Automotive

MUST READ, Act Now: Tax on Private Transf of Cars increasing to 13% in Ontario

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[OP]
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Jun 23, 2010
29 posts
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MUST READ, Act Now: Tax on Private Transf of Cars increasing to 13% in Ontario

June 24, 2010

Folks, RedFlagDeals.com readers and guests,


Please help or help me challenge the legality of the 13% Retail Sales Tax (PST) on private sales of used vehicles in Ontario.

Starting July 1, 2010, 8% Provincial Sales Tax (PST) will combine with the 5% Federal GST to become the 13% Harmonized Sales Tax (HST). PST will cease to exist by itself EXCEPT the PST on private sales of used vehicles in Ontario. Look under the 2009 Ontario Budget, it says:

http://www.fin.gov.on.ca/en/budget/onta ... chpt3.html
"Private Transfers of Motor Vehicles: Similar to the tax treatment in other provinces, Ontario would retain a sales tax on private transfers of used motor vehicles. This would help to ensure a level playing field between used vehicles sold through dealerships and private sales."

Now look at the Harmonized tax changes:

http://www.rev.gov.on.ca/en/taxchange/taxable.html
"Private Resale of Car (including Registration) No GST - 8% PST - Changes to 13%: HST does not apply; however, Ontario will maintain the PST on private transfers of used vehicles at a rate of 13 per cent to help ensure a level playing field between sales by dealerships and private sales."

It's further explained here:

http://news.ontario.ca/mof/en/2009/11/o ... wth-1.html
"As announced in the 2009 Budget, Ontario would retain a sales tax on private transfers of used vehicles, similar to the tax treatment in other provinces. The tax rate would be 13 per cent, to help ensure a level playing field between sales by GST/HST registrants (e.g. car dealerships) and private sales. The tax would generally apply to the same vehicle classes that are currently subject to RST, including boats and aircrafts.

Applying the 13 per cent rate to private transfers of used vehicles would raise about $70 million per year in additional revenue.

Exemptions under the current RST on used vehicles would be maintained. The exemption for gifts by family members would be expanded to include siblings, similar to the treatment in other provinces."


WHAT IS THE ONTARIO GOVERNMENT SAYING?

PST is combining with GST to form HST, but there were no (Federal) GST on private sales of used vehicles before July 2010 and neither will there be a Federal tax on the private sales after. So in order to (1) help ensure a level playing field between sales by dealerships and private sales and (2) be similar to the tax treatment in other provinces, the Province of Ontario will not only "maintain the PST" but also to increase the rate from 8% to 13% after June. And the full 13% goes to the Ontario Government and 0% to the Federal Government.


WHY NO GST (AND NO HST) ON PRIVATE SALES OF USED VEHICLES?

GST and HST are based on the Value Added Tax principle, where it strives to streamline a fair consumption tax process while avoiding tax duplications. The full sales taxes had already been paid when the sellers first bought the vehicles so if there were additional tax on the transfers, it would be a duplicate tax. In private sales transactions, it doesn't mean the buyers do not pay any GST or HST; the GST or HST are already included in the price of the used vehicles and being reimbursed to the private sellers.


THE "LEVEL THE FIELD" CARD

Tax on new or used vehicles from car dealerships is 13%, where tax on used vehicles in private sales is only 8% (PST) before July 1, 2010. The field is clearly not level and increasing the 8% PST to 13% is not only fair but also the simplest concept to tell the public?


IS THE ONTARIO GOVERNMENT TELLING THE TRUTH?

There IS a major difference between cars to be sold from car dealerships and used cars in public hands. For cars in the inventory of car dealerships, whether from lease returns, new or used car trade-ins, they are carried at before-tax cost. So when the dealers sell you their cars from inventory, the government would need to collect the full tax. Whereas for used cars from private sellers, the cars are already tax-inclusive as full taxes were already paid when they were originally purchased.

PST on private sales of used cars is a tax on something that has already been taxed. It is a tax on the vehicle transfer similar to the land transfer tax on real estate transactions. But this transfer tax only applies to private sales, and it's 8% going to 13%. THE REAL LEVELING THE FIELD WOULD BE TO REMOVE THIS TRANSFER TAX ALL TOGETHER. Just like the GST that is not being applied to private sale of used cars.

This PST has always been a transfer tax and the intent to make it the same rate as the HST is just this government's attempt to stretch their illusion forward. Imagine if you want to sell your house and there is a 13% land transfer tax on private sales, it will sure have effect on your asking price if you insist on a private sale.

The Ontario government says this is a similar tax treatment to other provinces. So similar that Ontario is copying the exact theme (from other provinces) in its justification for the increase in PST rate being "Level the Field".


