In Canada you pay sales tax on the purchase of your vehicle at the time of purchase. This is arguably the largest challenge that companies face when exporting cars from Canada. The sales tax is far greater than the profit related to the transaction and successfully getting the refund is critical to the success of the business. Many companies have been put out of business by a single audit as it quickly causes cash flow challenges. This opens the doors for their overseas clients to purchase from competitors.
Sales Tax Rates Per Province
The sales tax varies per province and consists of a federal sales tax (GST) and provincial sales tax (PST). Some provinces have this combined in a Harmonized sales tax (HST). The illustration below shows the rates per province.
In order for the transaction to be eligible for a sales tax refund, payments and ownership transfers must be processed through businesses that are registered with the Canada Revenue Agency (CRA). If you are new to this process, the recommended starting point is the CRA Registration step by step guide. Once registered, it is important to report on regular intervals as agreed upon with CRA.
The sales tax refund when exporting vehicles is not guaranteed. To maximize your chance of a successful claim it is recommended to follow The North American Automobile Trade Association (NAATA) best practices. Some of the best practices include:
- Be a registered dealer/wholesaler/exporter if required in your province (OMVIC in Ontario)
- Ensure CRA does not qualify you as an agent
- Keep track of and adjust for any changes to the sales tax regulations
Even when all best practices are followed, there continues to be challenges that exporters face on a daily basis. Some of the more recent challenges involve details and documentation required for transfer of ownership. Because the auditing agent at CRA can be different every time your file is processed, and the parallel market for automotive trade does not have specific defined requirements, claims are regularly being denied for new reasons. In these cases, it is common for companies to start a partnership with Techlantic to have an immediate resolution to their cash flow and tax processing related solutions and continue to operate their business.
Claiming back taxes can be simple, until you’re audited. New companies are audited more regularly, especially in the case where a substantial refund is being requested. To maximize your chances of successfully processing a tax refund, it is highly recommend to use a certified accountant. To make this headache of your business go away all together, it is recommended partnering with Techlantic.