Luxury tax Canada: cars over $100,000 only, boats and planes out

Which items still pay luxury tax in 2026?

As of October 2026, only subject vehicles pay. The luxury tax is no longer payable on subject aircraft and subject vessels effective November 5, 2025, and Bill C-15, the Budget 2025 Implementation Act, No. 1, put that into law with Royal Assent on March 26, 2026 canada.ca. The repeal sits in new section 1.1 of the Select Luxury Items Tax Act, which switches off the tax on aircraft and vessels where it would otherwise become payable after November 4, 2025 laws-lois.justice.gc.ca.

A subject vehicle seats 10 people or fewer, has a gross vehicle weight rating of 3,856 kg or less and was manufactured after 2018. Ambulances, hearses, vehicles clearly marked for policing and recreational vehicles built for temporary living are left out canada.ca. Some older CRA pages, including the registration page, still describe vessels and aircraft as taxed, so lean on LTN5 when a client sends you one.

How the tax is calculated, with worked numbers

Section 34 sets the tax at the lesser of 10% of the taxable amount and 20% of the amount by which the taxable amount exceeds the $100,000 threshold laws-lois.justice.gc.ca. The two limbs meet at $200,000. Below that price the 20% limb is smaller and wins; above it, the tax is a flat 10% of the full price.

The CRA's own Ontario example shows the full bill. A $200,000 vehicle plus options, accessories, delivery, freight, fees and federal levies comes to $214,000 of consideration, so the luxury tax is $21,400 (10%, since 20% of the $114,000 excess is higher). Add $5,100 of items outside the luxury tax base (an extended warranty, uninstalled winter tires and a streaming subscription) and GST/HST applies to $240,500: $31,265 at 13%, for a total of $271,765 canada.ca.

That last step is the one clients miss. The CRA says the applicable GST/HST is applied to the final sale price including the luxury tax canada.ca. For the HST rate in each province, see HST rates by province.

What goes into the taxable amount on a sale

On a sale, the taxable amount is the consideration under subsection 18(4): the price plus options and other improvements the vendor supplies with the sale, incidental goods and services, fees and most federal and provincial levies laws-lois.justice.gc.ca.

Both lists come from the CRA's consideration page canada.ca. A trade doesn't shrink the base. In the CRA's example, a $160,000 vehicle sold at a $10,000 discount is paid for with a $50,000 trade and $100,000 cash, and the taxable amount is the full $150,000, giving tax of $10,000 canada.ca. The discount reduced the base; the trade did not.

Who pays it, registers and files

In most cases the vendor is liable for the tax. The purchaser is liable instead when the vendor is a federal or provincial government, a government agent, an Indigenous governing body or a qualifying foreign representative canada.ca.

Manufacturers, wholesalers, retailers and importers of subject vehicles over the threshold must register, using Form L500 or Business Registration Online, by the earlier of the first sale or the first importation above the threshold canada.ca. Failing to register carries a $2,000 penalty under section 109 canada.ca. A registered vendor buys inventory without paying the tax by giving its supplier Form L100-1, the exemption certificate for subject vehicles canada.ca.

Registrants file Form B500 for each reporting period, generally a calendar quarter canada.ca. The return is due by the end of the month after the quarter: April 30, July 31, October 31 and January 31 canada.ca. A person who isn't registered but owes the tax, such as a buyer liable for tax on improvements, files Form B501 on the same timing canada.ca. A rebate, for example on an export, has to be requested within two years after the end of the reporting period in which the tax became payable canada.ca.

Used vehicles, leases and improvements after the sale

A used subject vehicle that was already registered under provincial law is generally exempt when sold again. The tax still applies if the vehicle was registered only because of the sale canada.ca. Leases of used subject vehicles are also not taxed. A lease of a new one is taxed on retail value, payable when the lessee first has the right to use it; the CRA's example taxes a $230,000 retail value at $23,000 canada.ca.

Improvements made after a taxed sale can trigger more tax. If taxable improvements total $5,000 or more within the improvement period, which ends one year after the sale is completed, the purchaser owes the difference, payable the day after the period ends and reported on Form B501 canada.ca. The CRA's example: a $150,000 vehicle paid $10,000 of tax. Add $7,600 of improvements and the tax on $157,600 would be $11,520 (20% of $57,600, below 10% of $157,600), so the owner owes $1,520 canada.ca.

Aircraft and vessels: what is left to clean up

Tax on aircraft and vessels that became payable from October 1 to November 4, 2025 goes on the quarterly return for the period ending December 31, 2025. From November 5, 2025, exemption, tax and special import certificates are no longer needed for aircraft and vessels, and their registrations are cancelled automatically on February 1, 2028 with no action needed. A registrant that also sells vehicles keeps its vehicle registration canada.ca.

The file doesn't close yet. Exemption certificates and other records must be kept for six years after the end of the year they relate to, and former aircraft and vessel registrants remain open to inspection, with any assessment or rebate processed as needed canada.ca. LTN5 doesn't describe any refund of tax that became payable before November 5, 2025.