No matter where you are or what you buy, you have to pay sales tax and purchasing a used car is no exception. Despite being more affordable than buying a new car, you will have to pay sales tax, which will vary depending on where you live. Provincial sales tax on private car sales will differ from province to province. That’s why adding the sales tax to the price tag is essential whether you’re purchasing a used car in Ontario or British Columbia.
When a private seller lists a used car for sale, they will not include the sales tax in the purchase price. It will be added after you decide to purchase the used vehicle. You might think of it as a bait and switch, but it isn’t any different from buying anything else. After all, not paying sales tax has serious repercussions from the Canada Revenue Agency (CRA). With that said, let’s discuss how much tax is charged on a used vehicle in Ontario.
The sales tax added to the purchase price of a used car in Ontario
It’s a common misconception that you don’t have to pay sales tax on a used car. However, harmonized sales tax is always present whether the car is new or not.
It’s common knowledge that the sales tax in Ontario is 13%, and you will have to pay it when purchasing a used car. What you might not know is that it’s also referred to as RST (retail sales tax). Private sellers and car dealerships will put this on the bill of sale. As a private buyer, you will pay this when registering the car. The amount is the higher value between the purchase price and wholesale value. Below, we will discuss the differences in sales tax when purchasing a used car from a dealership versus a private sale:
When you pay sales tax at a used car dealership
If you’re buying your used car from a dealership, you will pay the taxes you would when purchasing a new car. This includes both the federal sales tax (GST) and provincial sales tax.
The number comes from combining 5% GST and 8% PST. Let us provide an example. If you buy a 2011 Ford Focus for $10,000 in Ontario, the HST amounts to $1,300. When divided, $500 goes to the federal government and the remaining $800 goes to the province of Ontario.
When you pay sales tax during a private sale
Your other option for purchasing a used car is through a private seller. In this case, the tax is based on the purchase price or the Canadian Red Book wholesale value. You will pay a higher amount.
However, the purchase price isn’t set in stone. You can get the vehicle appraised if you think it’s worth less than the Red book value. Following this, you will pay the lower price. The retail sales tax will be applied and the final price will appear on the bill of sale.
When you buy a used vehicle, you will almost have to calculate sales tax into the purchase price. Although private sales don’t differ much from buying from a dealership, the overall purchase price will vary, and so will how much tax you need to pay. However, there are instances where you won’t have to pay sales tax, which we will explore next.
Situations where retail sales tax is not required
You might think retail sales tax is inevitable when purchasing a new or used car in Ontario. However, there are some exceptions to this rule. When you buy a used vehicle, you need to pay the car sales tax, but there are times when it isn’t necessary. Let’s discuss them below:
Family gift
If a family member gives you their used vehicle or “gifts” their vehicle, certain taxes are not mandatory. The exemption allows the transfer to be smooth and inexpensive. To qualify, you will need to complete the Sworn Statement for a Family Gift. You will need the vehicle details (e.g., make, model, year, VIN), details of the donor (current owner) and recipient (family member), and the signatures of both parties.
The process is fairly straightforward. You can submit the form online or visit a ServiceOntario location to gift your used car without the need to pay the car sales tax.
Other exceptions
There are other scenarios where tax exemptions occur when buying a used car in Ontario. This can lead to substantial savings in some cases. Status Indigenous peoples do not have to pay sales tax when purchasing a used car from a private seller, and neither do foreign diplomats. Those registering a motor vehicle from another province don’t have to pay sales tax either.
When purchasing a used vehicle through private sales or with a dealer, it’s important to know whether or not you need to pay taxes. The amount you need to pay will vary depending on the price of the vehicle you buy. However, sales tax in Ontario will always be 13% and is mandatory outside of the exceptions noted.
Find car insurance for your used vehicle with BrokerLink!
After you pay the appropriate fees, you’ll need car insurance for your used vehicle. In Ontario, HST is not charged on car insurance. Additionally, you have the option of paying annually or monthly. If you pay once per year, you can avoid administrative fees, which are an extra amount to pay each month.
It’s there in case you get into common car accidents, and you might wonder if a police report is required for an insurance claim during common car accidents and if a car insurance claim is taxable. During the claim process, it’s up to your insurance company to determine fault. They will also answer all your questions.
Making a used vehicle purchase is a big decision that shouldn’t be taken lightly. However, once you decide to purchase and register one, you can get car insurance and hit the road. There are many policies available for your vehicle, including:
Sales tax will always be a part of any purchase price, but it’s not always disclosed right away. Always calculate sales tax before making a purchase to understand the total costs, especially on a used vehicle. Once you buy one, you’ll need car insurance and an insurance company to purchase it from. Contact BrokerLink today to find a policy that suits your needs and budget.
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