Beginning September 1, 2022 certain luxury vehicles imported into Canada will be subject to Canada's new Select Luxury Items Tax Act. This Act is a revenue generating tool for the government that is directed at affluent Canadians who can afford to purchase these luxury vehicles.

The tax will be payable on subject vehicles, valued at $100,000.00 CAD or more, at the lesser rate of 20% of the value above $100,000.00 CAD OR 10% of the full value of the luxury car (inclusive of any duties or taxes payable). The tax is also payable on improvements made to subject vehicles and leased vehicles.

Under subsection 2(1) of the Act, a subject vehicle means a motor vehicle with a date of manufacture after 2018 that meets all of the following conditions:

• It is designed or adapted primarily to carry individuals on highways and streets.
• It has a seating capacity of not more than 10 individuals.
• It has a gross vehicle weight rating that is 3,856 kg or less.
• It is designed to travel with four or more wheels in contact with the ground.

Specific examples of vehicles that could be subject to the luxury tax include convertibles, coupes, light-duty pickup trucks, sedans, hatchbacks, and sport utility vehicles (SUVs).

A motor vehicle that has already been registered with a government before September 2022, is excluded from this definition, provided that possession was also transferred to the user of the vehicle before this date. 

In general, the following vehicles are also considered exempt from the Luxury Tax:

• Motor vehicles manufactured before 2018
• Motorcycles/Trikes
• Vehicles clearly marked for policing activities
• Vehicles clearly marked and equipped for emergency medical or fire response activities
• Ambulances
• Hearses
• Recreational vehicles, such as motorhomes, designed or adapted to provide temporary residential accommodations and equipped with at least four of the following:
                - cooking facilities
                - a refrigerator or ice box
                - a self-contained toilet
                - a heating/air-conditioning system that can function independently of the vehicle engine
                - a potable water supply system that includes a faucet and sink
                - a 110-V to 125-V electric power supply, or a liquefied petroleum gas supply, that can function independently of the vehicle engine

• Vehicles whose purchased contract was signed and completed prior to January 1, 2022

How Is The Tax Calculated?

The tax will be payable at the lesser of 20% of the value above $100,000.00 CAD OR 10% of the full value of the luxury car plus any duties or taxes (green levy or excise). 

Car valued at $120,000.00 CAD
Subject to 6.5% duty: $7,800.00
Excise Tax for Air Conditioning: $100.00
Green Levy: $0
Value subject to Luxury Tax: $127,900.00
Amount over 100K: $27,900.00

Pay whichever is lesser:

10% of full value
127,900 x 10% = 12,790

OR

20% of value above 100K
27,900 x 20% = 5,580

Amount of Luxury Tax payable: $5,580.00 CAD

Duties, taxes and other fees also payable at the time of importation: Duty $7,800.00, Excise $100.00, GST $6,674.00 and any service fees from your service provider. 

After importation you may also be required to pay a registration fee to the Registrar of Imported vehicles (RIV), provincial sales tax (PST) and any other inspection fees required.

Commercial Importations 

Importers, including manufacturers, wholesalers and retailers, who are in the business of selling subject vehicles in Canada are required to register with the Canada Revenue Agency (CRA) either online or by submitting an L500 application. This allows for the luxury tax payment to be deferred until the sale of the vehicle to the consumer or registration of the vehicle for your own use (i.e. demo or loaner vehicles). Registrants are also required to file quarterly reports informing CRA their luxury tax payable using Form B500, Luxury Tax and Information Return for Registrants. 

Personal And Own Use Importations 

Registration with the CRA is not required. Payment of Luxury Tax is required, unless the written contract for the sale of the vehicle was completed prior to 2022.

Penalties for failing to register when required, claiming to register when not, or non-payment of the luxury tax, depend on the infraction and range from $1,000 to 150% of the luxury tax payable.

Do you need help determining if your imports are subject to this Luxury tax, or how much you could expect to pay to import a vehicle? Contact our Trade Advisor Services for assistance.