Purchaser Not Required to Collect the GST or Calculate or Collect the QST
In general, where the purchaser of a used road vehicle is not required to collect the GST or calculate or collect the QST, this is because the purchaser is an individual. However, the purchaser may also be a registrant that is ineligible for an input tax credit (ITC) or an input tax refund (ITR) for taxes paid on a vehicle.
If, as a dealer, you accept a used road vehicle as a trade-in for a vehicle that you are selling, the credit for the trade-in reduces the amount on which the GST and QST are calculated, provided:
- the trade-in vehicle will be used or supplied for your commercial activities;
- the person who trades in the used vehicle is not required to collect the GST or calculate or collect the QST on the vehicle; and
- the person that trades in the used vehicle is the owner of the vehicle.
You will therefore collect the GST and the QST on the difference between the vehicle's sale price and the amount credited to the purchaser for the trade-in vehicle. If the amount credited to the purchaser for the trade-in vehicle is more than the sale price of the vehicle sold, the GST and the QST are nil.
Example of the calculation of the GST and the QST on the purchase of a new road vehicle by an individual
An individual who is not required to collect the GST or calculate or collect the QST purchases a new motor vehicle for $20,000. The dealer accepts the individual's old vehicle as a trade-in, crediting the individual $5,000.
| Sale price | $20,000.00 | |
|---|---|---|
| Credit for the trade-in | - | $5,000.00 |
| Total | $15,000.00 | |
| Calculation of the GST ($15,000 x 5%) | + | $750,00 |
| Calculation of the QST ($15,000 x 9.975%) | + | $1,496.25 |
| Total payable | $17,246.25 | |
An individual who is not required to collect the GST or calculate or collect the QST purchases a used motor vehicle for $20,000 from a used-vehicle dealer. The estimated value of the vehicle is $23,500, that is, the average wholesale price (AWP) of $24,000 minus $500. The dealer accepts the individual's used motor vehicle as a trade-in, crediting the individual $5,000.
| Total payable | $17,595.38 | |||
|---|---|---|---|---|
| Sale price | $20,000.00 | |||
| Credit for the trade-in | - | $5,000.00 | ||
| Total | $15,000.00 | |||
| Calculation of the GST ($15,000 x 5%) | + | $750.00 | ||
| Amount payable to the dealer | $15,750.00 | |||
| Estimated value (higher than the sum of the sale price and the GST charged) | $23,500.00 | |||
| Credit for the trade-in | - | $5,000.00 | ||
| $18,500.00 | ||||
| QST payable to the Société de l'assurance automobile du Québec (SAAQ) ($18,500 × 9.975%) | + | $1,845.381 | ||
The QST is calculated by the dealer and must be paid by the purchaser to the SAAQ when the vehicle is registered.
Under the QST system, large businesses can benefit from the trade-in rule until December 31, 2020, for any trade-in road vehicle that did not give entitlement to an ITR due to the restrictions applicable to ITRs. This means that a large business cannot take advantage of the trade-in rule if it traded in a road vehicle for which it received a partial ITR after 2018. This applies to vehicles weighing less than 3,000 kg that were acquired before January 1, 2018.
Example of the calculation of the GST and the QST on the sale of a new automobile to a large business
In 2018, a dealer sells to a large business that is a registrant a new motor vehicle for $20,000. The dealer accepts a used motor vehicle, which weighs less than 3,000 kg and was acquired in 2017, as a trade-in for the purposes of resale, crediting the business $5,000. The large business used the old vehicle exclusively (90% or more of the time) for commercial activities.
| Sale price | $20,000.00 | |
|---|---|---|
| GST ($20,000 x 5%) | + | $1,000.00 |
| Sale price | $20,000 | |
| Credit for the trade-in | - | $5,000 |
| Total | $15,000.00 | |
| QST ($15,000 × 9.975%) | + | $1,496.25 |
| Total payable by the large business | $22,496.25 | |
| Sale price | $5,000 | |
|---|---|---|
| GST ($5,000 x 5%) | + | $250 |
| QST (0%) | + | $0 |
| Total payable by the dealer | $5,250 | |
- In this case, the large business is a registrant and must therefore collect the GST at the time the used vehicle is sold to the dealer. However, the business is not required to collect the QST because the dealer is purchasing the motor vehicle for resale purposes only (which is a zero-rated sale under the QST system).
- The QST is calculated by the dealer and must be paid by the purchaser to the SAAQ when the vehicle is registered.