As if cars weren’t expensive enough, there’s sales tax on top of the sale price to worry about. And the higher the ticket price, the more you’ll pay in sales tax on cars in Ontario.
Read on to find out how much sales tax costs when buying a vehicle, and how this tax will affect your purchase.
How Much Are Sales Tax On Cars In Ontario?
When you buy a car in Ontario, you’ll need to pay sales tax, much like you would when you purchase other goods and services. In Ontario, the Harmonized Sales Tax (HST) applies, which is currently set at 13%.
If you buy a car from a dealership, the dealer will collect the 13% applied to the purchase price of the car, then remit these taxes to the Canada Revenue Agency (CRA). Sales tax applies whether the vehicle is new or used.
Do You Pay Sales Tax On Private Car Sales In Ontario?
If you buy a used car from a private seller, you may not be charged 13%, since the seller is not a registered GST/HST car dealer. In this case, a private non-registered seller does not have to collect sales tax for the government.
However, when you register your car in your name at a Service Ontario location, you’ll be required to pay the provincial Retail Sales Tax (RST) of 13%.
The RST calculation is based on either the purchase price of the car or its wholesale value according to the Canadian Red Book, whichever of the two is higher. If the vehicle’s Red Book value is under $1,000, the RST will be based on the purchase price.
Are There Any Sales Tax Exemptions?
In Ontario, you don’t have to pay RST to the seller if:
- You receive the car as a gift from a family member.
- You bought a car in another province and are now moving to Ontario
- You’re of Indian Status or a foreign representative who is exempt
- You receive the car as part of an estate bequest
How Does Tax On Cars In Ontario Affect Car Prices?
When you shop for a car, you should not only consider the MSRP and ticket price but also the additional sales tax you’ll have to pay. In Ontario, a 13% sales tax is a hefty amount and can increase the final purchase price by quite a bit. Be sure to take into consideration the entire cost of a vehicle before committing to a purchase.
How To Calculate Sales Tax On Cars In Ontario
As mentioned, the sales tax in Ontario, or HST, is 13%. To calculate the HST on a vehicle purchase, follow these steps:
- Determine the price of the car.
- Multiply the purchase price of the vehicle by 13% to determine the HST owed.
- Add the purchase price of the car and the HST amount together to arrive at the total amount payable.
To give you an idea of how much a vehicle purchase will cost you, here are a few examples of various car prices, the applicable HST, and the final purchase price including tax:
|Vehicle Purchase Price||HST/RST||Final Purchase Price|
How Does Sales Tax On Cars In Ontario Affect Car Loans?
Car loans are common in Canada. Given the high cost of a vehicle purchase, many Canadians don’t have the liquid funds available to buy a car in an all-cash transaction. That’s where auto loans come into the picture.
With a car loan, you can finance the full cost of your car without having to come up with the sale price upfront. But how does the car sales tax affect your auto loan in Ontario?
With additional tax added to the purchase price of a car, the full purchase price will be higher than what the dealer or seller charges. If you’re financing your vehicle purchase with an auto loan, you can add this additional tax charge to the total loan amount. In this way, you’re essentially financing the sales tax, too.
Let’s illustrate how sales tax affects your car loan using a $40,000 vehicle purchase, a 5-year loan term, and a 7.89% interest rate. The following chart compares two car loans: one excluding sales tax with the 13% HST paid upfront ($5,200), and one including sales tax:
|Car Loan Excluding Sales Tax||Car Loan Including Sales Tax|
|Car Sales Tax||–||$5,200|
|Total Car Cost||$40,000||$45,200|
|Total Loan Amount||$40,000||$45,200|
|Term Lenght||5 years||5 years|
|Total Interest Payable||$8,537.10||$9,646.92|
As you can see, rolling your sales tax into the loan will increase your monthly payment by over $105 and your total interest payable by nearly $1,110. While coming up with a lump sum of $5,200 upfront to pay for sales tax may sound like a lot, you’re paying an extra $1,110 by adding it to your loan.
Tips To Minimize The Impact Of Sales Tax On Car Prices And Loans
Saving money on sales tax when buying a car essentially comes down to reducing the purchase price of your car. The lower the ticket price, the less you’ll pay in taxes. Here are a few ways to keep your purchase price low to save on sales tax:
- Buy A Cheaper Used Car – Buying a second-hand vehicle is typically much more affordable than buying new. You can save a considerable amount of money by buying used, which will reduce your sales tax obligations. Plus, most new cars will depreciate by about 10% the moment they’re driven off the dealer’s lot, followed by another 10% to 20% after a year. Used cars do not lose their value as quickly.
- Negotiate. Consider negotiating the car sales price to a lower amount. For example, you could ask the seller to have the sales tax included in the cost of the car.
Can Trading In Your Car To Reduce The Sales Tax You Pay?
If you have a car you’d like to trade-in, you can use it to lower your total upfront or financing costs. However, trading in your car, will not decrease the taxes you owe. For example, if you have a $5,000 car you can trade-in and want to buy a $20,000 car, you can reduce the cost to $15,000. That means you’ll only need to finance $15,000. But you’ll still be paying taxes on the initial $20,000.
So, while your trade-in may be used as a down payment and lower the overall cost, it does not reduce the taxes you pay.
Can You Get A RST Refund?
You may claim for a RST refund or rebate if:
- You were eligible for an RST exemption
- You moved out of Ontario permanently 30 days after purchasing the car
- The car’s value is reduced due to excessive use or damage
To claim a refund, please download the forms here.
Other Costs To Consider
The ticket price of the car and sales tax aren’t the only costs you’ll have to pay. Before you buy a car, make sure you’ve considered all associated costs, including the following:
After you buy a car, you must register it with the Ontario Ministry of Transportation (MTO). Registration fees are based on the vehicle’s weight and can vary anywhere from $120 to $240. Plus, you’ll have to pay $32 for a vehicle permit, or $59 for the permit and a license plate.
There may be other fees associated with buying or owning a car in Ontario. For instance, the Ontario Tire Stewardship fee is charged on new tires bought in the province. The fee goes toward collecting, transporting, and processing scrap tires.
If you’re buying a car in Ontario, you’ll have to pay sales tax on top of the purchase price. Regardless of whether you’re buying new or used. At 13%, the HST applied to car sales can add a significant amount to the overall purchase price and can also increase your auto loan amount if you finance. Crunch the numbers to ensure you can comfortably afford the total purchase price of a vehicle before buying.