The New Luxury Vehicle Tax Has Arrived. Here’s What You Need to Know.

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By Mehrsa Raeiszadeh

You know that quality and elegance come at a price, and your car is no exception. But before you vroom out of the showroom in your shiny new ride, there’s something else you should know. As of September 1st, luxury cars sold in Canada will be subject to a new special levy, which means yet another hit to your wallet. Read on to learn more about this new tax, and what you can do to offset it.

How Much Will You Pay?

The new luxury vehicle tax doesn’t just apply to the most lavish Aston Martins or Ferraris. High-roller cars with a million-dollar price tag will be lumped into the same category as less-spendy luxury vehicles, which has some critics serving up serious side-eye. As of September 1st, passenger vehicles priced above $100,000 and manufactured after 2018 are subject to a special levy payable at the time of sale.

So, how much will you pay? If you buy a luxury vehicle priced above $100,000, you’ll fork over 10 percent of the purchase price or 20 percent of the difference between the purchase price and the $100,000 threshold, whichever is lower. If you drive a $174,000 2021 Mercedes-Benz S-Class off the lot, you’ll pay an extra $14,800 on top of sales tax. If you take home a $125,000 Tesla Model X, you’ll be dinged $5,000.

There are no exceptions for electric or hybrid cars, which critics feel unfairly penalizes owners of low-emission vehicles. In addition, according to John Stewart of the Toronto Star, the new luxury vehicle tax will be charged retroactively to sales agreements penned after January 1, 2022. Ouch. And the shakedown doesn’t end after you drive off the lot—you’ll pay tax on vehicle improvements too.

Getting Dinged for Accessories & Improvements

According to Matthew Guy of Driving, a car culture publication, owners of these snazzy new whips will also pay luxury tax on improvements to the vehicle, a detail listed far down in the new tax code’s description. In the government’s words, “improvements” include modifications like:

  • A new stereo system
  • Body kit installations
  • Engine upgrades
  • Vehicle wrap installations
  • Window tinting services
  • A remote starter

This will only apply to improvements made to vehicles that were already subject to the new luxury tax. However, if improvements are made in connection with the sale of a qualifying vehicle, the luxury tax owed on the sale of that vehicle would factor in the cost of the improvements.

Offset Tax & Save Thousands with Your Trade-in

By now you’re used to paying tax, but why pay more than you should? While there’s no way around paying this new luxury vehicle tax—sorry to be the bearer of bad news—you can save in other areas. By trading in your car the smart way, you can boost your buying power and save thousands in sales tax, making this new levy a little less painful.

When you trade in your vehicle through MintList, you only pay sales tax on the difference between the price of your new car and the value of the car you traded in. For example:

  • If you trade in a $47,000 Kia Stinger for a $125,000 Mercedes-Benz, you’ll pay 15% sales tax on the difference in value between the two cars (15% of $78,000 versus 15% of $125,000).
  • So, you’ll pay $11,700 in sales tax versus $18,750, saving you $7,000 right off the bat.
  • You’ll still pay $5,000 in luxury tax on top, but what you save in sales tax offsets that amount and then some.

Get the blog to learn how to save thousands with your vehicle trade-in.

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