*Business questions>>>Taxes Questions

Are you required to pay tax after selling the vehicle?

Question:
I live in a province where tax is charged on used vehicles, and collected by the government upon registering the vehicle. If a vehicle is bought and resold without being used or registered, will the seller be billed for taxes when the next owner registers the vehicle and the seller's information is given? Or can it be resold without taxes being charged or collected as long as it hasn't been registered? BIG THANKS!

Answer:
I think you have correctly identified a problem.

Under normal circumstances casual sales of property between individuals who reside in those provinces that have a retail sales tax (i.e., Ontario, Manitoba, Saskatchewan, BC and PEI) are not subject to PST. The reason for this is a practical one since it would be impossible to enforce the collection of tax on such sales.

However, motor vehicles are a different issue due to the need to register the ownership for licensing purposes. In your case the first purchaser is technically liable for PST (not GST) on the initial purchase of the vehicle unless they are in the business of buying and selling vehicles and they have a registered identification number (RIN) that identifies them as a vehicle dealer. Assuming that this is not the case, there is a technical problem in that tax is owing on that sale. The government has no way of knowing this until such time as the second sale occurs and the transfer of ownership has to be declared and documented. From a practical point of view under the circumstances as described, it is the original owner of the vehicle that is going to have to sign the transfer of ownership to the second purchaser. The vehicle will be taxed based on its blue book value (which may be higher or lower than the actual transaction value) and the new owner will have to pay the tax in order to get new plates for the vehilce. The intervening owner could conceivably remain invisible to the tax authorities unless they ask for a bill of sale from the intervening owner that shows the second purchaser's purchase price. The descrepency between the party that signs the transfer of ownership for registration purposes and the person shown as the seller on the bill of sale could of course raise some questions. Whether or not the person at the vehicle registry office recognizes that this has sales tax implications is anyone's guess. You might get lucky since these people are not necessarily trained to look for or even consider such issues.