Budget 2025 Kills Luxury Tax for Boats and Planes, Keeps it for Cars

Plane buyers and boat buyers will no longer have to pay a luxury tax when they buy a high price vessel, but buyers in the market for an automobile worth more than $100,000 will still have to factor the tax into their buying decision we have learned following the publication of the Liberal government's proposed Budget 2025.

The levy is worth 10 per cent of the value of a (terrestrial) passenger vehicle, or 20 per cent of the value over $100,000, whichever is less. Meanwhile, the same rates apply to boats and planes worth more than $250,000.

The surcharge was introduced in 2022, and has long been opposed by the industry. Indeed, the Canadian Automobile Dealers Association (CADA) told Automotive News it was “surprised” to see the tax rolled back on aircraft and watercraft, but not on vehicles. It added that it will be “engaging the government to understand the reasoning behind its approach.”

In its budget, the minority government wrote that it was proposing the elimination or modification of tax measures that “have proven to be inefficient, costly to administer, and challenging for Canadian industries.”

It added that its decision to cancel the luxury tax on boats and planes, specifically, was made to provide those industries with relief and to “increase the overall efficiency of the luxury tax framework.” The government estimates that these tax cuts could save buyer $135 million over the next five years.

While the automotive sector will continue to be impacted by the luxury tax, the budget proposes other cuts that may help the industry. A “productivity super-deduction” will allow companies to write off capital investments faster, in an attempt to make production in Canada more attractive.

Budget 2025 must now get Parliamentary approval before being adopted into law. The government’s positions on other automotive topics, including tax rebates for electric vehicles and zero-emission vehicle mandates will be addressed in the coming weeks.