July 6, 2010

Presenting the myths of the tax on used vehicle sales in Ontario:

1. For private vehicle sales just like for vehicles from dealers, there is a 13%
HST.

Wrong, it's 13% but it's no HST, it's a Provincial Sales Tax. HST is a Value Added
Tax; the sellers collect the taxes from the buyers and remit the taxes, net of
their input HST paid, to the gov't. But for the PST, it is collected directly by
the gov't from buyers, private sellers get no deductions whatsoever.

2. In both dealer sales and private sales, the buyers pay the 13% tax. The field
is level both ways.

13% HST on dealer's cars is no level playing field to the 13% Provincial tax on
private transfers. Dealers are given full HST input tax credits on their purchases
including the car purchases. Whereas in private sales, the 13% PST goes directly
to the Province instead of to the private sellers and private sellers cannot claim
any input tax credits. The private sellers got short changed.

3. HST for dealers' cars is also a double tax.

Dealers are given input tax credits on their vehicles purchases, so the final HST
is NOT a double tax.

and one more..

4. Before July 1, 2010, dealers charge combined 13% tax in sales (5% GST +
8% PST), tax on private sales is only 8% PST with no GST, dealers have the
disadvantage

Both the Federal and Provincial Government gave input tax credits totalling 13%
when the dealers bought their used cars, private sellers get zero input tax credits
from either government. Advantage dealers: 8%.

====

Tax on Private Transf of Cars increasing to 13% in Ontario

http://forums.redflagdeals.com/must-read-act-now-tax-private-transf-cars-
increasing-13-ontario-905891/
http://tinyurl.com/2010pst
June 24, 2010

Folks, RedFlagDeals.com readers,

Please help or help me challenge the legality of the 13% Retail Sales Tax (PST) on
private sales of used vehicles in Ontario.

Starting July 1, 2010, 8% Provincial Sales Tax (PST) will combine with the 5%
Federal GST to become the 13% Harmonized Sales Tax (HST). PST will cease to exist
by itself EXCEPT the PST on private sales of used vehicles in Ontario. Look under
the 2009 Ontario Budget, it says:

http://www.fin.gov.on.ca/en/budget/ontariobudgets/2009/chpt3.html
"Private Transfers of Motor Vehicles: Similar to the tax treatment in other
provinces, Ontario would retain a sales tax on private transfers of used motor
vehicles. This would help to ensure a level playing field between used vehicles
sold through dealerships and private sales."

Now look at the Harmonized tax changes:

http://www.rev.gov.on.ca/en/taxchange/taxable.html
"Private Resale of Car (including Registration) No GST - 8% PST - Changes to 13%:
HST does not apply; however, Ontario will maintain the PST on private transfers of
used vehicles at a rate of 13 per cent to help ensure a level playing field between
sales by dealerships and private sales."

It's further explained here:

http://news.ontario.ca/mof/en/2009/11/ontarios-tax-plan-for-jobs-and-growth-1.html
"As announced in the 2009 Budget, Ontario would retain a sales tax on private
transfers of used vehicles, similar to the tax treatment in other provinces. The
tax rate would be 13 per cent, to help ensure a level playing field between sales
by GST/HST registrants (e.g. car dealerships) and private sales. The tax would
generally apply to the same vehicle classes that are currently subject to RST,
including boats and aircrafts.

Applying the 13 per cent rate to private transfers of used vehicles would raise
about $70 million per year in additional revenue.

Exemptions under the current RST on used vehicles would be maintained. The
exemption for gifts by family members would be expanded to include siblings,
similar to the treatment in other provinces."

WHAT IS THE ONTARIO GOVERNMENT SAYING?

PST is combining with GST to form HST, but there were no (Federal) GST on private
sales of used vehicles before July 2010 and neither will there be a Federal tax
on the private sales after. So in order to (1) help ensure a level playing field
between sales by dealerships and private sales and (2) be similar to the tax
treatment in other provinces, the Province of Ontario will not only "maintain the
PST" but also to increase the rate from 8% to 13% after June. And the full 13%
goes to the Ontario Government and 0% to the Federal Government.

WHY NO GST (AND NO HST) ON PRIVATE SALES OF USED VEHICLES?

