GST & PST on Used Cars: Why?

[August1991]

This just came to my attention and I'm wondering if someone in this "community" knows about it, and more broadly, why is this government policy?

If you buy a used car from a private seller, there is no GST assessed. (This is how it should be. GST is a value-added tax and used goods have the tax incorporated into their price from the original sale. There's no need to collect it a second time; that would be double taxation and create costly distortions.)

However, if you buy a used car from a dealership, GST is assessed on the value of the sale. Why? The GST should only apply to any improvements made by the dealer (and the dealer should be entitled to a GST refund).

[i'm not sure how the CRA distinguishes between a "private seller" and a "dealership". I fear taxpayers have paid many lawyers for a definition and no doubt the definition is still a subject of litigation.]

In the case of PST, it varies by province. In the Maritimes where PST has been harmonized to the GST, I guess the total tax follows GST policy. In Quebec I think, PST applies to both private and dealer sales.

Incidentally, GST and PST does not apply on the sales of "used" homes. GST/PST apply to sales of new homes (as they should) but buyers are entitled to rebates depending on circumstances.

[i have always been appalled at the way our tax system favours home-owners. First, if you buy a new home, you partly avoid GST/PST. Second, if you own your own home, you pay no tax on the equivalent rental income that you in effect pay yourself.]

----

Have I understood properly this GST/PST policy for used cars? If so, this would be a major political point.

Remove GST from all sales of all used cars, regardless of seller.

Harmonize GST and PST across Canada so that sales of used cars are exempt from all sales taxes.

So they say: Recycle, reuse, recover. Such tax harmonization would be environmentally friendly, and politically popular.

[geoffrey]

[i have always been appalled at the way our tax system favours home-owners. First, if you buy a new home, you partly avoid GST/PST. Second, if you own your own home, you pay no tax on the equivalent rental income that you in effect pay yourself.]

Renters also pay nothing of the GST on the original new purchase of the property owner. So that could be seen as a disadvantage for property owners.

[August1991]

Renters also pay nothing of the GST on the original new purchase of the property owner. So that could be seen as a disadvantage for property owners.

Renters pay indirectly through higher rents. And if a property is bought for investment, not for habitation, then the full GST/PST is paid (as it should be).

This is another example of how the tax system has a costly distortion in favour of home-buyers.

One consequence is that the labour market is not as efficient as it could be.

[BC_chick]

However, if you buy a used car from a dealership, GST is assessed on the value of the sale. Why? The GST should only apply to any improvements made by the dealer (and the dealer should be entitled to a GST refund).

[i'm not sure how the CRA distinguishes between a "private seller" and a "dealership". I fear taxpayers have paid many lawyers for a definition and no doubt the definition is still a subject of litigation.]

In the case of PST, it varies by province. In the Maritimes where PST has been harmonized to the GST, I guess the total tax follows GST policy. In Quebec I think, PST applies to both private and dealer sales.

I'm not sure of the exact numbers, but I know that you are allowed to sell a certain number of cars within a 12 month period before you are considered to be providing a service and have to collect taxes. What it comes down to, is that the dealership is making money whereas the private seller presumably isn't (unless of course they are in the business of buying, fixing and reselling cars - in which case we're back to the twelve month assessment again).

IOW - you're paying taxes on the revenue earned by the dealership (goods and services), not the car itself.

Same idea as the capital gains tax and real-estate...

[Mad_Michael]

I'm not sure how the CRA distinguishes between a "private seller" and a "dealership". I fear taxpayers have paid many lawyers for a definition and no doubt the definition is still a subject of litigation.

Used Car Dealers are licenced. Private sellers are not.

I have always been appalled at the way our tax system favours home-owners. First, if you buy a new home, you partly avoid GST/PST. Second, if you own your own home, you pay no tax on the equivalent rental income that you in effect pay yourself.

Yes, home-ownership has always been cross-subsidised in Canada.

Renters of appartments pay much higher property tax rates than houses in suburbs, yet houses in suburbs cost several times as much in cost of provision of services.

