Ontario Used Car Sales Tax: A Quick Guide

If you're thinking about buying a used car from a dealership or a private seller, you might be wondering if you have to pay sales tax and how much it would be.

When you buy a used car in Canada, the amount of sales tax you pay can vary depending on where you live and the type of purchase. In some places, you might have to pay luxury tax, provincial and federal sales taxes, or even no taxes at all.

To help you figure out what you'll need to pay, here’s an overview of the sales taxes you'll face in Ontario when buying a used car.

 

How much tax do you pay while buying a used car from a dealership in Ontario?

You can expect to pay 13% HST (Harmonized Sales Tax) when purchasing a used vehicle from a dealership.

When you buy a used car from a dealership, you have to pay both the federal sales tax (GST) and the provincial sales tax, just like when buying a new car.

Since the dealership is a GST/HST registrant, they will charge you 13% on the purchase price of the car and send that amount to the Canada Revenue Agency (CRA). This sales tax applies to both new and used vehicles.

 

How much tax to pay when buying from a private seller in Ontario?

You still need to pay a 13% tax when buying a used car from a private seller. However, this tax is slightly different from the one you pay when buying from a dealership.

Instead of paying HST at the time of purchase, you'll pay a 13% Retail Sales Tax (RST) when you register the vehicle.

It's important to note that RST is calculated differently from HST. While HST is based on the sale price, RST is based on either the purchase price of the vehicle or its wholesale value (according to the Canada Red Book).

If the purchase price is higher than the wholesale value, that amount will be used to calculate RST, and vice versa. However, if the vehicle is valued at less than $1,000 in the Canada Red Book, you’ll pay RST based on the purchase price.

 

Sales tax exemptions in Ontario

In Ontario, you don't need to pay RST if:

• You receive the car as a gift from a family member.

• You bought the car in another province and are moving to Ontario.

• You have Indian Status or are a foreign representative who is exempt.

• You inherit the car through an estate bequest.

 

How sales tax affects car loans in Ontario

When you buy a car in Ontario, you have to pay sales tax on top of the price. This means the total cost is higher than the sticker price.

If you're getting a car loan, you can usually include the sales tax in the loan amount. So, not only are you borrowing money to pay for the car, but you're also borrowing money to pay the tax.

Basically, the sales tax makes your car loan bigger.

 

How to pay less tax on a used car?

You can't completely avoid paying taxes on a used car, but you might be able to pay less.

One way to do this is to trade in your old car for a new one. Trading in your car can help you pay less for your new car because it can be used as a down payment. However, it won't change the amount of tax you have to pay. 

 

Read: How to Trade in a Car with an Outstanding Loan

 

But, if you owe more money on your old car than it's worth (negative equity), trading it in might not be a good idea. Instead, you could try to sell your car yourself or look into other options like taking over a car lease.

 

Read: How to Get Rid of Negative Equity on Car Loan

 

In summary, buying a car in Ontario means you'll pay sales tax (HST) on top of the price, and this tax can add a big chunk to the total cost. If you're borrowing money to buy the car, the loan amount will also be higher because of the tax. So, make sure you know the total cost before you buy and that you can afford it.

Finding a car you love at a price and financing rate that suits you is easy at Approval Genie. Reach out to our team or apply for auto financing online.