ILLUSTRATIVE EXAMPLE

Say if you have a used car that's worth $11,300 tax-inclusive in the used-car market and you are buying a new car that costs $22,600 ($20,000 +13% HST). If you are selling the used-car privately, you'll only get $10,000 from your used car (13% goes to PST) and you'll have to pay $12,600 extra to complete your transaction.

If you do a trade-in and the car dealer gives you $10,000 before-tax for your used car, the extra you'll have to pay is only $11,300 ($20,000-$10,000 = $10,000 +13%)

The difference between the two is $1,300, being the tax on vehicle transfer. But the dealer may not give you what you are looking for... knowing you'll only get $10,000 because of the tax on private sales, the dealer will give you maximum $10,000 / 1.13 = $8,850 before-tax for your used-car, or $10,000 including the tax credit effect.

So either way you'll needlessly surrender $1,300 to the government or to the dealers because of the PST on private sale of used cars.

If you use your own car, or buying one, or switching to or from car leasing, the bottom line is you'll most likely be negatively affected. Ask a qualified and reliable accountant if you are not convinced.


WHY NOW?

Everything else is being taxed at the same 13% HST rate, and this only surviving PST is going to stick out like a sore thumb if it stays at 8%. So, in order to not to loose this would be legacy but significant revenue source, it is now or never and the time is now to slip this by amidst all the dusts from the HST saga.


WHY IS THIS TAX "WRONG"?

The PST on vehicle private sales is a scam and the "level the field" argument is totally bogus. It is a PRO CAR DEALERSHIP VEHICLE TRANSFER TAX in disguise. It's an anti-competitive punitive tax on transactions outside of car dealerships. Before the rate increase, it's a gift to the car dealerships. After, it's a bonanza. It's the ultimate ticket for car dealerships to monopolize the used-car marketplace.


WHAT YOU CAN DO?

Spread the words,
Start the discussion,
Email your friends, family and co-workers,
Put this in your blog, facebook...
Adapt this post to challenge a similar tax if your jurisdiction is not in Ontario
Ask your accountants,
Tell the politicians, Federal and Provincial,
Contact Dalton https://www.premier.gov.on.ca/feedback/ ... sp?Lang=EN
61 replies
Banned
Nov 23, 2006
748 posts
44 upvotes
Thanks for the information but really its too late to do anything. This comes into affect next week.

All we can hope is that one day a future government we vote in overturns this piece of legislation.

I see no sense how a vehicle can continue to be taxed every time it trades hands.

Today I buy a new car for 20k + tax, next year I sell it to someone else for 15k+tax.... couple of years later someone else buys the car for 10k + tax....

Government receives 3 payments of tax from buyers....
Deal Addict
Jul 4, 2004
3675 posts
320 upvotes
Ottawa
alamshahid wrote:
Jun 24th, 2010 10:52 am
Thanks for the information but really its too late to do anything. This comes into affect next week.

All we can hope is that one day a future government we vote in overturns this piece of legislation.
...
I don't think it's ever too late. If you care take the 2 minutes it takes to send an email. If enough people do it, maybe something will change

In fact, I don't think returning it to 8% is enough. I think private sales should also benefit from 'trade-in allowance' like dealership sales do (e.g. if you register a newly acquired car, you should be able to get a credit for the sale of any car 3 months before or after the registration). This would also help the government since sellers would now be motivated to honestly report the sale price. It wouldn't even be a big change for them; they already have the information in the UVIP, the seller would just keep a copy to use for a credit of another registration
Newbie
May 18, 2008
53 posts
14 upvotes
michelb wrote:
Jun 24th, 2010 11:04 am
I don't think it's ever too late. If you care take the 2 minutes it takes to send an email. If enough people do it, maybe something will change

In fact, I don't think returning it to 8% is enough. I think private sales should also benefit from 'trade-in allowance' like dealership sales do (e.g. if you register a newly acquired car, you should be able to get a credit for the sale of any car 3 months before or after the registration). This would also help the government since sellers would now be motivated to honestly report the sale price. It wouldn't even be a big change for them; they already have the information in the UVIP, the seller would just keep a copy to use for a credit of another registration
It should be even simpler - no sales tax on used vehicles. They were already taxed when sold new. I hope this will be the end of the liberal government ...
Banned
Jan 11, 2004
19816 posts
555 upvotes
stupidity is baffling in this thread so far. You are taxed on used goods, so why would a used car be any different :confused:
Banned
User avatar
Apr 27, 2010
6282 posts
443 upvotes
Help me
Leveling the play field would be making used car dealerships accountable for the amount of unsafe and trashy cars they put out on the road.

