To the Editor,
The provincial government now wants to tax cars given as gifts.
The sales tax on cars is 12 per cent, but it was only designed to be a one-time tax. To this end, a buyer only pays this 12-per cent levy on the net value of the transaction.
For example if you buy a $50,000 car with a $25,000 trade-in, you only pay 12 per cent on the net amount or $3,000.
Then if the next buyer purchases your $25,000 trade-in with a $12,500 trade-in, he pays $1,500 in tax. If this $12,500 trade-in is sold to buyer No. 3 who has a $6,250 trade-in he would pay $750 in tax. Finally this trade-in is sold to a buyer with no trade-in so he would pay the final $750 in tax.
The total tax paid would be $6,000, exactly the same amount the original purchaser would have paid if he had bought the $50,000 without a trade-in.
On the other hand, if all the traded-in vehicles were sold privately, they would currently be taxed at the full purchase price, rather than the net price, resulting in a total of $11,250 being collected in sales taxes.
To avoid this double taxation, some people have been giving their cars, to the new owner, rather than selling them. No doubt some of these ‘gifts’ are really under-the-table sales, so the government wants it stopped.
To be fair, we should be asking why are private car sales being subjected to double taxation? If you resell anything else, privately, you don’t collect any sales tax.
You don’t see tax collectors patrolling yard sales or the classifieds demanding sales taxes be paid over and over.
The policy of retaxing vehicles was implemented as a result of pressure from car dealers. They did not want to compete with untaxed private sales.
What this policy really does is give car dealers a 12-per cent advantage and the provincial government a windfall tax haul.
The fair way to handle this issue would be to charge the 12-per cent tax on private car sales and then provide the seller with a credit, for this amount, to be used to help defray the tax payable on his next car purchase.
This would result in taxes paid and collected equal to what would have happened if he had gone the trade-in route. It would also provide a level playing field for dealers and private sellers and no windfall for the government.
Perhaps the government will review this policy and implement rules that are fair for everyone.