Do You Pay Tax on Private Car Sales in Ontario?

Doug Bell, CPA

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Selling or buying a car privately in Ontario involves more than just transferring ownership; understanding the tax implications is crucial. This guide will explain whether you need to pay tax on private car sales in Ontario and how the process works.

Understanding Private Car Sales in Ontario

In Ontario, private car sales occur when a vehicle is sold by a private individual rather than a dealer. These transactions often offer better deals for both the buyer and the seller but come with specific tax responsibilities.

Tax Responsibilities for the Buyer

When you buy a car privately in Ontario, you are responsible for paying the Retail Sales Tax (RST). The RST is 13% of the purchase price or the vehicle’s wholesale value, whichever is higher.

How to Determine the Tax Amount

The tax amount is based on the purchase price or the Canadian Red Book wholesale value, whichever is greater. The Canadian Red Book is a valuation guide used to determine the standard market value of vehicles.

Steps:

  1. Obtain the Wholesale Value: Check the Canadian Red Book for your car’s wholesale value.
  2. Compare Purchase Price and Wholesale Value: Determine which amount is higher.
  3. Calculate 13% Tax: Multiply the higher amount by 0.13 to get the RST amount.

Example:

  • Purchase Price: $8,000
  • Canadian Red Book Value: $10,000
  • Taxable Amount: $10,000 (higher value)
  • RST: $10,000 x 0.13 = $1,300

How to Pay the Tax

The buyer pays the RST when registering the vehicle with ServiceOntario. Here’s how to do it:

Steps:

  1. Complete the Bill of Sale: Ensure the bill of sale is complete with the seller’s and buyer’s information, vehicle details, and the purchase price.
  2. Visit ServiceOntario: Go to a ServiceOntario center with the bill of sale, used vehicle information package (UVIP), safety standards certificate, and identification.
  3. Pay the Tax: The RST will be calculated and paid at the time of registration.
  4. Register the Vehicle: Complete the registration process and receive your new ownership documents.

Tax Responsibilities for the Seller

The seller in a private car sale in Ontario does not pay tax on the sale. However, the seller must provide all necessary documents to the buyer to facilitate the transaction.

Documents to Provide

Steps:

  1. Bill of Sale: A document that includes the seller’s and buyer’s names, addresses, the vehicle’s make, model, year, VIN, and purchase price.
  2. Used Vehicle Information Package (UVIP): A UVIP is mandatory in Ontario for private sales. It includes details about the vehicle’s history and is purchased from ServiceOntario.
  3. Safety Standards Certificate: This certificate proves that the vehicle meets the minimum safety standards in Ontario.
  4. Vehicle Permit: The seller should sign the back of the vehicle permit (also known as the ownership) and give it to the buyer.

Special Cases

Gifted Vehicles

If a vehicle is gifted to a close family member, the recipient may be exempt from paying the RST. Close family members include spouses, parents, siblings, children, grandparents, and grandchildren.

Steps:

  1. Complete Sworn Statement: Both the donor and recipient must complete a Sworn Statement for a Family Gift of a Used Motor Vehicle in Ontario.
  2. Provide Proof of Relationship: Documents proving the relationship may be required.
  3. Visit ServiceOntario: Submit the Sworn Statement and proof of relationship at a ServiceOntario center.
  4. Register the Vehicle: The recipient can register the vehicle without paying the RST.

Trade-Ins

If you are trading in a vehicle as part of a private sale, the RST is calculated on the difference between the new vehicle’s purchase price and the trade-in value.

Steps:

  1. Determine Trade-In Value: Agree on the trade-in value with the buyer or seller.
  2. Calculate the Difference: Subtract the trade-in value from the purchase price of the new vehicle.
  3. Calculate RST: Apply the 13% tax rate to the difference.
  4. Pay the Tax: Pay the RST when registering the new vehicle with ServiceOntario.

Summary

In Ontario, buyers are responsible for paying a 13% Retail Sales Tax on the higher of the purchase price or the Canadian Red Book wholesale value when buying a car privately. Sellers do not pay tax but must provide necessary documents to the buyer. Special cases, such as gifted vehicles or trade-ins, have different tax implications. Understanding these responsibilities ensures a smooth transaction and compliance with Ontario’s tax regulations.

Note: Always review the latest guidelines from ServiceOntario and consult with a financial advisor if needed to ensure you are following the correct procedures.

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