If you are preparing your budget for a car purchase, you can't forget to factor in taxes and fees.
Many provinces, such as Ontario and Alberta, require new and used car dealers to advertise all-in prices. This means that the vehicle prices they advertise have to include all fees. The only exceptions that can be excluded are: applicable taxes, licensing fees, and any charges associated with financing.
Basically, the all-in price rule doesn't allow dealers to make a vehicle seem cheaper than it is in their marketing. This allows consumers to avoid any surprises near the end of the transaction.
However, this can be confusing for car buyers because (1) not every province has this rule and (2) manufacturers do not have to advertise all-in pricing. That means vehicle prices from those television ads from Ford or Honda exclude all the taxes and fees you'll be expected to pay if you buy from a dealership.
With that in mind, let's go over these taxes and fees so you are prepared for them.
You will be expected to pay the following fees if you buy a car from a dealership.
Registration - You have to register any vehicle you buy with the Ministry of Transportation. Registration fees vary by province or territory, and they can be a flat fee or based on the car's weight.
Freight and Pre-Delivery Inspection (PDI) - Freight is the price of shipping a vehicle from where it was made to where it's sold. The automakers have set up a system to make the freight fee the same across the country. This is sometimes referred to as "delivery" or "destination." The PDI fee is often paired with the freight charge. It accounts for the price of performing a maintenance check when a car arrives at a dealership.
Regulatory Charges - In some provinces, you are charged a government-imposed fee. For example, in Ontario, the Ontario Motor Vehicle Industry Council (OMVIC) charges a levy of $10.00 that is sometimes referred to as an OMVIC Transaction Fee.
Administration/Documentation Fees - Administration or documentation fees are charged by the dealer to cover the cost of processing vehicle orders and loans, preparing vehicles for delivery, and more. Look closely at the amount of this fee, as it can be costly and is subject to negotiation.
Air Tax - The government of Canada applies a fee of $100 to all vehicles equipped with air conditioning. While it is often referred to as a "tax," it is simply a one-time fee.
Licence Fee - This accounts for the cost of licence plates for your vehicle. This, along with taxes, is one fee that dealers DO NOT have to include in their all-in pricing.
Don't forget about taxes, either. The sales tax you are charged on a car purchase, which is a percentage of its total price, will vary based on where you live.
The Goods and Services Tax (GST) is charged at a rate of 5 per cent across all of Canada. It goes hand in hand with the Provincial Sales Tax (PST), which is charged at a rate that varies from zero to 10 per cent depending on where you live. In Quebec, it is known as the Quebec Sales Tax (QST).
In provinces where both the GST and PST are in play, they are combined into the Harmonized Sales Tax, or HST. The HST can range from five to 15 per cent depending on where you live, and dealers do not have to include HST costs in their all-in advertising prices.
Because cars are expensive, the amount of sales taxes you end up paying can be large. Therefore, if you are financing your vehicle, it helps to have money to cover them upfront as opposed to rolling them into your loan. This allows you to avoid paying interest on them, which is an especially good tip for buyers with dinged credit.
Watch Out for Add-Ons
Sometimes, unnecessary products or services are pre-installed on a vehicle, and the dealer will charge you for them. The prices of these products and services, often referred to as add-ons, MUST be included in the advertised price.
Examples of these include: tire protection packages, extended warranties, security or theft deterrent products like serial number etching, etc.
If you don't read your sales contract carefully, where any such add-ons will be included, you could unwillingly end up paying for a product or service you do not want or need.
The Bottom Line
Taxes and fees on a car purchase should always be considered when you are mapping out your car buying budget. After all, being prepared means no surprises along the way.
If you need to buy a car, but are struggling to find a dealership that can work with your situation, Canada Auto Loan can help. We assist consumers, even those dealing with imperfect credit, in finding auto loan financing throughout the provinces and territories. Start the process by completing our free and easy online car loan request today.