from the associated penalties. Prior to October 2025, the VDP was not formally available for SLITA non-compliance, and vendors had no clear mechanism for proactive correction short of simply registering late and paying the arrears with interest and penalties. The expanded VDP changes that position materially. A proactive VDP application filed before the CRA identifies the non-compliance provides access to penalty relief that is not available once the CRA has initiated contact. Vendors who have failed to register and have not yet been contacted by the CRA should seek legal advice immediately on whether a VDP application under the expanded SLITA scope is appropriate. More information on the VDP process is available through the firm’s Canadian tax amnesty practice.

Importing Luxury Vehicles into Canada: CBSA Rules and the Form B3 Process

For taxpayers who acquire a subject vehicle outside Canada and import it, the luxury tax is administered by the Canada Border Services Agency rather than the CRA directly. CBSA Memorandum D18-4-1, Select Luxury Items Tax on Importations, governs this process in detail.

The luxury tax on an imported vehicle is reported and paid using the CBSA’s standard customs entry form — Form B3, the Canada Customs Coding Form — at the time of importation. The taxable amount is generally the price paid or payable for the vehicle, converted to Canadian dollars at the applicable exchange rate, plus any amounts that would be included in the total item value under the Act (such as improvements or delivery costs). If the taxable amount exceeds $100,000, luxury tax is payable at the border as a condition of importation.

Cross-border acquisition strategies designed to avoid the luxury tax through foreign purchase and importation carry significant risk. The taxable amount on importation is determined by the CBSA based on the transaction value of the vehicle, which the CBSA may reassess if it concludes that the declared value is understated. Non-resident purchasers who import vehicles into Canada are subject to the luxury tax on the same basis as domestic purchasers. The CBSA and CRA share information, and attempts to circumvent the luxury tax through importation are likely to result in reassessment, penalties, and potential referral for criminal investigation in egregious cases.

The Luxury Tax-Paid Certificate: Function, Limits, and Transitional Considerations

A Tax-Paid Certificate, once obtained, serves as proof that the luxury tax due on a specific item has been paid, so that the tax does not apply again to a subsequent transaction involving the same item. The certificate specifies the identification number of the subject item, the date on which it came into effect, confirmation that tax was paid, and any other prescribed information.

There is a one-year limit on the application of a Tax-Paid Certificate, with possible exceptions that can be granted by the CRA. This limit means that a Tax-Paid Certificate does not provide indefinite protection against re-imposition of the tax on subsequent transactions; buyers of used luxury vehicles that change hands more than one year after a certificate was issued should confirm whether the luxury tax applies to their specific transaction.

Transitional Considerations for Aircraft and Vessel Certificates

For buyers and vendors who acquired subject aircraft or vessels between September 1, 2022 and November 4, 2025 and obtained Tax-Paid Certificates for those transactions, the certificates remain valid confirmation that the luxury tax was properly paid on those acquisitions. The subsequent repeal of the aircraft and vessel taxes does not retroactively affect completed transactions or create any entitlement to a refund of luxury tax already paid on those transactions.

Aircraft or vessel owners who paid luxury tax on their acquisition and are now selling the asset should note that the Tax-Paid Certificate framework continues to govern that asset’s prior tax history, even though no luxury tax will apply to the current sale. The certificate is still relevant documentation for the transaction record, and buyers of aircraft or vessels that previously attracted luxury tax may wish to confirm the prior tax position as part of their due diligence.

Corporate Vehicle Tax Implications: CCA, Leasing, Shareholder Benefits, and ZEV Rules

For corporate purchasers, the luxury tax interacts with several provisions of the Income Tax Act in ways that materially affect the after-tax cost of acquisition. The deductibility of motor vehicle expenses and the applicable CCA ceiling are central planning considerations.

Class 10.1 CCA Ceiling for Conventional Passenger Vehicles

The capital cost allowance ceiling for Class 10.1 passenger vehicles is $38,000 (before tax) for the 2025 taxation year, adjusted periodically by the Department of Finance. A conventional luxury vehicle acquired at $180,000 plus taxes will have its depreciable base capped at approximately $38,000 plus applicable sales taxes. The significant additional cost attributable to the luxury tax and compounded sales taxes produces almost no additional CCA benefit. The monthly deductible leasing cost for passenger vehicles is capped at $1,050 (2025) regardless of the actual lease payment.