Personally, when I shop for cars its always private, you can trust them more often than those scumbags at dealerships.

My local officials will be hearing from me soon.
Sr. Member
Dec 6, 2007
800 posts
18 upvotes
gg22 wrote:
Jun 24th, 2010 11:42 am
It should be even simpler - no sales tax on used vehicles. They were already taxed when sold new. I hope this will be the end of the liberal government ...
+1.

Same thing is happening in BC and the same "level playing field" argument was used by Gordo.
Newbie
Jun 23, 2010
4 posts
yyz
Look like someone's putting some serious effort for some 11th hour fight, and this person is also being realistic about it. For all I can see we are unlikely to see any car dealership people talking and probably too busy preparing for their Summer parties.

From other posts so far, despite having the ground works laid out, it looks as if the consumers DESERVED to be taken advantage of because they seem failed to get the real issues:
  • Consumers can't figure out the difference between a Consumption Tax and a Transfer Tax. When the government says it's a PST, or a RST (Retail Sales Tax), and set the rate the same is the other regular (consumption) tax, they would never find out there is a difference.
  • They don't realize money has been taken from them. They know millions of people affected but they themselves are not one of them. When you are the sellers, you think the buyers paying the tax. When you are buyers, you think the sellers' cutting you a good deal. You also think you are unaffected because you never bought or sell a car privately, thinking you would not have done better in a private deal.
  • They also don't know who's actually taken money from them. No it's not the government! When you pay the transfer tax to the government, it's actually a good thing for me because it pays down the government debt. It's the dealership taking your money when you trade in your car. The transfer tax created a situation that depress the money you would have got if you can sell your car tax-inclusive and lessened the bargaining power when you trade-in your car.
  • They don't realize once the government start charging you something, they don't take it back. In this case, they even increasing it throwing some false justification. HST is a consumption tax, PST on transfer is a transfer tax. Apples and oranges.
This person can't do it alone... it needs the public to put their acts together. You need to know what's going on and not to be confused about the REAL issues and do some of the things suggested. I think it's a clear case that Ontarian's been lied to and the dealerships has been given favourism and consumers been hurt and will hurt more. Do something now or this will be stuck with us forever! May be tomorrow's paper will say "LEVELING THE FIELD IS A LIE" bold across the front page, who knows? I think it's more pressing than the G whatever...
Deal Addict
User avatar
Nov 2, 2007
1132 posts
154 upvotes
GVRD
Anonymouse wrote:
Jun 24th, 2010 6:12 pm
This was a hard-won victory for the used car dealers. They've been working on this one for years. It's a shame there weren't any consumer groups at the table. I don't see much prospect for changing it, but I'd vote PC if they promised to.

A more serious question is whether we'll be paying GST twice on importing from the US. Some people are hearing that we'll pay 5% at the border and then 13% on registering the vehicle.
Not sure about ON but in BC if you've paid GST at the border on a US import, then you will only pay 7% when you register.
Deal Addict
Jul 4, 2004
3675 posts
320 upvotes
Ottawa
chenwaa123 wrote:
Jun 25th, 2010 12:51 am
Not sure about ON but in BC if you've paid GST at the border on a US import, then you will only pay 7% when you register.
With the HST in Ontario, you still won't be paying 5+8=13% because private car sales are not subject to GST so instead the PST rate on private car sales will be 13% (i.e. 0+13=13) so the way they worded the tax, it won't make any difference if you paid GST already as it's a different tax.

I did try to clear this up with no success yesterday. Called local DMV, they told me they still don't know (even if it's coming in effect in less than 1 week), call HST and they were very firm that imports will be treated as private car sales (doesn't involve Ontario dealership) and charged 13% on registration and called CBSA and they stated that they will continue to charge 5% GST at the border but that province shouldn't be charging it as well ...
[OP]
Newbie
User avatar
Jun 23, 2010
29 posts
1 upvote
Presenting the myths of the taxes on used vehicle sales in Ontario:


1. For private vehicle sales just like for vehicles from dealers, there is a 13% HST.

Wrong, it's 13% but it's no HST, it's a Provincial Sales Tax. HST is a Value Added Tax; the sellers collect the taxes from the buyers and remit the taxes, net of their input HST paid, to the gov't. But for the PST, it is collected directly by the gov’t from buyers, private sellers get no deductions whatsoever.


2. In both dealer sales and private sales, the buyers pay the 13% tax. The field is level both ways.

13% HST on dealer's cars is no level playing field to the 13% Provincial tax on private transfers. Dealers are given full HST input tax credits on their purchases including the car purchases. Whereas in private sales, the 13% PST goes directly to the Province instead of to the private sellers and private sellers cannot claim any input tax credits. The private sellers got short changed.


