If your corporation is considering a high-end purchase this year, you need to throw out the old rulebook. On November 5, 2025, the Canadian federal government fundamentally changed the Select Luxury Items Tax Act.
While the “Luxury Tax” was once a triple threat, Budget 2025 has officially eliminated the luxury tax on private aircraft and boats. However, for high-end vehicles, the tax remains in full effect and carries significant implications for your T2 corporate income tax return. Here is the 2026 roadmap for Canadian corporation owners.
The 2026 Luxury Tax Landscape: What’s Taxable?
As of this year, the luxury tax applies only to automobiles (including SUVs and light-duty pickups) that meet the following criteria:
- Price Threshold: Over $100,000 (before GST/HST).
- Manufacture Date: Post-2018.
- Weight: Gross vehicle weight rating of 3,856 kg or less.
- Seating: Designed to carry fewer than 10 passengers.
Expert Note: If you are buying a private jet or a corporate yacht in 2026, the luxury tax is zero. This is a major win for corporate investment, but don’t forget that “taxable benefits” still apply if shareholders use these assets personally.
Handling Luxury Tax on Your T2 Corporate Return
When your corporation buys a $150,000 executive vehicle, the luxury tax isn’t just a one-time fee; it changes your accounting for years.
1. The Capital Cost Allowance (CCA) Trap
For 2026, the CRA has increased the Class 10.1 (Passenger Vehicle) ceiling to $39,000 (plus tax).
- The Problem: Even if you pay $120,000 for a car plus $12,000 in luxury tax, your depreciable base for tax purposes is capped at $39,000.
- The Math: The luxury tax is added to the “cost” of the car, but you cannot claim CCA on the portion that exceeds the $39,000 limit. This results in a “permanent” tax difference where the corporation spends money it can never fully deduct.
2. GST/HST Input Tax Credits (ITCs)
Luxury tax is an excise tax, not a sales tax. However:
- You pay GST/HST on the subtotal including the luxury tax.
- While the luxury tax itself is not recoverable as an ITC, the GST/HST paid on the purchase is generally recoverable only up to the GST/HST payable on the $39,000 CCA limit.
3. Zero-Emission Luxury Vehicles (Class 54)
If your corporation buys a high-end EV (like a Tesla Model S or Porsche Taycan):
- The CCA limit is much higher at $61,000.
- While the luxury tax still applies if the price is over $100k, an EV allows you to write off a significantly larger portion of the asset cost compared to a gas-powered luxury sedan.
Audit-Proofing Your T2 Return Schedules
To avoid a “red flag” with the CRA, your T2 tax return preparation must be meticulous:
- Schedule 8 (CCA): Ensure you are separating Class 10.1 vehicles. If the car cost $150k, the “Cost of Additions” on Schedule 8 should only show the capped $39k amount (plus applicable taxes on that $39k).
- Stand-Alone Records: Keep the B500 Luxury Tax Return filed by the vendor. The CRA often cross-references these with corporate asset additions.
- Leasing vs. Buying: For 2026, deductible leasing costs remain capped at $1,100/month (before tax). If the luxury tax makes your lease $2,500/month, over half of that payment is non-deductible.
Strategic Advice for 2026
The repeal of the tax on boats and planes signals a shift in Ottawa toward encouraging “business investment.” However, the “Passenger Vehicle” rules remain a primary target for audits.
Before your corporation signs a purchase agreement for a high-value asset, let’s run a CCA projection. We can determine if a Class 54 EV or a heavier Class 16 vehicle makes more sense for your bottom line.
FAQs
- Q: Is the luxury tax gone for corporate jets? Yes. As of November 5, 2025, the luxury tax is no longer payable on aircraft or boats. This applies to both corporate and personal purchases.
- Q: Can I avoid luxury tax by buying a heavy SUV? Yes. If the Gross Vehicle Weight Rating (GVWR) is over 3,856 kg, it is generally exempt from the luxury tax. Many heavy-duty pickups and large SUVs (like certain Silverado 2500s or Hummers) fall into this “loophole.”
