How does Luxury Car Tax work?
If you’re looking at purchasing a high-end vehicle but are worried about this new tax hike, do some research beforehand to see if your dream car falls under the federal Luxury Car Tax in Canada.
What is the Luxury Car Tax?
The federal Luxury Car Tax came into effect on September 1st, 2022. The government’s newly imposed tax ensures that those who can afford to buy luxury goods can contribute more to taxes. This tax applies to new vehicles, boats and aircrafts, and can be easily calculated whether or not you will have to pay it.
Does this tax apply to my dream vehicle?
If you’re in the market for a new car, you might be wondering if this tax applies to your dream vehicle. The answer is it really depends. For this federal Luxury Car Tax to be applied, your vehicle must follow the criteria listed below:
- Vehicle price is above $100,000
- The type of vehicle is one of the following: A coupe, a convertible, a hatchback, a light-duty pickup truck, a sedan or a sport utility vehicle (Keep in mind electric vehicles are not exempt from this tax)
- Purpose: The vehicle is designed to carry individuals on highways and streets
- The vehicle is designed to travel with four or more wheels
- Capacity: seating capacity is for not more than 10 passengers
- Weight: Gross vehicle rating is 3,856 kg or less
- The manufacture date is after 2018
How do I calculate the Luxury Car Tax?
If your vehicle applies to the criteria listed above, then the Luxury Tax can be calculated online using a Luxury Tax Calculator, or you can do it manually from the 2 calculations below:
Calculation #1: 20% of the retail sale price above the threshold ($100,000 for vehicles) or;
Calculation #2: 10% of the total retail sale price
Let’s use an example from our inventory to put this into perspective.
Example 1 – Sale of a vehicle
2020 Tesla Model Y ($105,900)
For example, if you purchase a 2020 Tesla Model Y for $105,900, the new Luxury Car Tax could be $1,180 or $10,590. We came up with these two numbers using the two calculations listed below. So let’s break our calculations down.
Calculation #1 (20% of anything above $100,000)
Determine the amount above $100,000
= Total Price – 100,000
= 105,900 – 100,000
= $5,900
Next, we could calculate 20% of that total amount above 100,000
=5,900 x .20
= $1,180
This amount would result in a total of $1,180 for the additional vehicle cost.
Calculation #2 (10% of total cost)
= Total Price x .10
= 105,900 x .10
= 10,590
As you can see, calculation #2 (10,590) exceeds the total amount of calculation #1 ($1180). Therefore, the total amount payable will be the lesser of the 2 scenarios, which is $1180 (scenario #1).
However, as stated above, the lowest calculation will be the amount of the Luxury Car Tax, which would be $1,180 to the total cost of the vehicle.
The luxury tax also applies to the leasing of vehicles. This calculation is very similar to the sale of a vehicle; however, to calculate, you will need to determine the vehicle’s value. Keep in mind that the leased vehicle has not previously been registered with the government of Canada or a province such as British Columbia.
Moving forward, the tax will be calculated at the time of the lease agreement by selecting the vehicle’s total retail value of the FMV (fair market value) or, as stated by the Government of Canada:
The taxable amount in respect of the leasing out of a subject vehicle is the greater of the following:
- the retail value of the subject vehicle at the time at which possession of the subject vehicle is first transferred to the lessee under an agreement that is a lease, license or similar arrangement.
- the retail value of the subject vehicle at the time at which the lessee first has the right to use the subject vehicle under the agreement.
Is there any way out of this tax?
Overall, when selecting a vehicle, the Luxury Car Tax is something that must be taken into consideration when budgeting for your new vehicle purchase.
The good news is that this tax does not apply to every luxury vehicle on the market – only those that have a manufacturer’s suggested retail price (MSRP) of over $100,000 before taxes and the restrictions listed above.
Keep in mind that if the vehicle is an ambulance, a hearse, a vehicle for policing activities, equipped for emergency medical or a motor vehicle registered with a government before September 2022 is not subject to the Luxury Car Tax.
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