Canada’s Select Luxury Items Tax came into force on September 1, 2022. As of June 2026, the luxury tax continues to apply to certain subject vehicles priced above the statutory threshold. Vendors, importers, lessors, and purchasers all face distinct obligations under the regime — and getting the analysis wrong can result in penalties, interest, and unexpected tax costs.
Who Pays the Luxury Tax?
In most cases, where a subject vehicle is sold above the applicable threshold to a non-registered purchaser, the luxury tax is payable by the vendor when the sale is completed. Generally, a sale is completed when possession or ownership transfers — whichever occurs first.
Registered vendors are required to report the tax to the Canada Revenue Agency through quarterly luxury tax returns, with payment generally due by the end of the month following the reporting quarter.
Importation by Registered Vendors
Where a registered vendor imports subject vehicles as inventory, the luxury tax is generally not payable at the time of importation. Instead, the tax is typically deferred until the vehicle is sold in a taxable sale to a non-registered purchaser.
Sales Between Registered Vendors
Sales between properly registered vendors may also occur without tax becoming payable at that time, provided the purchaser is registered for that class of subject item and the required certification or exemption documentation is provided.
When the Purchaser Bears the Tax
In limited circumstances, the purchaser — rather than the vendor — may be liable for the tax. This includes certain sales involving:
- Governments and Crown agents
- Indigenous governing bodies
- Qualifying foreign representatives
Key Takeaway: Understanding which party bears the tax liability — and under what circumstances — is essential before any transaction closes. A misstep can shift an unexpected obligation to the wrong party.
Not All Vehicles Are Subject to the Tax
A vehicle is not subject to the luxury tax simply because it is expensive. The first step is to determine whether it falls within the statutory definition of a subject vehicle.
Broadly, a subject vehicle is a motor vehicle that meets all of the following criteria:
- Designed primarily to carry individuals on highways and roads
- Seating for fewer than 10 individuals
- Gross vehicle weight rating of 3,856 kilograms or less
- Manufactured after 2018
- Four or more wheels in contact with the ground
As a result, some vehicles commonly assumed to be “exempt” may instead fall outside the regime entirely because they do not meet the statutory definition. Depending on the facts, this may include:
- Certain motorcycles and snowmobiles
- All-terrain vehicles not intended for road use
- Motorhomes
- Racing vehicles
- Certain specialized farm or construction equipment
Statutory Exemptions
Separate statutory exemptions may also apply to certain vehicles intended for qualifying uses — for example, military, police, fire, ambulance, or hearse purposes.
Because the distinction between an excluded vehicle and an exempt vehicle can affect compliance obligations, each vehicle should be reviewed on the basis of its specific technical specifications and intended use.
Practical Note: The distinction between a vehicle that falls outside the definition altogether and one that qualifies for a statutory exemption matters. The compliance steps — and available documentation requirements — differ between the two.
Leased Vehicles
Leased vehicles are not automatically exempt from the luxury tax.
If a registered vendor owns a subject vehicle that has not previously been registered for use with a federal or provincial authority and leases that vehicle, the luxury tax may become payable when the lessee first obtains the right to use the vehicle.
Leasing arrangements should therefore be reviewed carefully, rather than assumed to fall outside the regime. Dealers, fleet operators, and leasing companies should confirm the registration history of each vehicle and the structure of the arrangement before completing any lease transaction.
How Much Tax Is Payable?
For a taxable subject vehicle priced above $100,000, the luxury tax is generally the lesser of:
- 20% of the taxable amount by which the sale price exceeds $100,000; and
- 10% of the full sale price.
GST/HST generally applies to the final consideration, including the luxury tax amount. The following table illustrates how the calculation works at different price points:
| Scenario | Calculation Method | Result |
| Vehicle priced at $120,000 |
20% × ($120,000 − $100,000) = $4,000 10% × $120,000 = $12,000 Lesser of the two applies |
$4,000 luxury tax |
| Vehicle priced at $200,000 |
20% × ($200,000 − $100,000) = $20,000 10% × $200,000 = $20,000 Equal — either method applies |
$20,000 luxury tax |
| Vehicle priced at $350,000 |
20% × ($350,000 − $100,000) = $50,000 10% × $350,000 = $35,000 Lesser of the two applies |
$35,000 luxury tax |
Note: The above figures are illustrative only and do not account for GST/HST, provincial taxes, or other charges that may apply.
Compliance Considerations
The luxury tax rules contain detailed provisions dealing with registration, certification, timing of liability, and special transactions. Failure to comply with the applicable rules may result in penalties and interest.
Before any transaction closes, vendors, importers, lessors, and purchasers should review:
- The status of the vehicle (subject vehicle vs. excluded or exempt)
- The registration status of all parties to the transaction
- The structure of the transaction, including any lease, financing, or cross-border elements
- The applicable documentation and certification requirements
Current Status of Aircraft and Vessels
Earlier summaries of the luxury tax often referred to automobiles, aircraft, and boats together. However, the current state of the law applicable to aircraft and vessels has evolved since the original 2022 framework. Any analysis involving those asset classes should be updated carefully to ensure it reflects the latest legislative status and administrative guidance.
Next Steps
For high-net-worth individuals, dealerships, importers, and leasing businesses, the luxury tax rules can raise a number of technical issues, including:
- Whether a vehicle qualifies as a subject vehicle
- Whether an exclusion or exemption applies
- How leasing arrangements are treated
- When and by whom tax becomes payable
- Related GST/HST implications
Given the complexity of the regime, each transaction should be reviewed on its own facts to ensure the correct tax treatment and compliance approach. Our team advises clients on the application of Canada’s luxury tax rules, including registration, importation, leasing structures, taxable sales, and related GST/HST implications.
July 2026