GST and HST are based on the Value Added Tax principle, where it strives to
streamline a fair consumption tax process while avoiding tax duplications. The
full sales taxes had already been paid when the sellers first bought the vehicles
so if there were additional tax on the transfers, it would be a duplicate tax. In
private sales transactions, it doesn't mean the buyers do not pay any GST or HST;
the GST or HST are already included in the price of the used vehicles and being
reimbursed to the private sellers.

THE "LEVEL THE FIELD" CARD

Tax on new or used vehicles from car dealerships is 13%, where tax on used vehicles
in private sales is only 8% (PST) before July 1, 2010. The field is clearly not
level and increasing the 8% PST to 13% is not only fair but also the simplest
concept to tell the public?

IS THE ONTARIO GOVERNMENT TELLING THE TRUTH?

There IS a major difference between cars to be sold from car dealerships and used
cars in public hands. For cars in the inventory of car dealerships, whether from
lease returns, new or used car trade-ins, they are carried at before-tax cost. So
when the dealers sell you their cars from inventory, the government would need to
collect the full tax. Whereas for used cars from private sellers, the cars are
already tax-inclusive as full taxes were already paid when they were originally
purchased.

PST on private sales of used cars is a tax on something that has already been
taxed. It is a tax on the vehicle transfer similar to the land transfer tax on
real estate transactions. But this transfer tax only applies to private sales, and
it's 8% going to 13%. THE REAL LEVELING THE FIELD WOULD BE TO REMOVE THIS TRANSFER
TAX ALL TOGETHER. Just like the GST that is not being applied to private sale of
used cars.

This PST has always been a transfer tax and the intent to make it the same rate
as the HST is just this government's attempt to stretch their illusion forward.
Imagine if you want to sell your house and there is a 13% land transfer tax on
private sales, it will sure have effect on your asking price if you insist on a
private sale.

The Ontario government says this is a similar tax treatment to other provinces.
So similar that Ontario is copying the exact theme (from other provinces) in its
justification for the increase in PST rate being "Level the Field".

ILLUSTRATIVE EXAMPLE

Say if you have a used car that's worth $11,300 tax-inclusive in the used-car
market and you are buying a new car that costs $22,600 ($20,000 +13% HST). If you
are selling the used-car privately, you'll only get $10,000 from your used car (13%
goes to PST) and you'll have to pay $12,600 extra to complete your transaction.

If you do a trade-in and the car dealer gives you $10,000 before-tax for your used
car, the extra you'll have to pay is only $11,300 ($20,000-$10,000 = $10,000 +13%)

The difference between the two is $1,300, being the tax on vehicle transfer. But
the dealer may not give you what you are looking for... knowing you'll only get
$10,000 because of the tax on private sales, the dealer will give you maximum
$10,000 / 1.13 = $8,850 before-tax for your used-car, or $10,000 including the tax
credit effect.

So either way you'll needlessly surrender $1,300 to the government or to the

dealers because of the PST on private sale of used cars.

If you use your own car, or buying one, or switching to or from car leasing, the
bottom line is you'll most likely be negatively affected. Ask a qualified and
reliable accountant if you are not convinced.

WHY NOW?

Everything else is being taxed at the same 13% HST rate, and this only surviving
PST is going to stick out like a sore thumb if it stays at 8%. So, in order to not
to loose this would be legacy but significant revenue source, it is now or never
and the time is now to slip this by amidst all the dusts from the HST saga.

WHY IS THIS TAX "WRONG"?

The PST on vehicle private sales is a scam and the "level the field" argument
is totally bogus. It is a PRO CAR DEALERSHIP VEHICLE TRANSFER TAX in disguise.
It's an anti-competitive punitive tax on transactions outside of car dealerships.
Before the rate increase, it's a gift to the car dealerships. After, it's a
bonanza. It's the ultimate ticket for car dealerships to monopolize the used-car
marketplace.

WHAT YOU CAN DO?

Spread the words,

Start the discussion,
Email your friends, family and co-workers,
Put this in your blog, facebook...
Adapt this post to challenge a similar tax if your jurisdiction is not in Ontario
Ask your accountants,
Tell the politicians, Federal and Provincial,
Contact Dalton https://www.premier.gov.on.ca/feedback/feedback.asp?Lang=EN