When a specified motor vehicle is acquired through a private sale (for instance, from an individual who is not registered for GST/HST purposes), the transaction is generally not subject to GST/HST. Nevertheless, upon registering the vehicle, the purchaser may be required to pay the applicable provincial motor vehicle tax. This tax is imposed and administered by the provincial government and is distinct from the GST/HST.
A specified motor vehicle generally refers to most motor and electric vehicles, with the exception of certain racing cars and prescribed motor vehicles. A motor vehicle is any vehicle that must be registered for highway use in your province. Examples include:
- Passenger vehicles
- Trucks and other freight transport vehicles
- Recreational and sporting vehicles, such as snowmobiles and all-terrain vehicles
- Travel and tent trailers, as well as snowmobile, boat, and other trailers or semi-trailers designed for on-road use
- Motorcycles, scooters, and mopeds
- Tractors
- Special-purpose vehicles, such as tow trucks, mobile cranes, fire trucks, cement mixers, road sweepers, spraying vehicles, mobile workshops, and mobile radiology units
GST/HST in a trade-in situation
As a general rule, the purchase of a specified motor vehicle from a GST/HST registrant (for example, a dealership) is subject to GST/HST. The applicable rate is determined based on factors such as the place of delivery and the date of registration. Where a used vehicle is accepted as full or partial consideration for the purchase, the application of GST/HST depends on whether tax is required to be charged on the trade-in.
If, in the ordinary course of business, a registrant (such as a vehicle dealer) accepts used goods as a trade-in against the sale or lease of goods, specific rules apply. The treatment of the trade-in will depend on whether the supplier of the trade-in is required to collect tax on that transaction.
When the customer has to charge tax
If you accept used goods in trade from a person who has to charge the GST/HST (for example, if the trade-in is an asset of a registrant's business), two separate transactions take place. You purchase the trade-in from your customer, and you make a sale or a lease to the same customer. Collect the GST/HST on the full price charged for the goods you sell or lease, and pay the GST/HST on the value of the trade-in.
- Example: Company Vendor, a registrant in Alberta, sells new machinery to Company Purchaser, also a registrant, for $20,000. Company Vendor accepts old machinery as a trade-in with a trade-in value of $10,000. Company Vendor will invoice and collect the GST on the full $20,000 selling price. Company Purchaser will invoice and collect the GST on the trade-in value of $10,000.
When the customer does not have to charge tax
A different rule applies for used goods you accept in trade from a person who does not have to charge the GST/HST (usually a person who is not registered for the GST/HST). A person may also trade in a lease interest in used goods. In this case, you charge the GST/HST on the net amount (the price of the goods you sell or lease minus the amount you allow for the trade-in). This is similar to the treatment of trade-ins under most provincial sales taxes.
- Example: A taxpayer has used his car for personal use only. He then goes to a registered car dealer in Ontario to trade in his used car for a new one. The selling price of the new car is $25,000, and the dealer allows $10,000 for the used car. The dealer charges the GST/HST on $15,000.
Similarly, when a specified motor vehicle is leased from a GST/HST registrant, GST/HST must be paid on the lease payments. Where a used vehicle is provided as full or partial consideration for a lease, the GST/HST treatment of the transaction depends on whether tax is required to be charged on the trade-in.
Pro tax tips – How and when to recover the provincial part of the HST
A rebate of the provincial component of the HST, or a portion thereof, may be available in respect of a specified motor vehicle where all of the following conditions are satisfied:
- The purchaser is a resident of Canada;
- The vehicle is purchased in a participating province, and HST is paid on the purchase;
- The vehicle is acquired for consumption, use, or supply exclusively (generally 90% or more) outside the participating province;
- The vehicle is removed from the participating province to another province or area of Canada with a lower provincial component of the HST, or with no HST, within 30 days of delivery (time in storage is excluded from this 30-day period); and
- Where the vehicle is removed to a non-participating province or other area of Canada, the applicable provincial sales tax and any other required taxes are paid in that jurisdiction.
Check with an experienced Canadian tax lawyer to know for sure.
FAQ:
How is GST/HST charged in a trade-in situation?
When a registrant trades in used goods, two transactions occur: you purchase the trade-in and sell or lease goods to the customer. GST/HST applies on the full sale or lease price, and you pay GST/HST on the trade-in's value. If the trade-in comes from a non-registrant, you charge GST/HST only on the net amount (sale or lease price minus trade-in value). The same rule applies when a leasehold interest in used goods is traded in, aligning with most provincial sales tax treatments.
How does GST/HST apply when a purchaser trades in his personal vehicle at partial consideration for a car lease?
Generally, when you lease a specified motor vehicle from a business that is a GST/HST registrant, you have to pay the GST/HST on your lease payments.
If you trade a used vehicle for full or partial payment for a lease, the GST/HST treatment depends on if you have to charge tax on the trade-in.