Sales Tax for a Car: A Guide for New and Used Car Purchases

Posted : July 10, 2024
Tax for car sale in Canada

If you plan to buy a new or used car in Canada, it is important for you to understand the applicable tax for car sale. Having in-depth knowledge about sales tax for a car will help you manage your budget more efficiently. Whether you plan to buy a car through a private sale or from a dealership, you need to find out how much is car tax, especially various types of taxes applicable depending on your territory or province.

The car sales tax burden could be heavy. Sometimes, it may reach up to 15% of the purchase price of the vehicle. This differs from province to province. The tax can be higher for luxury cars, and therefore, this aspect affects one’s purchasing power. Be it HST, PST, GST, or RST, the sales tax on a used vehicle or a new one significantly differs based on province.

Consider Purchasing a Car in Another Province

The car buying process tends to be complex. It involves many steps, such as vehicle registration, approval from government agencies, etc. If you consider cross-provincial purchases, the process could be a more complex. Often, buyers consider buying vehicles or registering them in home province. This adds to their complications. Here, one may have to arrange transportation to bring his or her new vehicle home.

This could be very expensive. Moreover, if the vehicle has been registered previously in a different province, one will have to get into the hassles of transferring the title and registration to home province. This itself may incur a significant amount of fees. One should take a note of this. Importantly, you need to understand which province offers the most favourable car tax on a new car.

An equally important step is to know what the Canadian car tax terms mean. There are many terms such as HST, QST, and RST which you need to know about. Each province has a unique tax system. You need to familiarize yourself with the taxes applicable to your location. 

The Goods and Service Tax, abbreviated as GST, is a federal tax. It is set at 5% applicable throughout the nation. The exception to this is when a person buys a car from a private seller. Private sales thus might exempt you from 5% GST in British Columbia.

However, when you consider buying from a dealership, you may have to pay up to 5% more in PST, in comparison to a private sale. PSTs are known as provincial sales taxes. HST, on the other hand, combines PST and GST.

Complete Breakdown of Provincial Tax Rates on Used and New Cars

  • Alberta: No provincial sales tax
  • British Columbia: GST + PST up to 12%
  • Manitoba: GST + RST up to 12%
  • Ontario: HST up to 13%
  • Quebec: GST + QST up to 14.975%
  • Saskatchewan: GST + PST up to 11%

Own Your Dream Car Today

In another situation, when a person decides to purchase a vehicle through private sales, he may have to bear different tax rates. Alberta has no tax on private sales. However, other provinces such as British Columbia, Ontario, Manitoba, etc. May have their own structure for sales tax on a new car and used car.

In British Columbia, sales tax on used cars varies between dealerships and private sales. When you purchase through a dealership, you may have to pay up to 12% PST for vehicles priced under $125,000. On the other side, you could be exempted from the 5% GST in the case of private sales. Needless to say, luxury cars are often subject to increased tax brackets.

Considering the significant difference in provincial tax rates, it could be more appealing for someone to consider cross-border shopping, especially in places like Alberta with no provincial sales tax. But, one thing you need to know is that when you buy a vehicle in Alberta and bring it home, you may have to manage additional factors such as registration and insurance in Alberta. You need to work on these aspects before you begin the process of transporting your vehicle to your home province. Even provincial inspections might be applicable.

There is one strategy that you can embrace to reduce your tax expenses. When you trade in your old vehicle, you may end up paying tax only on the difference between the trade-in value and purchase price. This can save you good amount of money upfront. It will also help you to reduce long-term financing costs.

Conclusion

In order to navigate the entire process of car sales tax or GST on second hand vehicle or a new one, you need to understand how provincial tax system works and how you can get benefited from potential savings opportunities.

At the same time, you should take into consideration additional costs along with some logistical challenges. As you understand these implications, you are already on the verge of making an informed decision. For more information on sales tax or GST on used cars, seek professional assistance.

Jack Fortin
Auto Finance Expert

Jack Fortin is one the leading car loan and auto finance experts in British Columbia, Canada. He loves to write and share car loan news and updates.



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