And the construction materials used in building of 'rental' apartments is fully taxable (GST). The construction materials used for building condominiums or single dwelling houses is tax-exempt.

[Wilber]

And the construction materials used in building of 'rental' apartments is fully taxable (GST). The construction materials used for building condominiums or single dwelling houses is tax-exempt.

Not quite. Buyers of a principal residence can get a 2.5% GST rebate if the cost is 350K or less. It is then reduced and disappears entirely at 450K. That would include all of the single family dwellings sold in Vancouver and most of those in the Fraser Valley. The buyer also pays GST on the total cost which includes the value of the land, not just the cost of the building.

[kimmy]

When I bought a used car in Alberta and got it registered in BC, I had to pay BC PST on it. I don't understand why, or what business of the BC government it is if I make a purchase in another province. The car was full of other stuff that I bought in Alberta; I didn't have to pay PST on any of it. This seems like a bit of a scam to me, somehow. They're leveraging the fact that a car must be registered (unlike a computer or a TV...) into a blatant tax-grab. Philosophically, demanding a sales tax to register a car that wasn't even purchased here is indefensible. The only justification behind their position that I can imagine is something along the lines of: "We control the registration papers, and if you want one you've got to put up with whatever crap we say."

-k

[mikedavid00]

When I bought a used car in Alberta and got it registered in BC, I had to pay BC PST on it. I don't understand why, or what business of the BC government it is if I make a purchase in another province.

-k

It is a scam and there is no valid reason for it. Just a cash grab from out corrupt govt's.

[cybercoma]

When I bought a used car in Alberta and got it registered in BC, I had to pay BC PST on it.

-k

When I moved to NB, I had the ownership of my vehicle transferred into my name a little more than a month before. Upon registering the vehicle in this province, they told me if I had registered the vehicle within 30 days, I would have to pay tax on it in NB. I was just moving to NB, wasn't even eligible for the medicare card (takes 6 months, as with most provinces) and they were telling me if I waited 5 more days to change the registration of my vehicle in Ontario, I'd have to pay taxes in NB.

Makes absolutely no sense to me how that's possible, especially considering I had to pay tax on the vehicle when it was transferred into my name back home.

[Riverwind]

This is another example of how the tax system has a costly distortion in favour of home-buyers.

You forget that the interest on your mortgage is not tax deductable. This more than makes up for the fact that people do not pay tax on the money they make on home. In the US, mortgage interest is tax deductable but they pay tax when they sell the home.

A sale of an after market home is like selling a car privately - there is no business involved therefore no need to collect GST.

[August1991]

You forget that the interest on your mortgage is not tax deductable. This more than makes up for the fact that people do not pay tax on the money they make on home. In the US, mortgage interest is tax deductable but they pay tax when they sell the home.

The US does double injury to renters when it allows home-buyers to deduct interest payments and reduce their imposable income.

Let me simply illustrate. Person A has $300,000, buys government bonds and uses the coupons (at 5% or $15,000 annually) to pay rent. Except that Person A must first pay income tax on the $15,000 annual coupon income. So, Person A must choose the basement apartment.

Person B also has $300,000 but uses it to buy a third floor condo. Person B has no rent to pay but receives in effect annual housing services. These services (roughly $15,000 annually) are received tax free. (Local property taxes partly mitigate this effect.)

Another way to see this is to consider what happens if you buy a property and rent it out for income. You pay income tax on the rent you receive. But if you live in the property yourself, you receive the same (substantial) benefit but pay no income tax.

In the US, this distortion is compounded because if Person B borrows the $300,000 to buy the condo, she avoids tax on housing services and can reduce her income tax on interest paid.

In effect, there is an incentive to buy a house/condo and a disincentive to rent. This has an effect on labour market mobility.

A sale of an after market home is like selling a car privately - there is no business involved therefore no need to collect GST.

This has nothing to do with business whether public or private.

The GST is a value-added tax. It should only apply on the value-added in any good or service. A used car or house has no value-added.

I suspect that GST designers made the rough estimation that if a dealer sold a used car, there was some value-added in repairs and search costs. Hence, GST applies to dealer sales of used cars. In private sales, such added value doesn't occur as much.