Zero-Emission Vehicle CCA: A Materially Different Rule

For zero-emission passenger vehicles — a category that encompasses many luxury electric vehicles including high-end Tesla, Lucid Air, Rivian, and other EV models priced above $100,000 — a separate and significantly higher prescribed amount applies. The CCA ceiling for zero-emission passenger vehicles (ZEPVs) is $61,000 (before tax) for the 2025 taxation year, compared to $38,000 for conventional vehicles. This difference of $23,000 in depreciable base produces a meaningful tax advantage for corporate purchasers of luxury ZEVs over equivalent conventional vehicles, and should be factored into acquisition decisions where the choice between comparable conventional and electric luxury vehicles is otherwise close.

It is important to note that the $61,000 ZEPV ceiling does not eliminate the luxury tax exposure on the acquisition: a $120,000 ZEV still attracts luxury tax under the Select Luxury Items Tax Act in the same way as a conventional vehicle. The $61,000 CCA ceiling simply determines how much of the total acquisition cost can be depreciated for income tax purposes, and it is higher for ZEVs than for conventional vehicles.

Shareholder Benefit Exposure

Where a vehicle owned by a corporation is made available for personal use by a shareholder or related person, the Income Tax Act requires a standby charge and operating cost benefit to be included in the shareholder’s income annually. The standby charge is calculated on the vehicle’s original cost to the corporation — a figure materially inflated by the luxury tax and compounded sales taxes. The CRA’s rules on this calculation are addressed in the firm’s article on personal trips in an employer’s car and CRA taxable benefit calculations.

CRA Tax Audit Exposure: What to Expect When the CRA Examines a Luxury Vehicle Transaction

High-value vehicle transactions routinely attract CRA scrutiny. For a comprehensive overview of surviving a CRA tax audit, the firm’s dedicated guide addresses the full process and taxpayer rights. In the specific context of luxury vehicles, the CRA’s inquiries tend to focus on several recurring areas.

In a typical luxury vehicle audit, the CRA will request documentation supporting the sale price and any trade-in or improvements valuation, evidence of business use including contemporaneous mileage records, corporate ownership documentation confirming any shareholder relationship to the vehicle, exemption certificate documentation where an exemption was claimed, and GST/HST input tax credit claims. The business-use percentage is the CRA’s primary target: the Income Tax Act permits a reduced standby charge and operating cost benefit where a vehicle is used more than 50% for business, but only where the taxpayer maintains a mileage log kept contemporaneously from the date of acquisition.

Gross negligence penalties under section 163(2) of the Income Tax Act can apply where the CRA establishes wilful default or carelessness amounting to gross negligence. The standard for these penalties in vehicle-related disputes is discussed in the firm’s analysis of gross negligence penalties in Canadian tax law.

Where a CRA inquiry escalates beyond the ordinary audit function into what appears to be a penal investigation, the Supreme Court of Canada’s decision in R. v. Jarvis establishes that the taxpayer acquires enhanced constitutional protections once the dominant purpose of the inquiry shifts toward enforcement. An experienced Canadian tax litigation lawyer should be retained immediately at that point. In the firm’s experience advising clients through CRA luxury vehicle audits, the most common vulnerabilities are the absence of a contemporaneous mileage log, inconsistency between the business-use percentage claimed and the usage evident from available records, and failure to properly document exemption certificate eligibility where an exemption was claimed.

Pro Tax Tips — Expert Canadian Tax Lawyer Guidance on Luxury Tax Planning

The luxury tax may appear straightforward with its two-formula structure, but the total item value must include improvements, additions, and delivery charges, creating disputes about the correct tax payable. Our experienced Canadian tax planning lawyers recommend that any improvements or additions be made after receipt of the subject item so they will not be included in the total item value at acquisition. On a vehicle priced just below the $100,000 threshold, this timing difference can determine whether the luxury tax applies at all.

