Used Motor Vehicle Dealers

RST Small Business Pointer 904, November 2006

This Pointer will help you if you are a used motor vehicle dealer. It explains the basic Retail Sales Tax (RST) rules for your type of business.

Who qualifies as a motor vehicle dealer?

To qualify as a motor vehicle dealer in Ontario, you must comply with all of the following conditions:

You must hold a valid Dealer Licence issued by the Ontario Motor Vehicle Industry Council (OMVIC).
You must hold a valid Vendor Permit issued by the Ontario Ministry of Revenue.
Both the Dealer Licence and the Vendor Permit must be issued in the same legal name.

What can I purchase exempt from RST?

If you meet the above conditions, you may purchase vehicles for resale exempt from RST by providing your supplier with a valid Purchase Exemption Certificate (PEC). The vehicles that you purchase must be registered into your Registrants Identification Number (RIN), which is issued by the Ontario Ministry of Transportation.

If your vehicles need repairs before you sell them, you do not have to pay RST on the cost of the repairs. If you do the repairs yourself, you can purchase the parts exempt from RST by using a valid PEC. You are not required to pay RST on your own labour used to repair the vehicle. If someone else does your vehicle repairs, give them a valid PEC to exempt you from paying RST on the repair parts and labour. You can find more information about PECs in RST Guide 204 - Purchase Exemption Certificates.

You must pay RST on all other costs associated with running your business, such as the purchase of stationery, office equipment, shop supplies and tools. Shop supplies include such things as sandpaper, tape, cleaners and solvents.

Charging RST on sales

You must charge RST at the rate of 8 per cent on the total selling price (including any additional charges for warranty, administrative charges, and so on), minus any eligible trade-in amount (explained under "Trade-ins") and any separate charges for a licence plate and gasoline. The bill of sale must list all non-taxable charges separately or RST will apply to the total amount of the bill. RST should not be applied to the federal Goods and Services Tax (GST).

If you sell vehicles under a lease or conditional sales contract, you can find information about applying RST to these types of sales in RST Guide 512 - Motor Vehicle Dealers.

Trade-ins

Your customer can reduce the RST they pay on the selling price of a vehicle by trading in a vehicle or other taxable goods, such as a trailer, boat, or snowmobile, provided all the following conditions have been met:

You (the dealer) must accept the trade-in at the time the customer is buying the other vehicle and the bill of sale must record the trade-in amount.
The trade-in must be a taxable good (for example a car, truck or motorcycle).
In the case of a vehicle it must be registered with the Ministry of Transportation in the name of the person trading it in.

If the trade-in is not registered in the name of the person trading it in on the purchase of another vehicle, you must charge RST on the total selling price. However, if the vehicle's registration is transferred into the purchaser's name prior to being accepted as a trade-in, the RST can be calculated on the reduced amount. For information about RST exempt transfers, contact the Retail Sales Tax Centralized Programs Unit at 1 800 265-2587.

Dealers' use of inventory vehicles

If you use inventory vehicles for more than 12 days per month, for personal or business use by yourself, your staff, family or others (for example, complimentary use by a customer) you must pay Retail Sales Tax (RST) monthly on this usage.

The following formula applies to the inventory vehicles you use that weigh less than 4,100 kg:

Average Monthly Sale Price* × Number of Vehicles Used** × 3 per cent × 8 per cent RST = Tax Due

* "Average Monthly Sale Price" is calculated by totalling the value of all the vehicles sold (before trade-in) and dividing by the total number of vehicles sold. If no sales are made in a month, the "Average Monthly Sale Price" is calculated using the last month in which sales were made.

** "Number of Vehicles Used" includes all vehicles used with or without any charge.

You can find the formula for calculating the tax due on vehicles weighing more than 4,100 kilograms in RST Guide 512 - Motor Vehicle Dealers.

Dealers must pay 8 per cent RST on the cost of any motor vehicles removed from inventory for their own use and capitalized as an asset. If the vehicle is returned to inventory and another vehicle is capitalized, RST applies to the net difference between the cost of the new vehicle and the book value of the vehicle returned to inventory. Vehicles used solely for sales demonstrations are not taxable until they are sold.

Selling vehicles to non-resident customers and dealers

If your customer lives in another province, territory, or country, they can purchase their vehicle exempt from RST under either of the following conditions:

You arrange for the shipment of the vehicle directly out of the province and retain proof of the shipment (such as bills of lading or customs documents) for your records.
Your non-resident customer provides you, at the time of purchase, with their home province or state plate. You must record the licence number on the sales document.

If your non-resident customer pays RST on the purchase of a vehicle that is intended for permanent use outside Ontario, they can apply for a refund of the RST. More information about refunds can be found in RST Guide 700 - Refunds and Adjustments.

A non-resident dealer who holds an "E" dealer registration number issued by OMVIC can purchase vehicles in Ontario exempt from RST, provided the vehicles are for export out of the province. However, the vehicles must be bought from either authorized auctions or registered dealers. If you sell to a non-resident dealer, you must record their "E" dealer registration number on the bill of sale.

Exempt customers and refund programs

Status Indians may purchase vehicles exempt from RST, provided they present their federal "Certificate of Indian Status" identity card at the time of purchase and the vehicle is either delivered by you, the dealer, to the reserve or the vehicle is registered to a reserve address. You must record the card information on the bill of sale. You must charge RST if the customer does not present a status card.

Foreign embassies, diplomatic missions, their officers and certain members of their families (spouse or same sex partner) may buy vehicles without paying RST. They must show you their federal identification card and you must record the card information on the bill of sale. Not all card holders are entitled to an exemption from RST. The back of the federal identifcation card must say "ON" for the card holder to qualify for an RST exemption in Ontario.

You can find more information in RST Guide 808 - Status Indians, Indian Bands and Band Councils and RST Guide 803 - Foreign States, Representatives and Officials.

Other Ontario dealers may purchase vehicles from you exempt from RST provided they supply you with a valid PEC.

Keeping records

You must keep all books and records to support your sales and purchases for at least seven years. Such records include sales invoices and journals, purchase invoices and journals, bank records and financial statements.

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.

ISBN 1-4249-2329-8