"Luxury tax" on vehicles in effect since September 2022
As of September 1, 2022, the Certain Luxury Goods Tax Act is in Canada. This means a federal "luxury tax" must be applied to new, never-registered vehicles manufactured after 2018 worth more than $100,000.
This new tax applies to new cars and airplanes priced over $100,000 and new boats priced over $250,000.
The federal government estimates that the tax will raise more than $604 million over the next five years.
How is the "luxury tax" calculated?
The tax that applies to any vehicle over $100,000 is determined based on the smaller of the following two amounts:
20% of the value over the $100,000 threshold Or 10% of the total value of the vehicle
For example, the Mercedes G-CLASS SUV sells for $150,000.00, so it will be taxed $10,000, or 20% of $50,000.
However, a buyer who purchases a car worth $500,000 will have to pay $50,000 in luxury taxes. That is 10% of the total value, instead of 20% of $400,000, which would have resulted in a surcharge of $80,000.
Of course, this tax is in addition to the GST and provincial taxes.
There are a few exceptions to the luxury tax. The good news for future RV buyers is that RVs are not subject to this new tax.
Other types of vehicles such as ambulances, police vehicles and other vehicles used by emergency services are also exempt.