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In AB, what should I know about trade-in tax benefit for car loans?
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Car Loan Glossary • ab

In AB, what should I know about trade-in tax benefit for car loans?

In Alberta, the concept of a 'trade-in tax benefit' differs significantly from provinces that levy a Provincial Sales Tax (PST) or Harmonized Sales Tax (HST) on the net price of a vehicle. Since Alberta does not have a provincial sales tax, only the federal Goods and Services Tax (GST) applies to vehicle purchases. For car loans in Alberta, the 5% GST is calculated on the *full purchase price* of the new vehicle *before* any trade-in value is applied. This means your trade-in reduces the principal amount you need to finance or pay out-of-pocket, but it does not reduce the amount of GST you owe. Therefore, unlike in provinces where a trade-in can lower the PST/HST payable by reducing the taxable base, in Alberta, your trade-in primarily serves to decrease your loan principal and monthly payments, rather than providing a direct reduction in the tax itself. Understanding this distinction is crucial for budgeting your car loan, as it clarifies that the GST component remains fixed based on the new vehicle's sticker price, irrespective of your trade-in's value.

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