This seems like a bit of a scam to me, somehow. They're leveraging the fact that a car must be registered (unlike a computer or a TV...) into a blatant tax-grab.

I admire your attempt to find logic in our tax system but I can find contrary examples.

For starters, you must register the purchase of a house but provincial governments don't impose PST. You also have to register for a medical card but not all provinces impose a fee. Your birth was registered but I believe your parents paid no fee. Indeed, Quebec once paid parents to register a third child.

Despite what MikeDavid claims, if there is any logic to taxes, it isn't that "corrupt governments take what they can". (As an aside, if MD makes a claim, it's a fair bet that the claim is a first glance approximation.)

I'm not sure of the exact numbers, but I know that you are allowed to sell a certain number of cars within a 12 month period before you are considered to be providing a service and have to collect taxes.

Ugh. What this means is that after some ugly litigation in various tax courts, letters between lawyers and bureaucrats, ordinary people sitting in offices and waiting, it was arbitrarily decided that if you sell 12 cars, you're a "dealer". If you sell 11 cars, you're not.

I'm sure the rule is still subject to appeal - and we are all paying for the bureaucrats to decide.

[Wilber]

When I bought a used car in Alberta and got it registered in BC, I had to pay BC PST on it. I don't understand why, or what business of the BC government it is if I make a purchase in another province.

-k

It is a scam and there is no valid reason for it. Just a cash grab from out corrupt govt's.

It's done to protect their own retailers as much as anything. I doubt the government makes much from it but BC car dealers would lose a bundle in lost sales if they didn't do it.

A government is not corrupt just because it imposes taxes you don't like, only if its members use those tax dollars for their own personal use or to benefit their friends or relatives.

[August1991]

Have I understood properly this GST/PST policy for used cars? If so, this would be a major political point.

Remove GST from all sales of all used cars, regardless of seller.

...

So they say: Recycle, reuse, recover. Such tax harmonization would be environmentally friendly, and politically popular.

The GST should not apply to used cars.

The federal government should seek to harmonize the GST with provincial sales taxes.

[madmax]

This just came to my attention and I'm wondering if someone in this "community" knows about it, and more broadly, why is this government policy?

If you buy a used car from a private seller, there is no GST assessed. (This is how it should be. GST is a value-added tax and used goods have the tax incorporated into their price from the original sale. There's no need to collect it a second time; that would be double taxation and create costly distortions.)

However, if you buy a used car from a dealership, GST is assessed on the value of the sale. Why? The GST should only apply to any improvements made by the dealer (and the dealer should be entitled to a GST refund).

Its only been in place for 17 years, and it just came to your attention? I am in agreement that there should be no GST on used cars in dealerships. I also disagree with a PST on used cars.

One part of the argument to consider (besides greedy government revenue practices) is that should you trade your vehicle into a dealer, you get the tax break on the GST/PST. So this is handed down in the secondary sale.

Can I interest you with a CST and full tank of fuel with that purchase

[Wild Bill]

The GST should not apply to used cars.

The federal government should seek to harmonize the GST with provincial sales taxes.

Some provinces are harmonized, some are not.

Personally, I DON'T want them harmonized here in Ontario!

The feds have always pushed harmonization for one simple reason - to hide and confuse how much they are ripping us off! They even give a bit of a financial discount to a province if it will harmonize their tax for them.

I like to know exactly which government is bleeding me and exactly how much. It gives me something to think about at election times.

[Pliny]

It's done to protect their own retailers as much as anything. I doubt the government makes much from it but BC car dealers would lose a bundle in lost sales if they didn't do it.

A government is not corrupt just because it imposes taxes you don't like, only if its members use those tax dollars for their own personal use or to benefit their friends or relatives.

Analogously, wouldn't car dealers and retailers be their friends or relatives then since it benefits them?

