Personal Finance

Profit selling used cars privately and taxes

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  • Oct 2nd, 2010 1:26 am
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Deal Addict
User avatar
Jan 7, 2003
3055 posts
1185 upvotes
Ottawa

Profit selling used cars privately and taxes

Scenario:

X buys a car privately for $10,000
X pays 13% tax when doing ownership transfer
X spends $11,300 after taxes for the car.

6 months later buyer Y is willing to pay X, $12,000 for the car

So question is, does X need to pay taxes on the profit he made? If yes, is the total profit $2000 (12,000-10,000) or $700 (12,000 - 11,300)
3 replies
Sr. Member
Nov 10, 2003
798 posts
261 upvotes
Concord
Yes. 700
Sr. Member
Apr 11, 2003
701 posts
181 upvotes
Edmonton
Profit is (Selling price) - (all expenses to obtain said product, taxes, fees, etc, included). Unless you are passing along the taxes/fees to the customer, etc. For GST if you earn more than $30,000 in sales (I believe it is sales, not profit) in the year, then you must collect and pay GST on the entire amount sold. If you fail to collect GST on the first 30,000$, you're still liable to pay Revenue Canada as th ough you has. So either sell $29,000 in product this way, or collect GST and register for it on day one.
Deal Addict
Dec 28, 2006
2497 posts
138 upvotes
Saskatoon
dux wrote: Scenario:

X buys a car privately for $10,000
X pays 13% tax when doing ownership transfer
X spends $11,300 after taxes for the car.

6 months later buyer Y is willing to pay X, $12,000 for the car

So question is, does X need to pay taxes on the profit he made? If yes, is the total profit $2000 (12,000-10,000) or $700 (12,000 - 11,300)


If X is a registant then for income tax purposes Revenue = 12,000 less expense of 10,000 = 2000 net taxable income. He charges HST on the $12,000 selling price and collects $1560 in HST from Y. He then remits $1560 - 1130 (input tax credit) = $430


If X is not a registrant then for income tax purposes revenue = 12,000 less expense of 11,300 = 700 net taxable income. He does not collect HST.
Conquistador wrote: One other thing you should know for future reference. If it is on the subject of taxes, listen to ghostryder. He knows his stuff.

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