Why did Ontario raise the tax rate on private car sales?

September 19 2010 by Ellen Roseman

Mike, a reader, is angry to see Ontario raise the tax rate on private car sales to 13 per cent (from 8 per cent) on July 1, the same date the HST came into effect.

He’s put together a blog to challenge the change at Red Flag Deals. He’s also written to the Competition Bureau of Canada, Premier Dalton McGuinty, the Ontario Ombudsman and the provincial finance minister and revenue minister. But he hasn’t had much response.

I’d like to publicize this change, which has slipped below the radar, and ask readers whether they think it’s fair or unfair.

Here are nine reasons why Milke thinks it’s unfair:

* The government felt that when private sales are subject to a lower retail tax rate than the rate used in car dealers’ sales, private sales have a competitive advantage. This argument ignored the fact that dealers’ vehicles are before-tax goods, while private sale vehicles are after-tax goods. Dealers’ purchases and expenses are given 13 per cent input tax credits, while no input tax credits are given to private sellers.

* Consumers are being told the tax rate was adjusted because of the HST. In fact, it has no relation to the HST. It’s entirely a 13 per cent provincial sales tax. All communication from the Ontario government about this change is hiding behind the HST banner.

* The 13 per cent PST on private sales depresses the asking price of vehicles because of this double tax. It also decreases the bargaining power of consumers wanting to trade in their vehicles to car dealers. The input tax credits given to the dealers further lessen the costs of the used vehicles to the dealers.

* The 13 per cent PST on private sales lessens the competition to the car dealers by inflating the final prices in private sales with this double tax.

* The 13 per cent PST discourages consumers from repairing their vehicles before a private sale, since all the costs (which attract HST) will be taxed 13 per cent again. Private sellers don’t get any input tax credits, even for the HST paid for the cost of selling the vehicles such as emission, certification and advertisement. Car dealers, on the other hand, recover all their HST paid through input tax credits from the government.

* The effective HST rate on dealers’ used vehicles is not 13 per cent. It’s 13 per cent on the profit portion only. HST is a tax on “added value” and PST is a tax on the gross.

* The level playing field justification is simply not true when the field in favour of the car dealerships was 8 per cent, now increased to 13 per cent. The real effect is that consumers have increased car costs, with the burden being split between government taxes and dealers’ profits. This tax created and has now increased the unleveled playing field in favour of the car dealers.

* At 13 per cent, the high PST rate hurts consumers’ rights to fair pricing, whether disposing of their used vehicles in private sales or trading in to car dealers.

* The government insisted on fighting illegal curbsiding with the tax, while ignoring the fact that legitimate private sellers will be hurt. The use of a tax to combat an illegal activity is not a substitute for proper laws and enforcement and victimizes legal private sales activities.

The major misconception about this tax is that it’s a “retail tax”. But in reality, it’s a double tax; it’s tax on tax-paid goods. It is a transfer tax. Buyers pay it, but it’s the private sellers that have to REDUCE the asking prices to allow for this tax.

This transfer tax is not applicable if you trade into a car dealer, because the government gave you the (input) tax credit for trading in.

Mike believes the tax rate change was a result of intense lobbying from the new car and used car dealer associations. When car dealers and private sellers are competitors, if you penalize one side you benefit the other.

Not only were special favours provided to the car dealer associations, but Ontario is also raising significant tax income — with few complaints from the public.

32 comments

  1. Denis

    Sep 19 2010

    I have a feeling Mike’s a curbsider if he’s making such a big stink out of this. It completely levels the playing field dollar for dollar for a like to like vehicle.

    If he wants to write off expenses related to the sale of his vehicle, then he should incorporate and apply to become a dealer.

    A parallel can be drawn with real estate… If you’re in the \business\ of buying and selling property, then you can write off the inputs. If you’re not… Then it’s your private home and you’re not taxed on it nor can you write off the inputs.

    Keep in mind that dealers are taxed on profits… Private individuals are not. Suck it up buttercup!

  2. Jeremy

    Sep 20 2010

    Wow, Denis, did you even read the article? Or are you a lobbyist for the used car dealers so you just ignored the facts?

    If I am privately selling a car worth $10,000 and buying a new car worth $20,000, as per the example above, my $10,000 is taxed twice — once when the new owner gets my car, as they will pay $1,300 in tax, and again when I buy my new car.

    This I am ok with, except if I take my car to the used car dealer and he gives me $10,000 for it. I get a greater value as it reduces the tax I pay on the new car.