It is an example of how one law is made and turns into ten other laws. Government should just charge the people who want it's services. I don't mind paying for what I want and I resent supporting programs and things with taxes that I am totally against. Justice is perhaps the only mandate I would consider should be somewhat socialized maybe they could concentrate on that then and forget all the rest of the BS and empire building they involve themselves with.

[August1991]

Sales of used vehicles, boats and aircraft by dealers will rise to 12 per cent when the new harmonized sales tax (HST) — which combines the PST and the five-per-cent federal goods and services tax (GST) — goes into effect July 1.

But the B.C. government now plans to raise the PST on private sales of automobiles, boats and cars to 12 per cent the same day as the HST goes into effect.

Charging a higher tax on sales of used cars by private individuals will level the playing field, B.C. Finance Minister Colin Hansen said.

"The tax that's applied to the sale of used vehicles will be the same, whether you purchase it from a used car dealer or whether you purchase it from a private individual," Hansen said.

CBC

Hansen may in his own mind be levelling the playing field between private sellers and dealers but this policy is introducing a distortion between used and new vehicles. The GST (or HST) is a value-added tax. The GST/HST should not apply to the sale of any used vehicle. It was paid when the vehicle was bought new.

The tax, in theory, should only apply to any improvements to the vehicle. A private seller will have paid the HST on regular maintenance. At most, dealers should only assess the GST/HST on any improvements prior to resale.

[Wilber]

Well the BC Liberals have done it again. We don't care what you want or what we said, this is what we are doing so lump it.

I questioned my MLA on this very thing last November and this is the text of his reply.

There is currently no GST on used vehicles purchased in a private sale. That means there will be no HST charged. There is however currently a 7% PST charge payable on registration. That may continue as a vehicle registration fee based on cost however, I do not believe a decision has been made as of yet. In any event, there will be no HST.

I threw it back at him yesterday and his weasel response was that because there is no GST component, it is not HST. These folks are living in an ethical vacuum.

[Wilber]

Another small incidence of BC residents being gouged. BC just changed its parks reservation system to a company called CAMIS. They also do Washinton State parks and if it is the same system, will be far superior to BC's old system. That's the good part.

Now the bad part. BC charges a reservation fee of $6 PN to a maximum of $18 and an additional $5 if a reservation is made by phone instead of online. Washington charges a flat rate of $6.50 per reservation and nothing additional for phone reservations. Considering the huge difference in fees, it is obvious the BC fees reflect considerably more than the cost of the reservation system

I've asked the minister why the discrepancy but so far, no answer.

[everfresh]

Okay, so I've got a monster question for all of you....

I'm in the process of purchasing a new vehicle, specifically, a 2006 Audi A3. I liv ein Montreal, but can't find it here, so I was thinking of purchasing the vehicle in Ontario.

Now, what I'm really curious to find out, is if I were to purchase my vehicle from a private owner, would I have to pay any taxes on the vehicle when I bring it back to Quebec? I know GST is out of the question, since it's from a private owner, but what about PST? I don't live in Ontario, and I didn't purchase the vehicle in Quebec... so would I have to pay taxes at all?

Thanks in advance....

[August1991]

Now, what I'm really curious to find out, is if I were to purchase my vehicle from a private owner, would I have to pay any taxes on the vehicle when I bring it back to Quebec? I know GST is out of the question, since it's from a private owner, but what about PST? I don't live in Ontario, and I didn't purchase the vehicle in Quebec... so would I have to pay taxes at all?

I'm assuming that you will not be receiving the car from a close family member.

If you buy the used car from a dealer in Ontario, you will have to pay both the GST/Ontario PST. Then, you will have to pay the Quebec PST (but not GST) when you register the car in Quebec. I believe that you can later apply to receive a reimbursement of the Quebec PST.

Une transaction entre particuliers est exempte de TPS mais l'acheteur devra payer la TVQ (sur le plus élevé des deux montants suivants, soit le prix réel d'achat ou le prix indiqué dans le Guide Hebdo, moins 500 $).

CAA

This is the story of someone who did as you want to:

Aujourdhui, il ne me reste quà remplir la demande de remboursement au ministère du Revenu du Québec...

Link Edited June 12, 2010 by August1991