What taxes should I pay when I buy a used car?

Whenever something is sold or bought, retail taxes are almost always included in the final cost

. The same is true for used cars. In this article, we will be talking about the ins and outs of the two kinds of taxes which are commonly associated with car sales the retail sales tax and the harmonized sales tax.

The Retail Sales Tax

A car buyer is required by law to pay a retail sales tax if the used car was bought privately. Furthermore, the amount of retail sales tax is dependent on either the car's purchase price or the wholesale price of the vehicle, whichever is greater.

A car's purchase price refers to the amount paid to the seller in order to acquire the car. This may be lower than the wholesale price, which is a value that is set in the Canadian Red Book, a document that catalogs the dollar prices of used vehicles. The Canadian Red Book is the industry standard for used car pricing, and is the basis of insurance companies and other business establishments when it comes to tailoring their goods or services whose value is affected by listings in the book.

The wholesale value of a car is determined by the average price at which cars of the same year, model, and make are sold. The value is based on a car that has no optional components. Furthermore, a car's age, mileage and condition are not accounted for during the price computation.

Small vehicles (2.2 metric tons without any load) that happen to be 20 years old or more, retail sales tax is based on the purchase value, insurance replacement value, or an appraised value, depending on which is the greatest. A car whose purchase price is lower than what the Canadian Red Book states may be appraised with a lower value but the Canadian Red Book will still be the basis for retail sales tax computations. This appraisal or an insurance document must be present in the bill of sale in order for the sale to be valid and recognized.

Harmonized Sales Tax

Aside from a retail sales tax, a buyer who purchased a used car from a professional used car dealer is also required to pay another type of tax. This is called the harmonized sales tax, which is a combination of nationwide and provincial taxes rolled into one. The harmonized sales tax will be paid to the dealer, who will then remit it to the appropriate government agency. However, this tax does not apply if the transactions were made between two private individuals.

The Exemptions

However, there are instances where used cars that transferred ownership are not subject to retail sales taxes. Transactions involving diplomats and Status Indians are not subject to taxation. Furthermore, if the transaction took place between to very close relatives, retail sales taxes do not apply too.

However, transacting parties may qualify for the second exemption only once in every twelve months. Furthermore, a sworn affidavit which states that the used car is given between two close relatives is needed for the receiver to be exempted from paying.

What taxes should I pay when I buy a used car?

By: Jim Baz

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