Buying a used car in Canada comes with several costs, and one of the most significant ones is sales tax. However, many car buyers look for legal ways to reduce or completely avoid paying taxes on their used vehicle purchase. If you’re wondering how to minimize your tax burden while buying a used car, this guide will provide essential insights and practical strategies.
Understanding Used Car Taxes in Canada
When purchasing a used car in Canada, buyers typically pay either GST (Goods and Services Tax), PST (Provincial Sales Tax), or HST (Harmonized Sales Tax) depending on their province. The tax rates vary as follows:
- Ontario: 13% HST
- Alberta: 5% GST (No PST)
- British Columbia: 12% (7% PST + 5% GST)
- Quebec: 14.975% (9.975% QST + 5% GST)
- Saskatchewan: 11% (6% PST + 5% GST)
- Manitoba: 12% (7% PST + 5% GST)
- Nova Scotia, New Brunswick, Newfoundland & Labrador, PEI: 15% HST
The tax is typically applied at the time of vehicle registration, making it difficult to avoid entirely. However, some legal ways exist to reduce or eliminate it.
Legal Ways to Avoid Paying Sales Tax on a Used Car in Canada
1. Buy a Used Car in a Province with No PST
One of the simplest ways to reduce taxes is by purchasing a car from a province that only charges GST, like Alberta. Since Alberta has no PST, buyers from provinces like British Columbia or Saskatchewan can save a significant amount by purchasing from Alberta dealerships. However, you may still be required to pay your home province’s PST when registering the car.
2. Private Sale Between Family Members
In some provinces, gifting a vehicle to an immediate family member is exempt from sales tax. Immediate family members often include:
- Parents
- Spouses
- Children
- Siblings (in some provinces)
For example, in Ontario and British Columbia, if a vehicle is gifted to an immediate family member, they can avoid paying PST, provided they complete the proper documentation.
3. Buy from a First Nations Seller on a Reserve
In certain provinces, such as Ontario and British Columbia, if you purchase a vehicle from a First Nations seller while on a designated reserve, you may be exempt from paying PST and HST. However, the seller must be a registered First Nations individual, and the sale must take place on the reserve.
4. Buy a Car for Business Use
If you are self-employed or run a business, you may be eligible for a tax deduction or credit when purchasing a vehicle. In some cases, businesses can claim GST or HST input tax credits, allowing them to recover part of the sales tax paid on a vehicle.
5. Claim Tax Rebates (EV and Mobility Vehicles)
Some provinces offer tax exemptions or rebates on specific types of vehicles:
- Electric Vehicles (EVs): Provinces like British Columbia and Quebec offer rebates and tax exemptions on electric and hybrid vehicles.
- Mobility Vehicles: Vehicles modified for wheelchair access or medical needs are often exempt from sales tax in many provinces.
6. Trade-In Your Old Vehicle
Most provinces allow you to reduce the taxable amount when trading in your old vehicle at a dealership. For example, if you purchase a car worth $20,000 and trade in your old car valued at $5,000, you only pay tax on the difference ($15,000) rather than the full price.
7. Purchase from a Dealership Offering Tax-Included Pricing
Some dealerships offer tax-included pricing or have promotions that cover part of the tax. Be sure to check the dealer’s terms and conditions to see if this option is available.
Key Considerations When Avoiding Used Car Taxes
While there are legal ways to reduce or avoid paying taxes on a used car, buyers should be aware of the risks involved:
- Registering in another province: Some provinces require proof of residence when registering a vehicle, making it difficult to avoid provincial taxes.
- Undervaluing the Purchase Price: Some buyers attempt to declare a lower sale price when registering a vehicle. However, provincial tax agencies often use book value estimates to assess taxes, and misreporting can lead to fines or audits.
- Out-of-Province Registration Fees: If purchasing from another province, you may incur additional costs such as out-of-province inspection fees.
Conclusion
While paying sales tax on a used car in Canada is generally unavoidable, there are several legal strategies to minimize your tax burden. Whether it’s buying in a province with no PST, taking advantage of family exemptions, or using business-related tax credits, you can save money when purchasing a vehicle.
Looking for a great deal on a used car? Browse our inventory and find the best options available. Planning a long trip? Check out our guide to the top used cars for long road trips with family. Ready for a test drive? Book yours today!
By staying informed and exploring available tax exemptions, you can enjoy savings while getting behind the wheel of your next car.