Importer's guide to luxury taxes on vehicles in Canada

Importing high-value cars, vans, and trucks can quickly become more expensive because of the luxury vehicle tax in Canada. Imports with a value of $100,000 or more are subject to the Select Luxury Items Tax Act, with a handful of exceptions.

Canada’s luxury tax on vehicles has a significant impact on both consumers and vendors. Understanding how luxury tax on imported vehicles works helps to reduce the financial burden and mitigate the compliance risks associated with luxury vehicle transactions.

What is the luxury car tax in Canada?

The luxury car tax in Canada is part of the luxury tax act that the Canada Border Services Agency (CBSA) and Canada Revenue Agency (CRA) enforce. In addition to cars, trucks, and vans, the Select Luxury Items Tax on imported vehicles also applies to boats and airplanes.

Imports valued at $100,000 or more can be subject to luxury taxes on vehicles. Vehicles are subject to the luxury tax when imported, sold, leased, or improved through modifications or significant repairs. Some of the different categories of motor vehicles where the tax can be applicable includes:

• Sports cars and sedans
• Convertibles and coupes
• Sports Utility Vehicles and hatchbacks
• Light-duty pickup trucks

According to the Select Luxury Items Tax Act, these types of imports can be subject to additional duties as a subject vehicle.

What is a subject vehicle under the luxury tax?

A vehicle with a value of $100,000 or more isn't automatically subject to the luxury tax. Subject vehicles must meet the following five criteria, as outlined by the Act:

• The date of manufacture must be after 2018
• The vehicle has a gross vehicle weight rating of 3,856 kg (8501 lbs) or less
• The official seating capacity of the vehicle must be 10 people or less
• The vehicle has a design that utilizes four or more wheels on the ground
• The vehicle design is primarily for transporting people on streets or highways

If the vehicle you’re importing doesn’t meet one of these five criteria, the luxury tax doesn’t apply, regardless of the value. This means that motorcycles and vehicles that aren’t street legal will be exempt from luxury taxes.

How is the Canadian luxury vehicle tax calculated?

Importers can estimate the luxury tax on their vehicles with a simple calculation.

The luxury tax paid will be the lesser of:

Formula A - 10% of the vehicle's full value, or

Formula B - 20% of the vehicle’s full value that exceeds $100,000

So, for a vehicle valued at $110,000 CAD, the luxury tax will be $2,000 because Formula B results in a lesser amount.

What vehicles are exempt from the luxury tax in Canada?

Importers and consumers don’t have to pay the luxury tax on motorcycles and vehicles that can't be legally driven on streets, like snowmobiles. Exemptions for luxury vehicle taxes also apply to vehicles that fall into specific categories and use cases.

Imported vehicle taxes Canada exemption types

• Ambulances and medical vehicles
• Emergency vehicles
• Firetrucks and vehicles for firefighting duties
• Hearses
• Police cars, vans, and trucks
• Recreational vehicles with facilities like water, power, heating, and cooking

What scenarios trigger the luxury tax for vehicles?

Importers should be aware of the four triggers for Canada luxury tax on vehicles when conducting different types of vehicle transactions.

Luxury tax on importation

Imported vehicles valued above $100,000 will have luxury tax calculated based on the total customs value, and applicable duties and excise taxes.

Luxury tax on improvements

Significant modifications that cost $5,000 or more will trigger the luxury tax on subject vehicles. Note that the tax will be charged on both the value of the vehicle and the improvement costs.

Luxury tax on leases

Leasing vehicles that are valued above $100,000 will result in luxury tax charges, paid when the lessee gains possession or rights to the vehicle.

Luxury tax on sales

A non-registered buyer will pay a luxury tax when gaining ownership or possession of a subject vehicle.

Optimize vehicle imports with an experienced broker

Canada’s luxury tax on vehicles significantly impacts high-value purchases. Vehicle importers must navigate the complexities of the Select Luxury Items Tax Act to ensure compliance. In some cases, understanding vehicle exemptions, different tax calculation methods, and compliance requirements can mitigate the financial and legal risks associated with luxury vehicle transactions.

Cole International has more than a half-century of experience with companies operating across Canada and the U.S. Let an experienced professional broker handle the crucial details and deliver insight into import tariffs, regulations, and efficient compliance. Reach out and connect with one of our customs leaders today.

Importing. It’s what we do.