    If the dealer then sells the car for the same amount of money as he reduces the new car cost to me, the person who ends up with the car would still pay the $1,300 in tax, but I save $1,300 in tax.

    So I now need to price my private sale car at $11,300 to get the same value as if I take it to the dealer for $10,000, making my buyer pay even more in tax on my car and giving the used car dealer an advantage over the private seller.

    I may only sell a car every 2-3 years, but this does give the dealer an unfair advantage.

  3. second opinion mike

    Sep 20 2010

    Sorry, but I think Mike has a very strong argument and the assertion that he is a “curbsider” seems to be based upon a general disdain for consumers who want a fair deal.

    If the issue is “curbsiding,” then apply the higher tax to the second or third sale a person makes in a given year. Dealers lobby governments and the small guy pays the price.

    As for the Liberal government, well let’s remember they are the guys who promised no new taxes, then hid the health tax, hid the eco fees, hid the hydro surcharges and now can add this to the list.

  4. Mitch

    Sep 20 2010

    Mike’s motivation for outrage is irrelevant. Facts are facts and the Libs have been hiding behing the HST with regards to the 13% tax on private sales. The fact that they have not clarified to the consumer speaks volumes.

    As with all taxes, the consumer will foot the bill. Any savings by producers will not be passed on down to the average Joe.

    We continue to earn the same (or less) and take home less each year due to user fees/taxes etc…

  5. Marie

    Sep 20 2010

    Denis wrote: “Keep in mind that dealers are taxed on profits… Private individuals are not. Suck it up buttercup!”

    Excuse me, but private individuals are taxed BEFORE purchase (and sometimes again at purchase). So that statement is not relevant.

  6. Stephanie

    Sep 20 2010

    I agree that the tax rate change was likely the result of lobbying from the new car and used car dealer associations. And, by looking at his comments, I also suspect that Denis is or works for a dealer.

    The consumer should not be forced to submit tax on an item for which tax has already been paid. This is just another cash-grab by a government that kowtows to corporations and special-business-interest groups. Disgusting!

  7. Richard

    Sep 22 2010

    I agree with Mike. It is mind boggling that Ontarians are resigned to the new tax grab. PST was supposed to be abolished, not increased!

    At least BC is rebelling… I have no objection to the HST alone, as it involves credits as well as debits, but under the HST/VAT system, private sales should NOT be taxed.

    Any tax on private sales gives dealers a huge and unfair advantage, as they should receive an HST rebate (known as input tax credit) on cars they buy, so they only have to remit on the profit.

    Do people know that the 13% HST which is “added” to the price of a secondhand car goes mostly into their pocket as extra profit?

    The 13% provincial tax on private sales doesn’t level the playing field: It gives the dealers a 13% advantage!

  8. Rob

    Oct 29 2010

    In short, we in Ontario have allow the corrupt McGuinty Liberals an additional tax from our hard earned income. I am not a curbsider, I am not a car dealer, I am just an over taxed, self-employed person in Ontario.

    One last point: Up until a few years ago, I was a life long Liberal supporter. Shame on me.

  9. Tom

    May 20 2011

    Denis wrote: “Keep in mind that dealers are taxed on profits… Private individuals are not. Suck it up buttercup!”

    How many private individuals make a profit on selling a car that depreciates 30% as soon as they drive it off the dealers lot?

  10. Kevin

    May 30 2011

    Most of the dealers are obnoxious, conniving, arrogant, dishonest people and we should all get together to sue organizations like U..DA and OM..C and the govenment who protects the right of dealers and not the individuals.

    Dealers knowingly withhold important information about the car they are selling and won’t even talk to you after the sale.

    There should not be tax on the private sale, especially if it’s replaced with another car within the tax year.

    OK, charge people tax on the profit they make by selling a car. Anyone knows anybody who make a single dime by selling their own car?

    I bought a $20,000 car and sold it for $10,000 within 3 years of ownership. I just bought another car for $20,000 again. So I paid $2,600 + $2,600 in taxes that I cannot claim in my tax return.

    So in all, I have to earn about $7,428, pay 30 percent income tax, only to pay $5,200 in sales tax. We Canadians are victims of a tax grab.

  11. Kevin

    May 30 2011

    Refuse to sell your car to the dealer. Drive the car until it’s dead and then buy another car.

  12. robin

    Aug 18 2011

    Denis is an idiot. Most of us are not making a profit when selling a car, but simply offsetting the cost of replacing it. This is not a business move, but a household management decision.

