Tax on luxury goods: what you need to know

The federal government’s luxury goods tax took effect on September 1, targeting luxury cars, private jets and yachts.

Luxury goods tax bills were first introduced in last year’s federal budget, but a bill to enact the tax was not introduced until April 2022. the luxury items tax received royal assent in June 2022.

Finance Minister and Deputy Prime Minister Chrystia Freeland said the tax will help ensure that the wealthiest Canadians pay their fair share of taxes. But the move has also been criticized by aircraft and shipbuilders, who say the tax could kill jobs in their industries.

Here’s what you need to know about the tax and how it’s implemented:


The new federal tax covers new vehicles, aircraft and vessels manufactured after 2018 and exceeding certain price thresholds.

For vehicles and aircraft, the luxury tax applies to goods priced over $100,000, while ships over $250,000 are subject to the tax.

Only vehicles typically used as personal vehicles, such as sedans, sports cars, minivans and SUVs, will be taxed under the Select Luxury Items Tax Act. The vehicle must have a weight of 3,856 kilograms or less and have seats for 10 passengers or less. Motorcycles, ATVs, snowmobiles, motor homes, ambulances, police cars, fire engines and military vehicles are exempt from the tax.

There is no exemption for electric vehicles, and critics have warned the tax could hit vehicles intended to help the environment, as prices for some electric vehicles can exceed $100,000.

For aircraft, the products covered by the Act include airplanes, helicopters and gliders that can accommodate less than 40 people. Commercial aircraft, such as airliners or cargo planes, are exempt.

Vessels covered by the law include yachts, sailboats, deck boats, water ski boats and houseboats. Houseboats, fishing boats, ferries and cruise ships are not subject to the tax.


Tax is calculated as the lesser of:

  • 10% of the item price, or
  • 20% of the price of the item subtracted from the threshold (either $100,000 or $250,000)

For example, a luxury car priced at $110,000 would be subject to a tax of $2,000, since 20% of $10,000 is less than 10% of $110,000. However, a $560,000 yacht would be subject to a $56,000 tax because 10% of $560,000 is less than 20% of $310,000.

The taxable amount excludes PST, GST, HST and QST, but includes all customs fees and tariffs to which the item may be subject.


The tax must be paid by manufacturers, wholesalers, retailers and importers of the luxury items concerned. Sales of these items to manufacturers, wholesalers and retailers are exempt from tax, so the items will not be taxed twice.

Manufacturers, wholesalers, retailers and importers will need to file with the CRA as a registered seller under the Act.


The luxury goods tax has drawn widespread criticism from executives in the aerospace and marine sectors, who have called the tax a “job killer”.

In December 2021, the National Marine Manufacturers Association Canada published an article explaining how the tax could result in at least $90 million in reduced revenue for boat dealers, as well as the loss of 900 full-time jobs.

“Unfortunately, the government failed to recognize that a luxury tax would not target the wealthy. Instead, it will punish dealers, manufacturers and middle-class workers who will become collateral damage,” association president Sara Anghel said in a press release at the time.

Organizations representing the aviation industry also sent a letter to Freeland and Prime Minister Justin Trudeau in May 2022, saying the tax could result in $1 billion in lost revenue and more than 1,000 job losses.

“The trickle-down effect of implementing this proposed luxury tax on private jets will have long-term adverse effects on the average working-class Canadian family,” the letter states.

Industry groups also pointed to a report by the Parliamentary Budget Officer that the tax could result in $2.8 billion in lost sales over the next five years.

Asked about those concerns, Freeland told reporters at a press conference on Wednesday that it was “completely reasonable” to ask someone who can afford a luxury car, plane or boat to pay an additional fee.

“I think it’s great for Canadians to be successful. It’s great for Canadians to be successful. I also think people who are doing really well should feel comfortable supporting everyone. world,” she said. “And, I bet if you ask the truckers and mechanics that are here, do they think it’s fair that someone who spends $250,000 on a boat pays a 10% luxury tax so we can allow us the things that we need as a country? I bet they’d be like, ‘Yeah, that makes a lot of sense.'”

With files from CTV News’ Rachel Aiello