Understanding Used Car Sales Tax

Understanding Used Car Sales Tax in Ontario - Autopark Barrie

When shopping for a vehicle, many prospective buyers focus on the asking price of a car. When buying a used vehicle, you might see a vehicle for sale by a private party that is less than a dealership. You might think that the savings is worth it to buy from a private party. But, that number is not the be-all-end-all in the amount that you will pay for the vehicle.

It is important to understand used car sales tax and the amount of money it can add to a vehicle's purchase price. Knowing the sales tax on used cars in Ontario, knowing who must pay the sales tax, and knowing sales tax calculations and exemptions can keep you from being shocked at the total and can save you money in the end.

What is sales tax, and how is it applied to used cars in Ontario? 

Retail sales tax (RST) is a tax applied to specified vehicles purchased privately within Ontario from a person who is not a Goods and Services Tax (GST/HST) registrant. While a harmonized sales tax (HST) took effect in July 2010 and replaced the RST on many items, RST remains on private purchases of specified vehicles and certain premiums of insurance and benefit plans.

The RST rate is 13% and is applied to "specified vehicles," which include motor vehicles, automobiles, motor scooters, mopeds, buses, trucks and vans, recreational vehicles (RVs), trailers, off-road vehicles, motorized snow vehicles, boats, and aircraft.

What is  used car sales tax - Autopark Barrie

Who pays the sales tax on used cars in Ontario, and are there times it is not required?

When you purchase a used car privately in Ontario, the 13% RST is payable. It is not paid to the seller; instead, you will be billed when you register the vehicle. RST is based on whichever is greater--the purchase price or the vehicle's wholesale value (Red Book). This is true whenever you purchase from a person who is not a GST/HST registrant.

However, there are some cases where RST is not required. These include if: 

  • You are moving to Ontario and bringing in a vehicle purchased before the move 
  • The vehicle was received as part of an estate bequest 
  • The vehicle was received as a gift from a family member 
  • You (the purchaser) are a qualifying foreign representative/official or Status Indian 
  • You are a registered motor vehicle dealer that is acquiring a vehicle for resale purposes (must have a valid Ontario Motor Vehicle Industry Council number) 
Who pays the sales tax in Ontario - Autopark Barrie

How do you determine the wholesale value of a used car? 

The Canadian Red Book is an industry standard that lists the wholesale and retail values of used cars. It is used by car dealers, insurance companies, and others to determine wholesale value, and, therefore, the RST of a used vehicle.

The Red Book is constantly changing, providing values based on the average amount paid for vehicles of the same make, model, and year. Mileage, vehicle condition, and accessories are not taken into account.

The RST is based on either the purchase price or the Red Book value, whichever is greater.

What are the sales tax calculations and possible tax exemptions? 

As mentioned, you will have to pay 13% of the purchase price when you register the vehicle. So, if you bought a car for $10,000, $1,300 is owed in RST.

There are instances where you can be exempted from RST or have a percentage of the tax refunded. For instance, if the purchase price is lower and you feel that the lower figure makes more sense (because of damage, excessive wear, etc.), you can have the vehicle professionally appraised and be billed based on the lower figure.

Determining the value of the used car - Autopark Barrie

Can I save money on sales tax by buying from a dealership instead of a private party? 

Yes! While sales tax is still required when buying from a dealership, it is often already factored into the price, so it is not a surprise when it is time for papers to be signed.

There are ways to offset the amount of sales tax paid. An easy way to save money on sales tax when buying a new-to-you car is by shopping at a dealership. You can take advantage of trade-in benefits. When you trade in your old car, your new car's purchase price is reduced by the value of your trade-in. This means that RST is only due on the reduced amount of the sale. You would save $130 for every $1,000 of your trade-in this way.

Sales tax is often ignored by prospective vehicle buyers until it is too late. You do not want to be shocked by an additional bill after buying a vehicle. Check out the used car inventory at AutoPark Brampton to view dozens of possible vehicles and save money on sales tax and other factors over buying from a private party.

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