Budget 2025: Welcome Relief For The Aircraft And Boating Industries From The Federal Luxury Tax

The Canadian federal luxury tax, which has been in effect since September 1, 2022, generally applies a tax of up to 10% on the value of certain transactions involving aircraft and motor vehicles with a value exceeding $100,000, and vessels with a value exceeding $250,000.

Budget 2025 proposes to amend the Select Luxury Items Tax Act (Canada) to provide that the luxury tax will no longer be applicable to sales, leases, importations and improvements of aircraft and vessels as of November 5, 2025.¹ However, the luxury tax will continue to apply with respect to transactions involving certain motor vehicles.

The key takeaways for those in the aircraft and boating industries are as follows:

1. Even though the amending legislation has not yet been passed into law, administratively the luxury tax should no longer apply in respect of aircraft and vessels, however, in the interim, the Canada Revenue Agency is still issuing special import certificates;
2. This amendment will impact not only prospective transactions but also transactions which were previously exempted from the luxury tax, thereby eliminating the need to monitor ongoing compliance with the conditions underlying the latter exemptions; and
3. Unfortunately, no relief was announced for anyone that previously paid the luxury tax on an aircraft or vessel.

The federal luxury tax was a significant obstacle to transactions involving aircraft and vessels in Canada, so this development will no doubt be welcome news for businesses in those industries.

Footnote

1. Government of Canada, "Budget 2025: Canada Strong", (November 4, 2025), pp 356, 405 "Notice of Ways and Means Motion to amend the Select Luxury Items Tax Act".

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2025