How is tax on a used car purchase calculated?

Understanding wholesale value, Red Book value, and the HST collected on a used vehicle purchase.

By Eric Lai Wheels.ca

Apr 12, 2016 3 min. read

Article was updated 8 years ago

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Auto Know, taxes, car valuation, Ontario, MTO, purchasing, tax, mud flaps

Q: I bought a used car for $16,300, but Service Ontario said the "wholesale value" was $29,800 for calculating taxes. My only recourse was to get a professional appraisal, which valued the car at $19,000. This saved me $1,404 in taxes, but I still paid $351 more than what was rightly owed.

How does the government come up with these unrealistic values? What if I got a real bargain at a car auction?

Scott Blodgett of the Ministry of Finance replies:

The Red Book value of a vehicle, used for tax calculations, is part of the Used Vehicle Information Package (UVIP) required when a vehicle is sold privately. The cost of the UVIP is $20. If a Red Book value has been assigned to a vehicle, it will be provided on the UVIP. If no Red Book value has been assigned, which can occur in cases of older or newly-manufactured vehicles, you’d pay the tax based on the bill of sale amount.

As the reader notes, consumers can have a vehicle professionally appraised if they disagree with the Red Book valuation used by the ministry.

Eric Lai adds: For cars purchased from a registered dealer, including an auction house, HST is collected by the seller based on the actual price paid. The dealership will also handle transferring ownership to you.

Q: What are the rules on exposed tires and mud flaps? I often see SUVs with extra wide tires hurling back stones and debris, and a neighbour has a hot rod without fenders. I am tired of replacing windshields.

Bob Nichols of the MTO replies:

Section 66(3) HTA requires that “every motor vehicle and trailer shall be equipped with mudguards or fenders or other device adequate to reduce effectively the wheel spray or splash of water from the roadway to the rear thereof, unless adequate protection is afforded by the body of the motor vehicle or trailer or by a trailer drawn by the motor vehicle.”

Additionally, HTA Regulation 661 specifies that no (original equipment) bumper, fender or mudguard shall have been removed; each mud flap, where applicable, shall be in position; and no bumper, fender or other part shall have hazardous broken, bent or sharp protrusions.
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Did you know?

New or replacement Ontario personalized licence plates without a graphic can be ordered with the French slogan “Tant à Découvrir” in place of the English “Yours to Discover” at no extra charge. For graphic plates, it’s available with the Franco-Ontarian plate image only.

Freelance writer Eric Lai is a regular contributor to Toronto Star Wheels. Email your nonmechanical questions to him at wheels@thestar.ca . Due to the volume of mail, personal replies cannot be provided.




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