  13. Shane

    Oct 25 2011

    To make it worse…If I trade cars with someone privately, both parties now have to pay tax on the full value of the cars.

    If I trade it to a dealer, I get a tax incentive.

    How is this fair?

  14. Dave

    Aug 31 2012

    Ontarians, including myself, are getting hosed again.

    I’m buying a used vehicle, which two years ago was purchased new and full taxes were paid.

    Now a secondhand consumer once again has to pay thousands in taxes on a product already taxed thousands.

    Therefore the vehicle in essence is being taxed 26%. This is pure greed on the part of our government / mob.

  15. Bill

    Mar 10 2013

    If we were to actually think this thru, regardless of who’s right or wrong here, I am sure there are vehicles out there that by the end of their lifespan could possibly wind up generating more revenue for the liberal government then the company that made the vehicle made on it or anyone else involved with it.
    Long and short of it all, when the tax is paid on an item sold as new, that should be it! The government at that point has already received more then their fair share first time around.
    There will be those of you out there who disagree, but you better sit and think first. Next they will have their hand in your pocket looking for tax when you sell your TV to upgrade, or your cell phone or lawn mower!
    The actual problem is too many politicians earning 6 figure salaries and doing very little for it, and they have come up with all these extra taxes to make sure they have enough money in the coffer.
    My two cents worth, hope they don’t round it up and tax me on it.

  16. ivor

    Sep 8 2013

    I cannot understand how the gov’t continues to get away with this scam – they tax the consumer when it is sold new, they tax the consumer every time it changes hands. they tax the consumer on every bit and piece that goes into it all the time it is owned – that’s like taxing the tax on the tax on the tax…! who’s the shady dealer here??? I should be able to call the cops to look into this don’t you think?

  17. Rob

    Oct 31 2013

    Recently, the Liberals made another tax grab when they introduced the HST on used vehicles.

    Value added taxes are only applied on the original purchase, not subsequent purchases. This is why privately purchased used vehicles were not GST taxable.

    The Liberals initially planned to continue charging the PST on used vehicles as part of their transition to HST.

    While this would have been inconsistent with value added tax principles, the Liberals went a step further after consultations with the car dealers’ lobby association and decided to charge the full HST on used cars.

    They called it leveling the playing field, since used car dealer sales were GST and PST taxable and private sales were only PST taxable in the past.

    Fortunately, not all of us are financially illiterate. What they failed to tell the public was that car dealers get a refund of GST, now HST, when they take in a trade. They then charge HST on the selling price.

    Example:

    Dealer takes in a vehicle trade for $11,300, HST refund to dealer is $1,300 (called an input tax credit).

    Net cost of vehicle to dealer is now $11,300 – $1,300 = $10,000.
    When dealer sells vehicle for $13,000, he then charges HST on $13,000.

    Net Value Added Tax to government is $13,000 x 13% = $1,690 – $1,300 (input tax credit)= $390.

    Under a private used vehicle sale, Net Value Added Tax to government is $13,000 x 13% or $1,690.

    Difference in sales taxes of $390 vs. $1,690 is 333 per cent.

    The Liberals and car dealers call this leveling the playing field on used car sales taxes.

    Do you think collecting $390 in HST from a car dealer and collecting $1,690 from a private used car buyer on the same exact vehicle is leveling the playing field?

    For the life of me, I cannot fathom why the government thinks collecting 333 per cent more sales tax on a private used car sale is fair and levels the playing field for both private used car buyers and dealers.

    This is another example of the deceitful practices the Liberals are becoming famous for.

  18. andy m

    Dec 28 2013

    It is shameful there is any tax charge on used vehicles at all, considering the taxes have been paid in full when bought brand new.

    A $30,000 car buyer pays over $4,000 in pure tax at purchase new. The Ontario government has the nerve to bill a purchaser this massive figure and then charge another $10 for ownership.

    In the United States, there are no taxes imposed on the sale of used cars, as the taxes have already been paid when the car was bought brand new.

    It’s just another tax grab and of course, the UCDA lobbyists are in there trying to help themselves and burn private sellers. If they had their way, private sales would also be illegal.

    Let’s not forget about 30 years ago, dealers could roll back the odometer before a sale and this was an ok practice in Ontario. Only in Ontario “more taxes grow”.

  19. Adam

    Jan 9 2014

    The end of the article nailed it:

    Mike believes the tax rate change was a result of intense lobbying from the new car and used car dealer associations.”.

    It’s the dealerships that suckered the government in to this at the average joe’s expense.

