What is the sales tax on a car in Toronto?

Buying a new or used car is an exciting milestone. Whether you’ve found the perfect family vehicle or a sporty ride for weekend drives, you’ve likely spent a lot of time budgeting for the purchase price. However, one significant cost that can surprise buyers is the sales tax. Understanding how this tax works is essential for accurately calculating the total cost of your vehicle in Toronto.

This guide will break down everything you need to know about the sales tax on cars in Toronto. We’ll cover what it is, how it’s calculated for both new and used vehicles, and answer some common questions to help you budget with confidence.

Understanding Car Sales Tax in Toronto

When you purchase a vehicle in Ontario, you are required to pay a form of sales tax. For new cars purchased from a dealership, this is the Harmonized Sales Tax (HST). For most private sales of used vehicles, you’ll pay the Retail Sales Tax (RST). While the names differ, the rate is the same: 13%. This tax applies to the purchase price of the car, and sometimes on other associated fees.

It’s a common mistake to overlook this expense when negotiating a price. Forgetting to factor in the sales tax can add thousands of dollars to your final bill, so it’s crucial to include it in your financial planning from the very beginning.

How to Calculate Sales Tax on a New Car

Calculating the sales tax on a new car purchased from a dealership in Toronto is straightforward. The 13% HST is applied to the final selling price of the vehicle.

Here’s a simple formula:
Purchase Price x 0.13 = Total Sales Tax

For example, if you buy a new car for $40,000, the calculation would be:
$40,000 x 0.13 = $5,200

Your total cost for the car, before other fees like licensing and registration, would be $45,200. This calculation makes it clear just how significant the sales tax is. Dealerships will handle the collection and remittance of this tax for you, including it on your bill of sale.

Calculating Sales Tax on a Used Car

The process for calculating sales tax on a used car is slightly different, especially for private sales. The 13% Retail Sales Tax (RST) is still applicable, but it’s based on either the purchase price or the vehicle’s wholesale value (Red Book value), whichever is greater. This rule is in place to ensure a fair amount of tax is collected, even if a vehicle is sold for a token amount.

You will pay this sales tax when you register the vehicle at a ServiceOntario centre, not to the private seller.

Let’s look at two scenarios:

Scenario 1: Purchase Price is Higher

• You buy a used car from a private seller for $15,000.
• The official wholesale value is $13,000.
• Since the purchase price is higher, the sales tax is calculated on $15,000.
• Calculation: $15,000 x 0.13 = $1,950

Scenario 2: Wholesale Value is Higher

• You buy the same car from a family member for $10,000.
• The official wholesale value is still $13,000.
• Since the wholesale value is higher, the sales tax is calculated on $13,000.
• Calculation: $13,000 x 0.13 = $1,690

When purchasing a used vehicle from a GST/HST registered dealer, the 13% HST is applied to the sale price, just like a new car purchase.

Frequently Asked Questions (FAQs)

Here are answers to some common questions about paying sales tax on cars in Toronto.

Do I pay sales tax on used cars?

Yes, you are required to pay a 13% sales tax on used cars in Ontario. If you buy from a dealer, you’ll pay HST. If you buy from a private seller, you’ll pay Retail Sales Tax (RST) when you register the vehicle at ServiceOntario. The tax is calculated on the higher of the purchase price or the vehicle’s wholesale value.

Are there any exemptions for sales tax on cars?

There are very few exemptions. One notable exception is for Status Indians, who may be exempt from paying the 8% provincial portion of the HST on certain goods and services purchased on a reserve. Another exemption applies to the transfer of a vehicle between certain close family members, such as a spouse, parent, or child. In these specific cases, a gift declaration form is required, and the RST may be waived.

What about sales tax on a gifted car?

If you receive a car as a gift from a qualifying family member (e.g., spouse, parent, grandparent, child), you may be exempt from paying RST. You will need to complete a sworn statement declaring it as a gift. However, this exemption is typically limited to one vehicle per person every 12 months. If the gift is from a non-qualifying person, you will pay RST on the vehicle’s wholesale value.

Do I pay sales tax on a car imported from the U.S.?

Yes. When importing a car from the United States, you will be subject to taxes. This includes the 13% HST, which is collected at the border by the Canada Border Services Agency (CBSA). There may also be other duties and fees depending on the vehicle’s origin and value. The process can be complex, involving multiple government agencies and specific paperwork.

Simplify Your Cross-Border Car Purchase

Importing a vehicle from the U.S. can open up a world of options, but navigating the complexities of customs, duties, and sales tax can be overwhelming. Don’t let confusing paperwork and border regulations stand in the way of your dream car.

LCS customs brokers specialize in vehicle imports. We handle all the details, from customs declarations to ensuring you meet all Canadian import requirements. Let us manage the logistics so you can focus on the excitement of driving your new car.

Contact us today to get a free quote and ensure a smooth, hassle-free import experience!