Buyers and vendors should also review the available exemptions carefully before a transaction closes. The resale exemption, export exemption, and diplomatic exemptions each require specific documentation — particularly the exemption certificate — to be provided before or at the time of sale. An exemption that is not properly documented at closing cannot generally be claimed retroactively, and the vendor bears liability for any luxury tax that should have been collected and was not, absent a valid certificate obtained in good faith.

High-net-worth Canadians and corporate decision-makers should calculate the full all-in acquisition cost before committing to a luxury vehicle purchase, incorporating the federal luxury tax, the compounding GST/HST stacking effect, and the province of acquisition. The difference between acquiring a $150,000 vehicle in British Columbia versus Alberta can exceed $30,000 in total taxes. Where a corporate acquisition is contemplated, the applicable CCA ceiling — $38,000 for conventional vehicles and $61,000 for zero-emission passenger vehicles in 2025 — and the monthly leasing cost deduction limit of $1,050 must be modelled explicitly, as income tax deductibility is severely constrained regardless of the actual acquisition cost.

Taxpayers who use corporate vehicles for mixed personal and business purposes must maintain a contemporaneous mileage log without exception. The mileage log is the single most important document in any CRA luxury vehicle audit: its absence almost invariably results in full standby charge inclusion and gross negligence penalty exposure. Establishing the log at acquisition — not retroactively when an audit notice arrives — is the only reliable protection.

Vendors who have failed to register and purchasers who have improperly claimed exemptions in prior transactions should explore the Voluntary Disclosure Program before any CRA contact occurs. A proactive VDP application provides the strongest available platform for penalty relief and can significantly reduce both penalty and interest exposure.

FAQs: Canadian Luxury Tax

When is the luxury tax due?

The luxury tax is due at the filing deadline of each reporting period. Registered vendors file using Form B500; non-registrants use Form B501. For importations, the luxury tax is collected by the CBSA at the border using Form B3.

Does the luxury tax still apply to aircraft and vessels?

No. Effective November 5, 2025, the luxury tax is no longer payable on subject aircraft or subject vessels. CRA Notice LTN5 confirmed the exemption, and Bill C-15 (SC 2026, c. 3) formally legislated the repeal with Royal Assent on March 26, 2026. The vehicle tax is unchanged.

Do I need to register for the luxury tax?

A Canadian business that sells or imports luxury vehicles priced above $100,000 must register with the CRA using Form L500. There is no fee for registration. Failure to register exposes the vendor to penalties, interest, and liability for uncollected luxury tax. Vendors who have transacted without registering should seek legal advice on whether a VDP application is available.

What exemptions are available from the luxury tax?

The most commonly applicable exemptions are the resale exemption (for registered vendors acquiring vehicles for resale), the export exemption (for vehicles sold for export outside Canada), and the diplomatic exemption (for vehicles supplied to accredited foreign representatives and international organizations). Each exemption requires specific documentation — typically an exemption certificate — to be provided before or at the time of the sale. Exemptions cannot generally be claimed retroactively.

How is the luxury tax calculated on a vehicle?

The tax is the lesser of 10% of the total vehicle price or 20% of the price exceeding $100,000. The total price must include improvements, additions, and delivery charges incurred before delivery. On a $150,000 vehicle the tax is $10,000. The 10% ceiling applies on vehicles above $200,000.

Does GST/HST apply on top of the luxury tax?

Yes. GST/HST is calculated on the full transaction price including the embedded luxury tax. In Ontario, a buyer on a $150,000 vehicle pays 13% HST on approximately $160,000, not on $150,000 alone. This stacking effect adds materially to the all-in acquisition cost and varies significantly by province.

Which province has the highest total tax on luxury vehicles?

British Columbia. For vehicles at $150,000 and above, BC applies a 20% PST on the vehicle price plus 5% GST on the luxury-tax-inclusive amount, producing approximately $48,000 in combined taxes on a $150,000 vehicle. Alberta, with no provincial sales tax, is the lowest-cost province.