  20. jaroslaw janton

    Jan 12 2014

    I agree with this assessment. The consumer is on the losing end in a significant way and the government had no real argument here.

    It’s a win-win for the government and the lobby of car dealers, who get their cars as trade-ins or at car auctions at wholesale prices.

    Jaroslaw
    Oshawa

  21. JB

    May 21 2014

    TAX WAS ALREADY PAID on the car when new. Taxing vehicle again (and again and again) is tantamount to extortion.

  22. Jonas

    Jun 2 2014

    I have just moved to Canada from the UK and cannot believe how much tax is in Ontario. In the UK you pay tax on a new vehicle but not on a used vehicle, the assumption is that it has already been paid. In fact, all purchases are ‘what you see is what you pay’ – the tax is paid by the seller not by the buyer as such. Of course you pay a little more but paying tax on a used car!!! C’mon! (DO NOT get me starte don the cost of cell phones!)

  23. Paul

    Oct 9 2014

    Sad place to live when you cant afford a new vehicle so the government nabs the poor guy trying to by some cheap set of wheels to get to work but the taxes prevent him from buying a better safer ride for his family. Pitiful.

  24. poor me

    Nov 20 2014

    It’s worse than that. I bought a used car in Quebec that needed lots of repairs. Had to pay tax on book value of the car, which was not drivable. So I paid tax twice (for the repairs and on the book value, which assumes the car is in working condition).

    Then I brought the car back to Ontario and had to pay tax again at the even higher rate. They say I can get the Quebec tax back but they took my receipt away when I registered the car in Ontario.

    Now it’s a pain in the neck to even remember exactly what I paid to ask for it back… sigh

  25. Not Surprised

    Dec 13 2014

    I don’t know why anyone is surprised – this is standard practice of the Liberal Government provincially and federally.

    As a province, we collectively re-elected them for another 4 years, so suck it up people. Maybe in 4 years we’ll be the wiser. . . . but I doubt it.

  26. Brian

    Apr 5 2015

    This is robbery. A used vehicle is taxed every time it is sold? Imagine if a car changes hands 5 times how much tax revenue gets generated?

    I don’t imagine how this helps used car sales at all. It is idiotic.

    It penalizes people from changing their car. It penalizes low-income earners who buy used. That’s why in Ontario you see everyone driving old rust buckets. Because if they went to buy another car, they would be flushing money down the toilet.

    I would love to change my car every year with another used one to try out different vehicles. But to do so is to lose a lot of money in taxes whether I buy new or used. That’s why I’m still driving a 14-year-old rust bucket.

    Getting rid of this tax would vastly improve the used car business.

  27. Ben Burger

    Jul 26 2015

    I raised concerns about this private sale of cars tax with my local MPP Wayne Gates. I don’t know if it had any effect, but I encourage others to do the same. There should be no tax on a private car sale.

  28. Travis Turner

    Aug 5 2015

    The car dealerships should be forced to pay Red Book prices on trade-ins!

    Let’s face it. No private seller is making money on their used cars, except the odd fixup to sell to a person. Complete crap that the average Ontarian understands the tax. I’m in the market for a used car myself.

    I say the people should get a vote on laws here and the politicians should do their actual intended jobs of displaying our options.

    We are living in a fascist regime under Bill C-51 and my great great uncle Chester, who died on Vimy Ridge, is turning in his grave over in France.

  29. Dave Sullivan

    Aug 11 2015

    Ok, it’s clear the provincial government is double and multiple dipping on vehicle private sales taxation. Also, since it is a provincial tax, the GST hidden in the HST should not be charged.

    How do we as Canadians/Ontarians complain and who do we complain to? How do we get action on this? Even the Service Ontario staff’s attitude was, “Good luck on that.”

    Voting certainly won’t work. Ombudsmen are only for complaining about government services, so that’s useless as well. Surely there must be an effective way to bring government to heel.

  30. Richard

    Aug 13 2015

    I recently moved to Canada from New Zealand. I was utterly shocked when I found out that you must pay tax on a used car. How can this be justified?

    The tax for the car has already been paid when the car was bought new. Sounds like the pure revenue gathering from the good old Canadian government to me. I can’t speak for other countries but there is NO way that this would be acceptable back home.

    In NZ, we pay tax on capital gains (e.g. if you sell your house for more than what you bought it for, you pay tax on the profit). This is fair.

    Seems like everyone is losing with used cars, except for the poor government and used car dealers.

  31. Charles

    Oct 1 2015

    Glad I don’t live in Ontario. Will be worse here in Alberta very soon with pinheads electing NDP.

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