A brand new Luxury Goods Tax came into effect on September 1, targeting the purchase of luxury cars, private jets, and yachts.

The tax was introduced in last year's federal budget, with the bill introduced in April 2022 and receiving royal assent in June. This new tax covers the purchase of a number of vehicles, aircraft, and vessels manufactured after 2018 that exceed certain price thresholds.

Vehicles

• Applies to vehicles priced above $100,000
• Applies to vehicles typically used as personal vehicles, including sedans, sports cars, minivans, and SUVs
• The vehicle must have a weight of 3,856 kg or less and seating for 10 or fewer passengers
• Motorcycles, ATVs, snowmobiles, motor homes, ambulances, police cars, firetrucks and military vehicles are exempt

Aircraft

• Applies to aircraft priced above $100,000
• Applies to planes, helicopters and gliders
• The aircraft must have seating for 40 or fewer passengers
• Commercial aircraft such as airliners or cargo planes are exempt

Subject Vessels

• Applies to vessels priced above $250,000
• Applies to yachts, sailboats, deck boats, waterskiing boats and houseboats
• The aircraft must have seating for 40 or fewer passengers
• Floating homes, fishing boats, ferries and cruise ships are exempt

One thing to be aware of is that there is currently no exemption for electric vehicles. While most EVs fall under the threshold, there are a few models priced over $100,000 that will be subject to this new tax.

How Much Tax You'll Pay

Those who purchase luxury items can expect to pay the lesser of either 10% the total cost of the item, or 20% of the cost of the item subtracted by the threshold. This taxable amount excludes other taxes like PST, GST, HST, and QST, however it includes any custom fees and tariffs your luxury item is subject to.

The Luxury Goods Tax has to be paid by manufacturers, wholesalers, retailers and importers of the luxury items. Sales of the impacted luxury goods to the manufacturers, wholesalers and retailers are exempt from the tax, preventing the items from getting taxed twice.

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Sources: The Government of Canada and CTV News