Are you thinking about giving a used car to someone in Ontario? It’s a thoughtful gesture, but there are critical legal and financial factors to address beforehand.
In this guide, we’ll break down the ins and outs of giving cars to family members in Ontario. We’ll explain who doesn’t have to pay taxes, how to change ownership properly, what paperwork you need, and how to get insurance for the gifted vehicle. We’ll also provide a step-by-step guide on how to gift a car, from getting the necessary documents to officially transferring ownership.
With the right preparation, you can gift a used car smoothly. You’ll discover info about tax exemptions for immediate family, options for leased cars, and what to do if there’s still a loan to pay off. Whether you want to assist your child in getting their first car or provide your elderly parent with a new set of wheels, this guide will make the car gifting process a breeze.
Key Points: What You Need To Know
- Gifting a car to an immediate family member in Ontario is exempt from retail sales tax (RST). This includes spouses, parents, children, siblings, grandparents, and in-laws.
- To gift a car, you must gather paperwork like a bill of sale, insurance, license, safety certificate, ownership permit, and plate transfer form if applicable.
- The recipient must register the gifted car at a ServiceOntario Center and pay fees, get insurance, and may need a new license plate.
- You can’t gift a leased car or a car with outstanding loan payments. The car must be fully paid off first.
- The recipient must get insurance before taking ownership of the gifted car. Shop around for the best rates based on factors like age and location.
Who Can You Gift A Car To And Not Pay Taxes?
If you’re looking to gift a car to someone in Ontario, you may wonder if you’ll have to pay taxes on the transaction. The good news is that if you gift a car to an immediate family member, you won’t have to pay retail sales tax (RST).
The Ontario government doesn’t charge a tax when immediate family members gift a vehicle because they see it as a personal favour between family, not a money-related transaction. The transfer is not subject to the same taxes and fees as a regular sale.
It’s important to note that only one exempt transfer of the same vehicle between family members is allowed within 12 months. The following list details the eligible family members you can gift a car to without paying RST.
Eligible Family Members (RST Exclusion)
- Son or step-son
- Parent or step-parent
- Daughter or step-daughter
- Grandson or step-grandson
- Grandparent or step-grandparent
- Granddaughter or step-granddaughter
- Spouse (including a common-law spouse)
- Half siblings (siblings with a common parent)
- Adopted siblings (siblings with a common parent through adoption)
Transfer Of A Car During A Separation, Divorce, Or Death
If you’re transferring ownership of a car during a separation or divorce, the process can be more complicated. If a car is acquired from a spouse or former spouse, it will require a supporting document to avoid RST. This can include a separation agreement, divorce agreement, Sworn Statement, or other similar court document.
If one party passes away, the car will typically be transferred to their estate. The estate executor will then distribute the assets according to the deceased’s wishes. If it’s passed down to an eligible family member it will be exempt from RST tax. Documents such as a duplicate of the will, a death certificate, and the certificate naming the estate trustee will be needed in addition to the regular documents mentioned below.
What Is The Retail Sales Tax On A Gifted Car In Ontario
If you’re not eligible to receive the car as a gift from a family member, then you will be liable for the payment of retail sales tax (RST) based on the vehicle’s assessed value.
In Ontario, the RST rate is 13%, which is calculated using the Red Book value. RST is payable exclusively to ServiceOntario. You won’t need to pay RST to a seller.
How To Gift A Car In Ontario: Step By Step Guide
Step 1: Gather All the Paperwork
Before you can gift a car in Ontario, you’ll need to gather all the necessary paperwork. This includes a Bill of Sale, proof of insurance, vehicle ownership permit, and everyone’s drivers’ license. There are additional documents, explained further below.
Step 2: Pay Off Any Existing Loans
If you still owe money on the car, you’ll need to pay it off before you can gift it. You can’t transfer ownership of a car with an outstanding loan. Likewise, if you have an existing lease you’ll either need to transfer it or perform a buyout.
Step 3: Shop For Car Insurance
The recipient of the gifted car must have insurance before they can drive. However, if the recipient already has car insurance, they have a 14-day window to register it to their new vehicle.
Step 4: Sign The Sworn Statement (If Gifting To Family)
To avoid RST, you’ll need to sign the Sworn Statement for a Family Gift of a Used Motor Vehicle in the Province of Ontario form. This form confirms that you’re gifting the car to a family member so that they won’t have to pay retail sales tax.
Step 5: Obtain A Safety Standards Certificate
The Safety Standards Certificate (SSC) is a set of minimum standards the vehicle must pass. You can obtain this certificate by having the vehicle successfully inspected at any authorized Ontario Ministry of Transportation (MTO) inspection station. The SSC isn’t necessary if gifting to a spouse, although you’ll need to complete a spousal declaration form.
Step 6: Plate Declaration
The plate declaration form is necessary if you are transferring your license plate to an eligible family member. You must fill out a plate transfer declaration form to transfer it. However, they can opt for a new license plate for $59.
Step 7: Transfer Ownership And Register The Vehicle
Finally, you’ll need to transfer ownership of the car to the recipient. This can be done at a ServiceOntario Centre. You’ll need to bring all the paperwork, including a Bill of Sale, proof of insurance, vehicle ownership permit, Sworn Statement, and everyone’s driver’s license. You may also need to bring the SSC, and Plate declaration form. ServiceOntario will charge a $32 registration fee to issue the vehicle permit.
