Do I pay sales tax on a car loan in Canada?

In Canada, you absolutely pay sales tax when purchasing a vehicle, but it's crucial to understand *what* is taxed and *how* it integrates with your car loan. Sales tax is applied to the total negotiated purchase price of the vehicle itself, along with most taxable add-ons such as extended warranties, protection packages, and certain administrative fees. This is a one-time charge levied at the point of sale, not an ongoing tax on the interest you accrue over the life of your car loan.

The specific sales tax rate varies significantly by province: you'll encounter GST (5% federal) across the country; HST (harmonized sales tax, combining federal and provincial portions) in Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador; or a combination of GST and provincial sales tax (PST in British Columbia, Saskatchewan, Manitoba; QST in Quebec). Alberta is unique, applying only the 5% GST. While you don't pay tax on the interest component of your loan, the total sales tax amount is almost universally financed into your car loan principal. This means that while the tax itself is not on the interest, you will be paying interest *on the sales tax amount* over the loan's term.

This distinction is paramount for Canadian consumers in the 2025 auto market. Financing the sales tax directly increases your total financed amount, which in turn elevates your monthly payments and the overall cost of ownership. Understanding this structure is essential for accurate budgeting, comparing offers, and ensuring the vehicle remains truly affordable within your financial plan, as it directly impacts the total principal you are borrowing and subsequently the total interest paid over the life of the loan.