Motor Vehicle Repairs

RST Guide 600, May 2001

The information in this Guide explains how Retail Sales Tax (RST) applies to motor vehicle repairs and to automotive services provided in garages, service stations, car washes, diagnostic centres, body shops, tire and alignment centres, and lube, transmission or radiator shops. Please note that this Guide replaces the previous version dated November 1995.

Repairs and Service

RST is payable on motor vehicle repairs, including parts and labour paid for by insurance companies in settlement of an insurance claim.

Examples of Taxable Materials

accessories
any separate charges for shop supplies (see "Taxable Shop Supplies" section of this Guide)
conversion kits
oil, grease, antifreeze, and other fluids
paint, protective finish, undercoating and body filler parts such as filters, sparkplugs, brakes, mufflers, shock absorbers, bumpers and tires
windshields, mouldings and trim

Examples of Taxable Labour

battery charging
conversion of vehicles to operate on alternative fuels
diagnosis, when further work is done at the same time
engine tune-up, oil change and chassis lubrication
installation or removal of parts such as fenders, rocker panels and bumpers
muffler installation or removal
radiator recoring
repair and repainting of auto bodies
rust-proofing and finish protection
tire installation, removal, balancing and repair
wheel alignment

Examples of Tax-Exempt Services

car washing, including waxing and engine shampooing
diagnosis, safety inspections, "Drive Clean" emissions tests, and estimates, when no further work is done at the same time
lock-out services
towing and emergency battery boosting

Those who provide the above tax-exempt services must pay RST on all materials bought for use in these services.

Exempt Purchasers

RST does not have to be charged on repairs to motor vehicles owned by:

status Indians living on reserves, if the motor vehicle is registered to an address on the reserve
diplomatic organizations, diplomatic personnel and their family members (individual diplomats are issued a federal identification card stating that they are exempt from provincial sales taxes).

To obtain the RST exemption, status Indians and diplomatic personnel must present their federal identification cards. The person's name, address and card number must be recorded on the sales invoice. See RST Guide 803 - Foreign Representatives and Officials and RST Guide 808 - Status Indians, Indian Bands and Band Councils.

Taxable Shop Supplies

Persons who repair motor vehicles must pay RST when they buy shop supplies, even if they charge customers for the supplies and collect RST from their customers since the repairer is the person who actually uses the shop supplies. Examples of taxable shop supplies include:

masking tape, sandpaper, and other supplies
shop tools and equipment
soaps and cloths
solvents used for cleaning purposes

Warranty, Extended Warranty, Service or Maintenance Contracts

RST Rates

The May 2, 2000 Ontario Budget announced that RST paid on parts and labour used to carry out repairs or replacements under warranty contracts, extended warranty contracts, service or maintenance contracts, or guarantees will be completely phased-out by April 1, 2004. During the phase-out period, the rates of RST will be:

8% for repairs up to and including May 2, 2000
6% for repairs from May 3, 2000 to March 31, 2001
4% for repairs from April 1, 2001 to March 31, 2002
2% for repairs from April 1, 2002 to March 31, 2003
1% for repairs from April 1, 2003 to March 31, 2004.

The new rate applies to the purchase of repair parts after May 2, 2000. Repair parts held in inventory on May 2, 2000 will not be eligible for a refund based on the lower rate in effect on May 3, 2000.

RST Payment

As a general rule, whoever pays for the cost of repairs done under warranty, must pay RST. If the repairer pays for the cost of warranty repairs and does not bill anyone, then the repairer must pay the applicable rate of RST on the cost of parts only.

If a customer pays a deductible as part of the warranty repair, the rate of RST that the customer pays on the deductible amount remains at 8%. (RST paid on deductibles did not change with the Budget announcement.) Similarly, customers will continue to pay RST at the rate of 8% on their purchase of warranty contracts, extended warranty contracts, service or maintenance contracts, or guarantees.

Dealer's Inventory

Dealers may use replacement parts from their own inventory for repairs covered under a manufacturer's warranty. A manufacturer may issue a parts credit to dealers for the purchase price of the parts and for labour, instead of the dealers billing the manufacturer for parts taken from their inventory. Dealers are required to charge the applicable rate of RST on the total repair charge, including parts and labour, whether the manufacturer makes direct payment, credits their account or sends replacement parts to cover those used by the dealers. The applicable rate of RST is to be charged to the manufacturer on the "fair value" of the parts.

"Fair value" in this case is the amount the dealers would have had to pay to replace their inventory.

Manufacturer's Inventory

If parts are taken from the manufacturer's inventory, sent to dealers, and used for the specific warranty repair work, dealers will charge the manufacturer or warrantor the applicable rate of RST on the labour only. The manufacturer must account for RST, at the applicable rate, on the cost of the parts on line 3 of the RST return. The cost of the parts is either:

the manufactured cost, if the original part is scrapped by either the manufacturer or the dealer, under the manufacturer's direction; or
the repair cost, if the original part is returned to the manufacturer for repairs, and then to inventory.

Exemptions

If the customer is exempt from paying RST on the goods or repairs, then the person paying for the cost of the repairs or replacement parts will not be required to pay RST. Customers who do not have to pay RST include:

qualifying diplomats and diplomatic organizations
manufacturers, if items being repaired are exempt
farmers, if repairs are made to farm equipment that is exempt
status Indians, Indian bands or band councils, if the goods being repaired are for use on a reserve (includes motor vehicles registered to a reserve address).

For More Information

The information contained in this publication is only a guideline. For more information, please contact the Ontario Ministry of Revenue at 1 866 ONT-TAXS (1 866 668-8297) or visit our website at ontario.ca/revenue

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