Documents Required To Gift A Car In Ontario
If you’re planning to gift a car in Ontario, there are certain documents that you’ll need to gather before you can transfer ownership of the vehicle. Here’s a list of the documents that you’ll need to bring with you to a ServiceOntario Centre:
|Sworn Statement Form||This form is required to declare that the vehicle is being gifted to an eligible family member and will avoid RST.|
|Proof of Ontario Vehicle Insurance||The recipient must provide proof of insurance for the vehicle.|
|Ontario Driver’s License||The recipient and gifter must provide a valid driver’s license.|
|Safety Standards Certificate||This consists of a safety check from the Ontario Transport Ministry. It’s not needed if transferring to a spouse and completing a separate spousal declaration form.|
|Vehicle Ownership Permit||Required to prove ownership of the vehicle; the transfer portion must be completed.|
|Plate Transfer Declaration||A plate transfer declaration allows you to transfer license plates to an eligible family member.|
After collecting all the required documents, both the seller and the recipient should sign the Bill of Sale. Subsequently, the recipient should go to a ServiceOntario Center with these documents to finalize the ownership transfer. There is a $32.00 fee associated with this transfer process or $59.00 with a new license plate.
Can You Gift A Car That Isn’t Paid Off?
No, you can’t gift a car that isn’t paid off. You must fully own the vehicle without outstanding loans to transfer the vehicle. It is necessary to possess a clear title to enable a smooth transfer of ownership to the desired individual.
If there is an existing loan balance on the vehicle, pay it off in full before transferring the vehicle. This should help remove any lien on the vehicle from the lender, indicating that it’s no longer financially obligated to any third party. If there is a remaining balance on the car, the individual taking over the car could consider a car loan to pay off the remaining debt.
Can You Gift A Leased Car?
No, you can’t gift a leased car to someone in Ontario, as you don’t have full ownership of the vehicle yet. However, if you own the lease, you can complete either a lease buyout or have the individual complete a lease takeover of the vehicle.
Lease Takeover Option
One option for transferring ownership of a leased car is a lease takeover. A lease takeover, or a lease transfer, is when someone takes over the remaining payments on your lease agreement. It’s important to note that not all companies allow lease takeovers, and the fee can range from $300 to $800.
You will need to contact your leasing company to find out what steps to be taken to transfer ownership if allowed. However, the new leaseholder will generally need to pass a credit check to ensure they can responsibly make payments. This means it can be challenging to gift a lease takeover to a younger family member who still needs to build a credit score.
Lease Buyout Option
Another option to gift a leased car is to buy out the lease. As with buying of a car, you’ll own the vehicle outright and can gift it to anyone. However, this option comes with higher upfront costs, and early termination fees ranging from $200 to $500.
To complete a lease buyout, simply contact your leasing company to determine their exact process. Overall, you’ll need to pay for the remaining vehicle’s equity. However, this will be adjusted with several factors, such as fees, the residual value of the car, the length of the lease term, and the condition of the vehicle. To manage the cost of buying out a lease, some turn to a home equity loan.
How To Insure A Gifted Car In Ontario
Every driver in Ontario needs car insurance. This means the driver receiving the gifted car needs coverage. If you are gifting a car to your children, the registration is no longer under your name and secondary coverage doesn’t apply.
This means the new vehicle owner becomes the primary driver and will need their own coverage. If you are acquiring insurance for the new owner, you’ll need to contact a provider. If the new owner already has an existing policy, they have a 14-day window to register their vehicle.
Car insurance in Ontario often comes with a hefty price tag, making it crucial to compare car insurance rates. As per the Financial Services Regulatory Authority of Ontario (FSRAO), the annual average cost of car insurance in the province stands at approximately $1,737. Nevertheless, this figure varies with the driver’s age, history, location, and vehicle type.
What Happens When You Win A Car In Canada?
You don’t have to pay taxes if you win a car through a lottery in Canada. This is different from the United States, where winners must pay around a 30% tax. In any case, you’ll likely still need to pay insurance, maintenance, and registration costs for your lucky car.
While you won’t need to pay taxes on winnings, there is a taxable capital gain if you sell the car for more than its initial value. The initial value, otherwise known as the adjusted cost base (ACB) is the fair market value of the vehicle at the time it’s given to you. Selling it for more than the ACB will trigger taxes. However, vehicles depreciate over time so it’s unlikely to sell for a higher price. Just be cautious if you are selling the car immediately after winning it.
Gifting A Car In Ontario: Bottom Line
Gifting a car to a family member in Ontario can be a great way to help out a loved one needing a vehicle. The process is straightforward as long as you have all the required paperwork and the recipient has valid insurance and a driver’s license. The key benefit is that retail sales tax does not need to be paid on the transaction when gifting to an eligible family member.
Overall, gifting a used car is often a better option compared to selling the car, provided you meet the requirements. Just carefully follow each step and gather all necessary documents to ensure a smooth ownership transfer. With proper planning, you can successfully gift your car in Ontario and provide a family member with a reliable vehicle.