Budget backtracks on used car tax
For the general manager of Saskatoon’s Village Auto Sales, the Saskatchewan government’s move to remove the provincial sales tax exemption from used auto sales is something out of the past.
It doesn’t really affect his business, Sean Jesse says. “We’re just going back in time. So, we’re paying two taxes on vehicles where tax hasn’t been paid.”
Flash back to November 2007, when then-Saskatchewan Party finance minister Rod Gantefoer announced the province was committed to eliminating the sales tax on used light vehicles.
“We made a promise to the people of Saskatchewan. We are keeping that promise,” Gantefoer said then.
But as of Wednesday, the six per cent provincial sales tax will once again apply to the private sale of used vehicles over $5,000. The $5,000 PST exemption will not apply to private sales of used vehicles registered for commercial use or dealer sales of used vehicles.
The full PST exemption, however, will continue to apply to used vehicles given as gifts given to certain family members such as spouses, parents or legal guardians, children, grandparents, grandchildren and siblings.
The province forecasts the tax will generate revenue of $95 million for 2018-19.
Jesse says that for the cash buyer, it will be a bit of an issue.
“Now, they have to factor in 11 per cent tax … if they’re not trading something in,” he says. “For financing, for most people who do finance, it’s not going to be that big of a deal. It’s only going to be $600 for $10,000 that they’re spending more, which they’ll probably only see in a payment of maybe $2, $3 more a month.”
Jesse has seen both sides of the equation.
“I think the shock value to everybody else is that we’re going to be paying more tax for everything,” he says.
In an email, Brett Finnell, the president and general manager of O’Brians Automotive Group, said they were not involved in the decision or contacted about the change. He said he thinks the change gives an advantage to dealers who sell new cars.
“The new change reducing the amount of the PST by the trade amount will mostly even things out for used car dealers if the PSTexempt vehicles are removed. I think it’s fair to say that automotive sales are down over the last year and further taxes to the industry will further damage the automotive dealers and the consumers,” Finnell wrote.
Maurice Plemel, the government relations chairman with the Saskatchewan Auto Dealers Association and the president of Colony Motor Products in Humboldt, says new car franchise dealers wanted and support the change.
Saskatchewan dealers will be put on par with every other jurisdiction in Canada that has a sales tax, he says. The tax would be distributed through the entire chain of vehicle deals.
What will happen, he says, is trade-ins will be taken at six per cent less than it would have been on Tuesday.
As part of the budget announcement, the government said it would restore the trade-in allowance when determining PST. So, when a car owner trades in a vehicle, they only pay PST on the difference in price of the trade-in and the selling price for the vehicle they’re buying.
For used vehicles already a part of existing inventory, dealers would be setting the base sale price as six per cent less, with the PST bringing the price back up to the purchase price level.
Plemel says the price of a car on Wednesday will be the same for the same vehicle as on Tuesday.
“What that does, is it will make it easy for customers to the understand pricing of the vehicle,” he says. Under the previous system, there was confusion about the different types of pricing or taxation.
For dealers, there will be fewer administrative costs. For buyers, the deals will be simpler and easier to understand, Plemel says, although for dealers who sell used cars, there will be the initial pain of having to back up the base price.
“It’s short-term pain for longterm gain,” he says.