Are you searching for ways to reduce the taxes on buying a used car? One way to save on taxes when buying a car is to buy your own used vehicle.
When you change your car, the amount for the purchase of a new car will be reduced by the value of your vehicle. So, you would only need to pay taxes on this lower number of sales. Even better? If you are funding the purchase of a vehicle, it can help you reduce your payments in the long run.
Let’s say you purchase a used truck for CAD 50,000 in Alberta, where used vehicle buyers pay 5% federal GST. You decide to replace your old truck instead of making a cash deposit. Your car will be priced at CAD 10,000.
The good news: You pay only 5% GST on the CAD 40,000 difference between the price of the truck you buy and the value of your old truck. So, you pay CAD 2,000 instead of CAD 2,500. And instead of paying CAD 50,000 for a new, used truck, you pay (or funds) only CAD 42,500.
Do you buy a car from a family member or receive a used car from a parent or child as a gift? If so, you can pay little (or no) taxes. See your provincial website for more details.
The full amount of tax you pay when you purchase a used car depends on a combination of provincial tax and federal tax. The federal used car tax is GST only. Thus, regardless of where you are in Canada, you pay at least 5% federal tax. However, the provincial taxes for used cars vary.
One of the key things you should know about paying taxes when buying a used car in Canada is that the rules vary from province to province. In addition, the calculation of taxes can vary within a province based on factors such as the buyer-seller ratio, the method of sale, and even the age of the vehicle.
Here is an overview of how much provincial taxes you can expect to pay when buying a used car, province by province.
In Ontario, used car buyers pay no sales tax to the dealership. In most cases, however, used car buyers pay 13% RTD. The amount is created based on the purchase price or the vehicle’s wholesale value (whichever is greater).
Wondering where to find wholesale vehicle value? Check out the Canadian Red Book. It is an industry-standard used by automobile dealers, insurance companies, and other provincial governments. This includes the retail and wholesale value of used vehicles.
If the vehicle you bought in Ontario is 20 years old or older, you will need a professional appraisal.
If you purchase a used vehicle from a close family member, receive it as a gift, or have Indian status in Ontario, you pay no sales tax. For more information, visit the Ontario website.
Are you buying a used car in British Columbia? If so, you can expect to pay 12 to 20 percent sales tax, depending on the car’s value and where you buy it.
If you buy a used or old car from a dealership in BC, you pay the federal GST at 5 percent.
Are you buying from a private individual? GST does not apply to used vehicles sold privately, but one should expect to pay 12% PST for cars sold up to CAD 124,999. You’ll pay 15 percent for a car or truck that sells between CAD 125,000 and CAD 149,999, and 20 percent if you pay more than CAD 150,000.
In BC, you pay the amount owed by PST when you register your car with ICBC, the Provincial Motor Vehicle Registration and Insurance Authority. The PST is calculated based on the selling price of vehicles purchased from dealers.
In that case, it starts at 7% for vehicles priced under CAD 55,000 and goes up to 8% if the price is between CAD 55,000 and CAD 55,999. From there, it goes up 9% to a price between CAD 56,000 and CAD 56,999, 10% to CAD 57,000 to CAD 124,999, 15% to CAD 125,000 to CAD 149,999, and 20% once the price reaches CAD 150,000.
You will pay this PST in addition to the federal GST. Further information is in the BC Provincial VAT Bulletin.
Note: we have covered the major cities/ states only.