Does the luxury tax apply to zero-emission vehicles?

Yes. The luxury tax applies to zero-emission vehicles that otherwise meet the definition of a subject vehicle and are priced above $100,000. However, zero-emission passenger vehicles benefit from a higher CCA ceiling of $61,000 (2025) compared to $38,000 for conventional vehicles, providing a more favourable income tax deduction position for corporate purchasers. The luxury tax itself is calculated the same way for both vehicle types.

Does the luxury tax apply to leased vehicles?

Yes. The luxury tax is embedded in lease pricing by the registered vendor at the commencement of the lease. In a standard lease, the lessee does not separately remit luxury tax but bears the cost through lease payments. In lease-to-own or conditional sale structures, the analysis is more complex and depends on the specific contractual terms. Taxpayers entering into these structures should obtain legal advice before closing.

How does importing a luxury vehicle work for luxury tax purposes?

The luxury tax on an imported vehicle is administered by the CBSA and reported on Form B3 (Canada Customs Coding Form) at the time of importation. The taxable amount is generally the price paid or payable plus applicable additions, converted to Canadian dollars. If the taxable amount exceeds $100,000, luxury tax is payable at the border. Cross-border strategies designed to avoid the luxury tax carry significant risk and are subject to CBSA and CRA enforcement.

What is the CCA limit for a luxury vehicle acquired by a corporation?

For the 2025 taxation year, the Class 10.1 CCA ceiling is $38,000 before sales taxes for conventional passenger vehicles, and $61,000 before sales taxes for zero-emission passenger vehicles. Only these amounts form the depreciable base for income tax purposes, regardless of the vehicle’s actual acquisition cost.

Can ownership of a luxury vehicle by a corporation trigger a shareholder benefit?

Yes. Where a corporation makes a vehicle available for personal use by a shareholder or related person, a standby charge and operating cost benefit must be included in the shareholder’s income annually. Because the standby charge is calculated on the vehicle’s original cost to the corporation, the luxury tax indirectly increases annual taxable benefit exposure, not just the one-time acquisition cost.

What should I expect if the CRA audits my luxury vehicle transaction?

The CRA will typically request sale price documentation, contemporaneous mileage logs, exemption certificate records, corporate ownership records, and GST/HST input tax credit claims. The absence of a contemporaneous mileage log is the most common vulnerability. If the inquiry appears to extend toward penal investigation, retain an experienced Canadian tax litigation lawyer immediately, as the Jarvis framework may apply.

What can I do if I made filing errors related to the luxury tax?

As of October 2025, the Voluntary Disclosure Program was formally expanded to cover the Select Luxury Items Tax Act. This means that both vendors who failed to register and purchasers who improperly claimed exemptions can now file a VDP application specifically under the SLITA to correct prior non-compliance and seek penalty relief before the CRA identifies the issue. A successful VDP application can provide penalty relief and reduced interest exposure.

Does the luxury tax apply to antique and classic vehicles?

No. The luxury tax applies only to vehicles manufactured after 2018. An antique or classic vehicle manufactured in or before 2018 does not meet the definition of a subject vehicle under the Select Luxury Items Tax Act, regardless of its current market value. A 1969 Jaguar XKE (E-Type), for example, may sell for well over $100,000 today, but because it was manufactured in 1969, no luxury tax applies to its purchase or sale at any price. Collectors and dealers should note, however, that the CRA may scrutinize transactions where the manufacture date is disputed or where a vehicle is represented as a pre-2019 model to avoid the tax.

Does the luxury tax apply to used vehicles?

In certain circumstances, yes. The application depends on whether the specific transaction meets the legislative criteria under the Select Luxury Items Tax Act, including whether the vehicle was previously registered before September 2022. A Tax-Paid Certificate from a prior transaction may also be relevant. Taxpayers acquiring used luxury vehicles should confirm the tax status before closing.

For a FREE 10-minute consultation with a student (Canada only), contact Rotfleisch & Samulovitch P.C. at taxpage.com.

Published: August 2, 2022
Last Updated: June 23, 2026