Motor Vehicle Repairs

RST Small Business Pointer 905, March 2004

This Pointer will help you if you repair motor vehicles and operate a service station, garage, auto body shop, machine shop, auto dealership, muffler shop, lube or transmission shop, or similar business. It explains the basic Retail Sales Tax (RST) rules for your type of business in plain language.

What is a repair?

A repair is a taxable service. This is any service provided to install, assemble, dismantle, repair, adjust, restore, recondition, refinish, or maintain "tangible personal property", in this case related to motor vehicles.

Charging RST

When you repair or service a motor vehicle, you must charge your customer 8% RST on the parts, materials and labour you use in the repair or service. This includes all parts and materials that become part of the vehicle, such as:

filters, spark plugs, brakes, mufflers, shock absorbers, bumpers, tires
windshields, mouldings and trim
paint, protective finish, undercoating and body filler
oil, grease, antifreeze and other fluids
replacement parts.

Examples of taxable labour include:

mechanical and body shop repairs including repainting
engine tune-ups, oil changes, and chassis lubrication
installation or removal of parts, such as bumpers, fenders, mufflers
tire installation, removal, balancing and repair
tire and other disposal charges, such as oil, antifreeze
wheel alignment
radiator re-coring
rustproofing and finish protection
stain protection of vehicle upholstery
battery charging
diagnosis, when other work is done at the same time.

If you sell any parts or accessories separately, without installing them, you must charge RST on the sale of these parts. For example, if you sell an item such as a gas cap, a fan belt or a headlamp without installation, you must charge your customer RST. Also, any charges you make separately for shop supplies are taxable to your customer.

What services are not taxable?

Some services are not taxable. Do not charge your customer RST when you provide:

diagnosis, safety inspections, "Drive Clean" tests, and estimates, without doing any other work at the same time
towing or emergency battery boosting
lock-out services
vehicle cleaning, such as car washing and engine shampooing.

"Drive Clean" emissions testing

You do not charge RST on a vehicle emissions test or a retest, as long as you do no other work to the vehicle at the same time as testing. However, if you do any repairs or adjustments to the vehicle at the same time as the test, then you must charge RST on the total charge for the test and repairs, even if the emissions test is billed separately.

Insurance Claims

For repairs covered by insurance, RST applies to the total charge for both repair parts and labour. Generally, when you do a repair for an insured person, you charge the insurance company RST on the total repair charge. If there is a deductible amount, then you will reduce the invoice to the insurance company by that amount after you charge RST on the full amount. The insured person pays the deductible amount. You do not charge the insured person RST on the deductible amount because the RST has been paid by the insurance company.

Example: Windshield Repair $600.00 + $48.00 (RST) = $648.00. If the deductible is $100.00, then the insurance company will pay $548.00. The insured person will pay $100.00.

Sometimes, the cost of the repair is reduced by a discount to the insurance company or the deductible amount is waived. Any change in the amount billed for the repair is a change in the amount on which RST is payable. RST is payable on the net cost of the repair after all discounts and waivers. If you have questions about insurance claims, please contact us.

Warranty repairs or replacements

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 on warranty repairs 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 your 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.

As a general rule, whoever pays the cost of the warranty repairs must pay the RST. If you do repairs on a vehicle covered under a manufacturer's warranty using replacement parts from your own inventory, then you charge the warrantor (manufacturer) the rate of RST in effect at the time of the repair on the total charge, including parts and labour. If your customer also pays a deductible as part of the warranty repair, the RST rate you charge your customer remains at 8%. (RST paid on deductibles did not change with the Budget announcement.)

On what do I pay RST?

You must pay RST to your supplier of materials that do not become part of the customer's vehicle.

You are considered to be the consumer of the materials, such as: masking tape and sandpaper; soaps and cloths; and solvents used for cleaning purposes. You must pay RST to your suppliers of such materials even if you charge your customers a separate shop supply fee and collect RST on it.

You must also pay RST on your purchase of shop equipment, shop tools and other machinery, as well as office equipment and supplies, such as computers, cash registers, stationery, receipt books, invoices, and furniture.

What can I purchase without paying RST?

You do not pay RST to your supplier of materials that become part of the customer's vehicle, such as tires, new or used replacements parts, engine oil and oil filters. To claim an exemption on these materials, you must give a properly completed Purchase Exemption Certificate (PEC) to your supplier. For details on PECs, please refer to RST Guide 204 - Purchase Exemption Certificates.

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 0-7794-6044-8