Planning to buy or sell a used car in Ontario? Then understanding the Ontario tax on used vehicles is non-negotiable. Many buyers focus on the price of the car itself but forget about the additional costs, like sales tax, which can significantly impact the final amount you pay.
You want to avoid surprises and potentially save money, whether you're purchasing from a dealership or a private seller. And knowing how sales tax works helps.
In this guide, we’ll break down how the vehicle tax in Ontario applies to used cars, when and how it's calculated, exemptions you might qualify for, and tips to reduce your tax burden.
Car sales tax in Ontario falls under the Harmonized Sales Tax (HST) system. The province has a 13% HST for most vehicle transactions, including new and used cars. However, how and when you pay this tax depends on where you buy the car.
For new cars, the 13% HST is automatically included in the dealership price. But for used cars, things can get a little more complicated. If you're buying a used vehicle from a dealer, the HST is still added at checkout.
But if you’re purchasing from a private seller, the Ontario tax on used vehicles is calculated differently, based on the car’s wholesale value or purchase price—whichever is higher.
When purchasing a used car from a dealership, the tax on used vehicles is straightforward. The 13% HST is included in the final purchase price, so you don’t have to worry about paying the government separately.
Buying from a dealer also includes benefits like professional vehicle inspections, financing options, and potential warranties.
If you're shopping for a used car online, trusted platforms like Clutch make the process easy by offering thoroughly inspected vehicles and transparent pricing, so there are no surprises with taxes.
If you buy a used car from a private seller, you still need to pay tax, but it works differently. Instead of paying the seller, you pay the Ontario tax on used vehicles when registering the car with ServiceOntario.
Here's how it works:
Not everyone has to pay sales tax when transferring vehicle ownership. There are certain exemptions, such as:
If you're receiving a car as a gift from a qualifying family member (spouse, parent, grandparent, sibling, or child), you won’t have to pay the vehicle tax in Ontario. However, you must provide an affidavit confirming the relationship and gift status.
If you inherit a car from a deceased family member, you may be exempt from paying tax. When registering the vehicle, you'll need to show proper documentation, such as a will or legal transfer papers.
The transaction may be tax-exempt if the vehicle purchase occurs on a reserve and the buyer has valid Indigenous status.
Understanding these exemptions can help you legally avoid unnecessary tax payments when acquiring a used vehicle.
When upgrading your car, trading it in at a dealership can lower your sales tax. Here’s how it works:
For example:
This can be a great way to save money compared to selling your car privately, where you'd pay the full tax on your next purchase. Our Sell or Trade service makes it easy to get a competitive offer on your trade-in, ensuring you maximize your savings.
Calculating sales tax isn't always straightforward. Factors like vehicle valuation can impact your total cost.
Calculating sales tax isn't always straightforward. Factors like vehicle valuation can impact your total cost. Resources like the Canadian Black Book can help you determine fair market value.
This is why checking a car's wholesale value before making an offer is important, so you’re prepared for the tax you’ll owe.
When buying from a dealership, the vehicle tax in Ontario is applied to the total price, including:
Using tools like Clutch’s Car Loan Calculator can help you estimate your total cost, including tax, so you know exactly what to expect.
Note: Aside from sales tax, other fees can increase the cost of your vehicle purchase. Some dealerships may charge:
These costs are not taxed separately but are included in the total purchase price, meaning you'll pay tax on them as well. Always review the final bill of sale before committing to a purchase.
While you can't avoid paying sales tax entirely, there are several strategic approaches to minimize your tax burden when purchasing a used vehicle in Ontario. Here are some proven methods to help you save:
Cars with strong resale value can help you avoid steep depreciation, meaning you'll pay a fairer tax amount when selling or trading in. Looking at the best-selling vehicles in Canada can give you an idea of which models hold value best.
As discussed earlier, trading in your car reduces the taxable amount on your next purchase. You only pay HST on the difference between the new car’s price and your trade-in value, making it one of the most effective ways to cut tax costs.
When trading in multiple vehicles, combine them into a single transaction to maximize your tax savings. Some dealerships also offer trade-in bonuses during specific promotions, which can further reduce your taxable amount.
If you're buying out a leased vehicle, you’ll likely have to pay HST on the buyout amount. If possible, negotiate this into your lease terms upfront to minimize extra costs.
Some dealerships charge additional fees that increase your total taxable amount. Shopping with a transparent platform like Clutch ensures you only pay what’s necessary—no hidden charges.
Review all fees carefully and negotiate to remove unnecessary charges before finalizing the purchase. Remember that every dollar added to the purchase price means additional tax you'll need to pay.
Plus, dealerships often bundle taxes into financing, allowing you to spread out the payments over time. While this can make the purchase more manageable, you might pay interest on the tax portion if it's included in your financing.
Investigate the vehicle's history thoroughly before purchase. Cars with accident histories or significant repairs typically have lower wholesale values, which can result in lower tax assessments when buying privately. However, ensure you're not sacrificing vehicle quality just to save on taxes.
While you'll still pay Ontario HST, some provinces may have lower vehicle prices due to market conditions or inventory levels. If you live near a provincial border, research prices in neighbouring provinces – the savings might outweigh the transportation costs and offset the tax burden.
When buying from a private seller, there’s always a risk of fraudulent transactions. Some sellers undervalue the vehicle on the bill of sale to help buyers reduce tax payments.
However, if the government finds out, you could be forced to pay the difference—and even face penalties. Always double-check the vehicle’s wholesale value and get a proper receipt when purchasing.
Understanding Ontario tax on used vehicles is less about finding loopholes and more about making informed financially sound decisions. With this new knowledge, you transform a potentially stressful experience into an empowering one.
Remember, every dollar saved in tax is a dollar you can invest in your new (used) vehicle or future automotive purchases.
Need a hassle-free car shopping experience with clear pricing and no surprises? Clutch offers an easy, 100% online way to buy, sell, or trade in your vehicle—without the guesswork. Browse our inventory and experience the Clutch difference.
