Ontario Retail Sales Tax Act: Vehicles, Premiums, and Penalties

Ontario’s Retail Sales Tax Act survived the 2010 switch to the HST, but only just. Today it taxes two things: private purchases of specified vehicles at 13%, and premiums on insurance and benefits plans at 8%.¹ Everything else you buy in the province falls under the HST, which the Canada Revenue Agency administers. The RST is run separately by Ontario’s Ministry of Finance, and if you buy a used car from your neighbour or pay a home insurance premium, this is the law that governs what you owe.

What the Act Still Taxes

Two categories, two rates.

The 13% applies to any specified vehicle you buy in Canada from a person who is not a GST/HST registrant — in practice, most private sellers.² “Specified vehicles” is defined broadly and covers automobiles, trucks, vans, motorcycles, mopeds, buses, motorized recreational vehicles, trailers, off-road vehicles, snowmobiles, boats (including canoes and personal watercraft), and aircraft. The rate matches the combined HST rate, and the full amount goes to Ontario.

The 8% applies to premiums on taxable insurance contracts (property and liability insurance, for example), group insurance, and contributions to funded or unfunded benefits plans.³ It also reaches amounts paid into insurance schemes or compensation funds established by statute. Both rates are fixed provincially and do not vary by location within Ontario.⁴

Individual life insurance and individual accident and sickness insurance policies are generally not considered taxable insurance contracts under the Act, so premiums on those do not attract the 8%.³

Paying the 13% on a Private Vehicle Purchase

You do not pay this tax to the seller. You pay it to ServiceOntario when you register the vehicle in your name, and you have six days from the purchase date to do that.⁵²

The tax is not always calculated on what you paid. For automobiles, vans, and trucks with an empty weight of 2,200 kilograms or less, the 13% is applied to either the purchase price or the vehicle’s average wholesale value in the Canadian Red Book, whichever is greater.¹ This rule exists to stop buyers and sellers from writing a low number on the bill of sale to shrink the tax bill.

You’ll see the Red Book figure before you get to the counter, because it appears on the Used Vehicle Information Package (UVIP). Sellers of used cars, vans, light trucks, motorcycles, and self-propelled motor homes are legally required to give the buyer a UVIP at the time of sale.⁶ It costs $20, includes the vehicle’s registration and lien history, and shows the Red Book wholesale value on which your RST will be assessed. Without it, you cannot register the vehicle.

If the Red Book Value Is Too High

An older car with high mileage, accident damage, or mechanical problems can be worth far less than the Red Book suggests. You are not stuck with that number. For automobiles, vans, and trucks (2,200 kg or less) with a Red Book value of $1,000 or more, you can get a professional appraisal. If both the purchase price and the appraised value come in below the Red Book, RST is charged on the higher of those two figures instead.²

The appraisal has to come from either a licensed motor vehicle dealer with an OMVIC registration number, or an independent appraiser holding an appraiser number issued by the Ministry of Finance. That number must appear on the Motor Vehicle Appraisal Record form the appraiser completes.²

If you have already paid tax on the Red Book value, you still have 60 days from the purchase date to get a qualifying appraisal and apply for a refund of the difference.² Many buyers only learn this after they have already registered and paid.

Gifts Between Family Members

A vehicle transferred as a genuine gift between certain family members is exempt from the 13%, with no payment permitted in exchange.⁷ The eligible list is wider than most people assume: spouses (including common-law), parents and step-parents, grandparents, children and stepchildren, grandchildren, in-laws, siblings, half-siblings, and adopted siblings.

To claim the exemption, bring a completed Sworn Statement for a Family Gift of a Used Motor Vehicle to ServiceOntario. The form has to be sworn before a commissioner — a lawyer, notary public, justice of the peace, or municipal clerk.⁸ Arrive without it and you will pay the full 13% at the counter.

The 8% on Insurance and Benefits Premiums

In the ordinary case, the insurer or broker collects the 8% and remits it to the Ministry of Finance for you. It shows up as a line on your premium invoice, and you never touch the transaction.

The exception is insurance bought from a company that is not registered with Ontario’s Ministry of Finance and has not charged you the tax — most often an out-of-province insurer. In that situation, you are responsible for self-assessing the 8% and remitting it within 23 days after the end of the month in which you paid the premium.³

Penalties for Underpayment

The penalty most people run into is for understating what they paid for a vehicle. Report a purchase price lower than the actual one and the penalty is 50% of the tax you avoided.⁴ On a $20,000 vehicle reported at $10,000, that is $650 in unpaid tax plus a $650 penalty.

On the insurance side, a purchaser who was required to self-assess and did not faces a penalty of the greater of $100 or 25% of the RST assessed. Vendors operating without a required permit can be fined $100 or more for each day of non-compliance.⁹

If You Disagree With an Assessment

Start informally. Contacting the Ministry of Finance directly resolves many disputes before any paperwork is filed.¹⁰

If that fails, you can file a Notice of Objection with the Advisory, Objections, Appeals and Services Branch within 180 days of the date the assessment was mailed. Filing an objection does not pause collection, so you still need to make payment arrangements while the review is underway. If you win, the overpayment comes back with interest.¹⁰

Fixing a Past Mistake Before the Ministry Finds It

If you missed RST on a past transaction, Ontario’s voluntary disclosure program covers the Retail Sales Tax Act and lets you correct the error before enforcement begins.¹¹ The disclosure has to be voluntary (before any enforcement action starts), complete, and cooperative. You can approach the Ministry anonymously first and receive a 90-day grace period to prepare the full submission.

The full tax owed plus interest is due at the time of disclosure, though the Ministry may agree to a payment arrangement. Prosecution is off the table if you qualify, but civil penalties can still apply.¹¹

1
Government of Ontario. Retail Sales Tax
2
Government of Ontario. Specified Vehicles
3
Government of Ontario. Insurance and Benefits Plans
4
Ontario.ca. Ontario Code – Retail Sales Tax Act
5
Government of Ontario. Buy or Sell a Used Vehicle in Ontario
6
Government of Ontario. Used Vehicle Information Package
7
Government of Ontario. Transfer Ownership of a Vehicle to a Family Member
8
Central Forms Repository. Sworn Statement for a Family Gift of a Used Motor Vehicle in the Province of Ontario
9
Government of Ontario. Penalties
10
Government of Ontario. Objection and Appeal Procedures for Ontario Taxes and Programs
11
Government of Ontario. Voluntary Disclosure