When it comes time to sell, buy, exchange or donate a used vehicle, taxes may apply. Here is some valuable information about transferring a vehicle between individuals.
When transferring a vehicle, both the former and new owners must follow certain steps depending on their province of residence. In Quebec, registration is handled through the Société d’assurance automobile du Québec (SAAQ), while in Ontario, transfers are completed at a ServiceOntario centre.
In most cases, both parties are required to appear in person and supply their driver’s licenses (or other forms of official photo ID) to assist with the new registration. The person acquiring the vehicle is also required to pay registration fees. For Ontario transfers, the Ministry of Transportation of Ontario requires additional documents, like a Safety Standards Certificate, a Drive Clean emissions test, vehicle ownership permit and a completed plate transfer declaration (for those also transferring license plates).
Typically, the Goods and Services Tax (GST) does not apply for these transactions, except in rare cases. However, the purchaser may be required to pay the Provincial or Retail Sales Tax in their province. For example, Quebec transfers may be subject to the Quebec Sales Tax (QST), whereas transfers made in Ontario may be subject to RST. The calculation varies based on the relationship between people and the type of transaction.
The most common vehicle transfer between individuals is the sale or purchase of a vehicle. Have you found a rare gem in the Classifieds? Keep in mind that you will have to pay tax on your purchase, equal to whichever is greater: the estimated wholesale value of the vehicle or the sale price.
There is, however, an exception to this rule for people in the same family. If you are transferring a vehicle to a family member, tax is calculated based on the sale price, even if it’s lower than the estimated value. Revenu Québec and the Ontario Ministry of Finance consider spouses and people who are related by blood, marriage or adoption as part of the same family.
In order to prove a familial relationship, you’ll need to present a document such as a birth certificate or a marriage certificate. In Quebec, you must also fill out a Declaration of a Transaction Between Related Individuals with Regard to a Road Vehicle Registered in Quebec. This form is available on the Revenu Québec website. In Ontario, the same applies. A Sworn Statement for a Family Gift of a Used Motor Vehicle in the Provence of Ontario, available from ServiceOntario, must be completed.
If a vehicle is donated, the same principle applies. Since there is no sale price, tax is calculated based on the estimated value of the vehicle, unless it’s donated to members of the same family. If you give your old vehicle to your child, for instance, you wouldn’t be required to pay any tax. The same would apply if you were to give a vehicle to an ex-spouse after a separation or divorce.
Furthermore, tax is not applicable in cases where a vehicle is transferred between individuals following a death. This includes situations where you receive a vehicle as part of an estate bequest, or inherit one from someone outside of your family, such as a best friend or a neighbour.
Are you an avid trader? Maybe you want to exchange your vehicle for a co-worker’s motorcycle, or another vehicle? When transferring vehicles between non-relatives, the tax calculation is a little different.
In Quebec, the QST is collected on the greater of two amounts: the estimated value of the vehicle given in exchange and the estimated value of the vehicle acquired. For example, if you exchange a $5,000 car for a motorcycle with a value estimated at $8,000, both parties will pay the QST on the $8,000. This rule doesn’t apply in Ontario, however, where both parties would be required to pay RST based on the wholesale value of the vehicle they are receiving in the trade. RST is payable in person at any ServiceOntario centre.
Provinces have very precise rules to determine a vehicle’s value throughout the process of transferring it between individuals.
In Quebec, Revenu Québec dictates that the value must be determined based on the average wholesale price listed in the most recent version of the Guide d’évaluation Hebdo (automobiles et camions légers). You must then subtract $500 from this amount. In Ontario, the Ministry of Finance has similar rules in effect. Vehicles purchased privately in the province are subject to RST based on whichever is greater: the purchase price or the vehicle’s wholesale, Canadian Red Book value.
If a vehicle is no longer listed, the tax is usually calculated based on the sale price. In Quebec, luxury cars less than 25 years old are an exception and Revenu Québec requires that they be evaluated by a professional estimator. The following brands are considered to be high-end: Aston Martin, Bentley, Ferrari, Hummer, Lamborghini, Lotus, Maserati and Rolls Royce. In Ontario, vehicles 20 years or older will require an appraisal, or will otherwise be subject to RST payable on the purchase price or replacement value for insurance purposes. The buyer pays tax based on the higher value.
In Quebec, the estimated value must be established according to the value determined by the most recent version of the Canadian Motorcycle Dealers Blue Book or the Canadian ATV, Snowmobile & Watercraft Dealers Blue Book, depending on the case. You must then subtract $500 from this amount. In Ontario, specified vehicles without a Red Book value, including off-road vehicles or snowmobiles (that require a permit under the Off-Road Vehicles Act of Motorized Snow Vehicles Act) are taxed RST based on the purchase price.
These rules apply uniquely to the transfer of personal vehicles between individuals. If the seller is an entrepreneur and you purchase their vehicle that was destined for commercial use, the process is different. In case of doubt, do not hesitate to get in contact with the right department in your province – Revenu Québec in Quebec or a ServiceOntaio centre in Ontario. That way, you’ll avoid any unpleasant surprises and know exactly what to expect when you get to the counter.
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