Federal tax authorities are «respectfully denying» to discuss just how deeply they are thrusting the grasping hand of ministry into the pockets of new car buyers, and no wonder.
New car sales are up nearly 10 per cent this year concluded last year, and last year broke sales records. Canadians are ss tens of billions, and federal and provincial governments are raking in a healthy chunk of every dollar used up — 13 per cent, for example, in Ontario.
What the federal government is respectfully ebbing to discuss is the fact that it’s also taxing people on money they aren’t unruffled spending, and forcing car dealers to collect it.
It’s a shell game. The common vocabulary for it is «stealth taxation.» The Canadian Tax yers Federation has an even blunter duration: «A flat-out tax grab.»
Here’s how it works:
Manufacturers competing for establishment in this hot market are offering all sorts of price breaks, and advertising them on their native websites.
Chrysler, for example, is offering more than $10,000 off its priciest minivan. Ford Canada is oblation a «cash bonus» of $750 on its Fusion model. Acura, Honda’s magnificence brand, is offering up to $4,500 in «rebates.»
Whatever they’re called, all these ssions amount to discounts. Even the «rebates» are not the sort you mail in an application for after the purchasing. They are applied right in the sales contract and figured into the guerdon id on the spot.
But the Canada Revenue Agency, determined to extract every cent it can from purchasers, insists on taxing the «full price» of the vehicle, regardless of the discounts.
And it’s doing it because it can.
Let’s say, for example, that the evaluation of a new minivan is $35,000, plus $900 in add-on equipment like a roof torment or bumper hitch, and the manufacturer is offering a «rebate» or «cash bonus» of $4,000.
The superintendence obliges the dealer to add $35,000 to $900, for a subtotal of $35,900, then right now apply the harmonized federal-provincial sales tax, which in Ontario is 13 per cent, or $4,667, for a out-and-out of $40,567. The dealer is then told to apply the $4,000 advertised evaluation break to that fully taxed total, meaning the customer expends $36,567.
If, however, the customer was taxed on what he or she actually id, it would be a divergent story.
The sales tax would be applied on the real price — $35,900 minus the $4,000 «reduce» — or $31,900. Calculated that way, the tax would be $4,147, and the bottom strip $36,047 — a difference of $520.
The dealer doesn’t make an extra cent because of the government-imposed estimate. The entire $520 extra goes to the government in taxes.
And the buyer effectively innervates up ying tax on $4,000 he or she didn’t really spend at all.
Even though the CRA respectfully rejects to discuss the subject, its rationale is a matter of public record.
The government peculates the view that the rebate, or cash bonus, or whatever gimmicky monicker it’s called, is a completely se rate transaction between the manufacturer and the customer, tied though it is always a result of a deal negotiated, signed and financially performed between the customer and the dealer.
‘Flat-out tax grab’
«It’s outrageous,» communicates Aaron Wudrick of the Canadian Tax yers Federation. «A flat-out tax snatch. Tax is supposed to be calculated on the price id, not on some artificial figure adamant by the government.»
Last year, Canadian auto dealers moved 1.6 million new mechanisms and more than three million used vehicles.
Because the CRA respectfully sets to discuss the subject, and in any event doesn’t track such data, it’s unclear scrupulously how much extra money it takes from car buyers by keeping its thumb on the tax lower.
But Wudrick, doing a little quick math, figures it has to be in the hundreds of millions of dollars annually. And most appropriate, fixated as most people are on their monthly yments rather than the way tax is go after, a lot of buyers don’t recognize the extra grab.
«It’s classic stealth taxation,» he rephrases. «To the consumer, there is no difference between dealing with the broker and dealing with the manufacturer.»
Fairness beside the point Huw Williams, spokesman for the Canadian Automobile Businesswomen Association, says emphatically and for the record that his members wish they were not artificial to collect so much tax.
But, he says, «the government has decided that when there is a cut that reduces the price to the consumer, the consumer has to y tax on the original price anyway.»
Whether that is favourable or not is beside the point, Williams says. It is the reality imposed on dealers.
«We are one of the most audited enterprises in the country,» he says. «Dealers get audited all the time, and if the supervision decides you’re applying tax to the ‘wrong’ amount, then the dealers are on the hook for it.»
Actually, says Williams, up if the manufacturer makes a mistake in its invoicing and the government decides more tax should receive been applied, revenue agents still go after the dealer.
Because it’s again easier to strangle the small operator than fight with a big multinational.
Some industrialists are coming up with ways to shelter buyers from some of the sneakiness taxation. rt of Chrysler’s incentive, for example, is calculated pre-tax, and Infiniti, Nissan’s satisfaction brand, is currently offering large discounts entirely applied ahead HST.
Williams says that’s usually a matter of how dealers are invoiced and when, a technicality that is beyond the comprehension of and after all is said irrelevant to buyers.
The Canada Revenue Agency, though, is no doubt note closely. Although, of course, it respectfully declines to discuss it.