3. HST for dealers' cars is also a double tax.

Dealers are given input tax credits on their vehicles purchases, so the final HST is NOT a double tax.

----

There are probably many other myths out there but I can’t think of any other at this time.
Member
Feb 23, 2010
238 posts
31 upvotes
Even though I totally agree with the OP and appreciate his efforts to fight the new tax, but we have to face a very sad reality! The fact is that we live in a country caught between capitalism and socialism. It does have its advantages/benefits but the politicians will tax us to death and that's due to the general public's failure to comprehend what's happening around them!

The majority seem to just care about lining up to buy the newly released gadgets (think iP....) before their peers, or get drunk/laid. And to finance those activities (I'm not saying they are wrong to do), all they are really concerned about is how to make money, which in term means working longer hours or taking second jobs. So you see, there is not much time really for most people to look around and think about what is really happening. So who is going to be there to hold politicians accountable if you don't really have the time to do it (let's just assume every single person living in Canada has the mental capacity to understand and comprehend) .

Let's face it, people got bills to pay and they are programmed to want everything they see on TV/Internet/Street/Mall.

So the main problem here is not that the new tax is a scam. Of course it is! Everything the government does is a scam more or less. How many times in the past year have we heard about mismanagement of money in different levels of government? And how much money was mismanaged/wasted?

But it seems that no matter how bad they screw things up, they simply just say sorry, switch ministers around and everybody just forgets that the damn thing ever happened. And switching ministers around is accountability?

Don't get me started on how many federal elections we had in the past few years!!! Elections cost money (tax payers money that is)!!!

To keep my rant short, I think unless the majority of the population start holding the politicians accountable, these guys in parliament (all parties) won't have any incentive to actually care about the public money rather than making non-sense promises to get elected!

I don't see a change happening in the near future in Ontario/Canada as the economy seems to be in a better shape than most other countries and as long as people have jobs they probably won't care a bit about taxes. But our neighbors south of the border may well be on their way to actually waking up and looking around them to see where their tax money is wasted on!! Them waking up is not necessarily a good thing but it's a good step toward holding politicians accountable.

Again I agree with the OP. We can complain, sign petitions, email politicians all we want but as long as we are the minority, questioning things probably won't have much of an effect on these issues!!

Sorry for being pessimistic but maybe I'm being too logical!
Jr. Member
Mar 13, 2010
131 posts
11 upvotes
Like me , i don't care what the hell i drive. Why pay money to the government ?
I buy a $2000 car and drive it until the wheel fall off. It had 155,000km when i bought it. It now have 272,000km. I expect to get 500,000km out of it.

Buy everything else you need used as much as possible !!!!!
Newbie
Jul 6, 2010
1 posts
British Columbia
:twisted: I just purchased a Motorcycle in the US. I paid the GST at the border on the purchase price. As of July 1, 2010 we pay the PST as well. Now here's where it gets good, the BC government has decided to still charge PST on certain items and on used vehicles. They have raised the supposedly defunct PST to a whopping 12% for grand total of 17%. Obviously the government has succumb to the dealerships in BC to completely screw all of us. Heaven forbid we get a deal on anything anymore and get ahead. They call it a "levelling the playing field tax" ya right. It wasn't level when the dealerships sold every truck in canada to the US when our dollar was at 60 cents. Were way to passive here when it comes to this stuff.
Deal Addict
Jul 4, 2004
3675 posts
320 upvotes
Ottawa
canuklehead44 wrote:
Jul 7th, 2010 1:07 pm
:twisted: I just purchased a Motorcycle in the US. I paid the GST at the border on the purchase price. As of July 1, 2010 we pay the PST as well. Now here's where it gets good, the BC government has decided to still charge PST on certain items and on used vehicles. They have raised the supposedly defunct PST to a whopping 12% for grand total of 17%. Obviously the government has succumb to the dealerships in BC to completely screw all of us. Heaven forbid we get a deal on anything anymore and get ahead. They call it a "levelling the playing field tax" ya right. It wasn't level when the dealerships sold every truck in canada to the US when our dollar was at 60 cents. Were way to passive here when it comes to this stuff.
When did you buy it / cross the border? There seems to be some confusion between CBSA and the provincial MTO but if you bought before July 1st and registered it after, you *should* be able to still get the old tax rate (at least the Ontario Tax Code is specifically written that way). Check the tax code and you might be in luck. That said, I'm not at all surprised that they might not be applying it correctly and charging the correct amount (the probably just have a button to press to calc the tax and it does 12% now).

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