Canada Luxury Tax: How Does It Affect Me?

Canada Luxury Tax

The Canadian government recently decided to subject certain vehicles to an additional tax. This luxury tax applies to vehicles made after 2018 that have been delivered or imported after September 1, 2022. At Leduc Chrysler LTD, we know there could be a bit of confusion regarding this new tax, so we've provided answers to some frequently asked questions.

What Is Canada's New Luxury Tax?

The tax is imposed on passenger vehicles with a final sale price of more than $100,000. Since that price includes other taxes, applicable duties, and charges incurred, some cars with initial costs slightly under the $100,000 threshold could qualify for the tax. The tax is applied at the point of purchase and amounts to the lesser of 10% of the retail sale price or 20% for that above $100,000.

What Should I Be Aware of When Purchasing a New Car?

When buying a new car, keep this luxury tax in mind. If taxes and other fees push the cost over the $100,000 threshold, you'll have to pay even more. For a vehicle that costs $110,000, for example, the cost of the tax would be an extra $2,000. The tax goes up as the price increases. With a vehicle that costs $200,000, your tax would be significant at an additional $20,000, so it's something you'll want to budget for.

Luxury Tax does not apply to:

a vehicle if it has a seating capacity of more than 10 individuals
a vehicle that has a gross vehicle weight rating that is 3,856 kg or higher (8,501lbs or more) ****These must be confirmed on the Transport Canada info plate on the vehicle
Pre-owned vehicles
Vehicles used for military or policing activities, ambulances, hearses, police cars, fire trucks
a recreational vehicle 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 or 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. The luxury tax is calculated on the total price for the sale of a subject vehicle, including the value of consideration for any improvements or additions made by the vendor in connection with the sale, plus any taxes, duties, charges, fees and amounts paid in respect of delivery or importation of that subject vehicle.

Excluded improvements to the vehicle

Under subsection 8(2), the following improvements are not subject to the luxury tax:

any repair, cleaning or maintenance service performed on a subject vehicle
the provision of tangible personal property to a subject vehicle to replace other tangible personal property that is damaged, defective or non-functioning
any improvement relating to a child safety seating system or a child safety restraint system
any improvement relating to a trailer or camper
any improvement that specially equips or adapts the subject vehicle for its use by, or in transporting, an individual using a wheelchair
any improvement that specially equips or adapts the subject vehicle with an auxiliary driving control to facilitate the operation of the subject vehicle by an individual with a disability
Negative equity added to a deal that increases the retail value of the vehicle will result in an increased Luxury Tax amount.
Trade-ins do not reduce the retail value of the vehicle or the Luxury Tax amount.
There is no exemption on Luxury Tax for First Nations.

Excluded from Luxury Tax Calculations

As per One-Eighty: In some cases, like service contracts or warranties, some dealer options will have to be excluded from the luxury tax calculation. They say to consult a Tax Expert for specific advice.
The General Rule is if you can "cancel it" then it is not a permanent part of the vehicle and it's corresponding value and therefore should not be included in the Luxury Tax amount.
Service & Extended Warranty Contracts - These can be cancelled
They should be exempt as they can be cancelled, can be refunded and have to do with the maintenance and use of the vehicle rather than the book value of the vehicle at the time of purchase. That is why lenders have limits on how much of this can be added to a vehicle.

Insurance

Again this is exempt as it can be cancelled and is a GST exempt item as well.

Leduc ChryslerCanada Luxury Tax: How Does It Affect Me?

Canada Luxury Tax: How Does It Affect Me?