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How Car Sales Are Taxed in Canada

Just like most retail sales in Canada, buying a car involves extra taxes that affect the sale price. Wherever you live, no doubt you recognize one or more of them: 

  • GSTor Goods and Services Tax. The 5% federal tax that applies to the sale of all new cars across Canada.
  • PSTor Provincial Sales Tax. This is charged in addition to the GST and its rate varies by province. Manitoba calls it RST (Retail Sales Tax), while in Quebec it is known as QST (Quebec Sales Tax).
  • HSTor Harmonized Sales Tax. In Ontario, Newfoundland and Labrador, and the Maritime provinces, GST and PST are combined and collectively referred to as HST rates.

As with most rules, there are exemptions and variations. For instance, Alberta—along with the territories of Yukon, Northwest Territories, and Nunavut—does not collect any PST at all. In British Columbia, unlike other provinces, provincial sales taxes are calculated based on the purchase price.

And, while federal GST may not apply to all cars purchased, a higher PST may be charged instead.

Confused much? 

Here’s an overview of how much tax you should expect to pay on top of the sticker price—and how to save thousands of tax dollars on your next car purchase.

The Difference Between New & Used Car Sales Taxes

Sales tax is straightforward when buying a new car. Your dealer will charge a 5 per cent federal GST, plus PST at the rate that applies in your province (if your province has adopted the HST, they will be collected as one).

Depending on your car’s value, you may also be subject to additional taxes—but more on that later.

The same will more or less apply to used car purchases—but only as long as you’re buying from a dealership. If you’re buying privately, however, there’s a twist. Which brings us to…

Used Car Sales Tax: Dealership vs Private Sale

Whether you’re buying a used or a new car at a dealership, the 5% GST will always apply. 

If you buy through a private seller, the federal GST no longer applies—but you must pay PST at the time of registration.

Now, you may think buying your vehicle privately makes more sense, but here’s the catch: unless you’re in Alberta, Manitoba, Quebec, or Saskatchewan, the provincial tax rate for passenger vehicles purchased privately may be higher than for vehicles bought from a dealer.

* Starting rate for vehicles valued at $55,000 or less.

** Starting rate for vehicles valued at $124,999 or less.

***Used vehicles bought for personal or farm use are exempt if their Canadian Red Book value is under $5,000.

 

And, before you drive to Alberta to take advantage of the lowest tax rate, bear in mind that you may still pay PST when you register your car in your home province. Add to that the cost and paperwork involved in bringing it back home.

What’s Up with Car Sales Tax in British Columbia?

Car sales taxes in British Columbia deserve special attention because how much tax you pay there depends on purchase price and vehicle type. The higher the value of your new or used vehicle, the higher your PST rate—whether you bought it at the dealership or via private sales.

When you buy through a BC dealer, provincial vehicle tax is charged in addition to the 5% federal GST based on the purchase price as follows:

  • Under $55,000: 7% PST
  • $55,000 – $55,999: 8%
  • $56,000 – $56,999: 9%
  • $57,000 – $124,999: 10%
  • $125,000 – $149,999: 15%
  • $150,000 and over: 20%

Used zero-emission electric vehicles (ZEVs) can qualify for a lower tax bill. Here’s what provincial sales tax looks like for used electric cars:

  • Under $75,000: 7% PST
  • $75,000 – $75,999: 8%
  • $76,000 – $76,999: 9%
  • $77,000 – $124,999: 10%
  • $125,000 – $149,999: 15%
  • $150,000 and over: 20%

Private used vehicle sales have no GST, but a higher PST rate applies based on the sale price as follows:

  • Under $125,000: 12% PST
  • $125,000 – $149,999: 15%
  • $150,000 and over: 20%

An important thing to keep in mind here is that, in most cases, the applicable PST rate is based on either the purchase price or the Canadian Black Book average wholesale value, whichever is greater.

So if the price you’ve agreed to with the private seller is below the estimated value, you may pay more in provincial sales tax than you thought.

The Government’s New Luxury Tax May Drive Up Costs

Let’s say you have decided to splurge on a new vehicle worth $100,000 or more. As of September 2022, you’ll also pay the new Federal Luxury Tax regardless of where in Canada you are located. 

This extra tax is calculated as either 20% of the value exceeding $100,000 or 10% of the full value before taxes—whichever is lower.

Say, for example, your new luxury ride costs $109,995 plus taxes. Ten per cent of the full value of the vehicle comes out at $10,999.50. However, 20 per cent of $9,995 (that’s the portion that exceeds $100,000) comes out at $1,999, which is the lowest of the two.

So $1,999 is the luxury tax you’d have to pay in addition to GST and PST.

The Little-Known Trade-In Vehicle Tax Benefit

Many people don’t realize that this is actually one of the best ways to save money on your next new or used vehicle purchase. 

Quite simply, if you trade in your current car for another one, the selling price of your used car is deducted from the purchase price of your new car—and you only pay tax on the difference.

 

Save Thousands of Tax Dollars on Your Next Car 

Until recently, you could only take advantage of this vehicle trade-in sales tax benefit if you traded in your car and bought your next one at the same dealership—thereby limiting your options and negotiating power.

This all changed when MintList, an AI-powered platform for buying and selling cars, introduced an exclusive trade-up program that allows you to take advantage of the trade-in tax benefit even if you do business with multiple dealers.

When you trade in your car through MintList, you can watch hundreds of heavily vetted dealers bid top dollar on your current car and then shop around for your next new or used car from any dealer on the platform—saving up to 37% on taxes.

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