Luxury tax on cars/aircraft/boats.
Luxury tax
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Your breakdown
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A tax built on a deliberately odd formula
The Select Luxury Items Tax came into force in September 2022 and it does not work like a simple percentage. The Department of Finance designed it so the bite phases in gradually rather than slamming a buyer the moment they cross the line. For a vehicle or aircraft priced above $100,000, and a boat above $250,000, the tax is the lesser of two numbers: 10 percent of the full retail value, or 20 percent of the amount above the threshold. The CRA administers it, and this tool replicates that lesser-of test exactly, returning the smaller figure as the tax payable.
Why two formulas? Because just above the threshold the 20 percent rule produces almost nothing, while the 10 percent rule would hit hard. The legislation lets the gentler number win until the two converge. That convergence happens at a clean, memorable price.
Where the two rules cross over
Set the two formulas equal for a vehicle: 10 percent of price equals 20 percent of the price minus $100,000. Solving gives a crossover at exactly $200,000. Below that price the 20 percent above threshold rule is smaller and applies. At or above $200,000 the flat 10 percent of full value takes over. So a $180,000 car pays the same dollar tax whether you think of it as 10 percent of value or not, because the 20 percent rule is still the lower of the two until you reach $200,000.
Running a $150,000 vehicle through the test
Take the default in the tool: a new vehicle with a retail price of $150,000. The threshold is $100,000. Here is the side by side comparison the calculator performs.
The lesser figure, $10,000, is the luxury tax. Note one thing many buyers miss: GST or HST then applies on top of the luxury tax, not the other way around. The luxury tax is folded into the price before sales tax is calculated, so in Ontario you would pay 13 percent HST on a base that already includes the $10,000. That stacking is exactly why this tool links to the GST/HST calculator.
Who should run this, and the category that trips people up
This calculator is for buyers of new high-value vehicles, aircraft, and pleasure boats, and for the dealers and brokers who have to quote the all-in price. The thresholds differ by category and this is where mistakes happen: $100,000 for vehicles and aircraft, but $250,000 for boats. A boat priced at $200,000 attracts no luxury tax at all even though a car at that price would. The single most common planning question is whether trimming a few options to slip just under the threshold is worth it, and near the line it often is, because crossing $100,000 by even a dollar on a vehicle suddenly brings the 20 percent above threshold rule into play. Run the exact configured price through the tool before signing, since the base the dealer uses is what the CRA will assess.
Carve-outs and the sales-tax pile-on
Before you assume the tax applies, check the exemptions: certain commercial and emergency vehicles, aircraft used mainly in business, and fishing or commercial boats fall outside the rules entirely. When the tax does apply, remember it is not the only layer. Once the luxury tax is added, GST or HST is calculated on the larger base, so a buyer in a 15 percent HST province feels the stacking more than one in a 5 percent GST province. That double effect is why the headline price and the cheque you actually write can diverge by more than the luxury tax alone.
Common questions
Does the luxury tax apply to a leased vehicle?
Yes, in substance. The registered vendor is liable for the tax when a subject vehicle is first sold or leased to a consumer, and that cost is generally built into the lease pricing. You will not see a separate line for it on a lease the way you might on a purchase, but the lessor has already paid it and recovers it through the payments. The tax is triggered once, at the first retail transaction, not at each renewal.
What counts toward the price for the threshold test?
The taxable amount includes the value of most options, upgrades, delivery charges, and certain accessories supplied with the vehicle, but it excludes the GST/HST and the luxury tax itself. Aftermarket additions installed by a third party after the sale are generally outside the calculation. If you are close to the $100,000 line, the dealer-installed extras can be what pushes you over, so it is worth asking how the vendor is computing the base.