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

In Ontario, when you trade in your existing vehicle to a registered dealership as part of purchasing another car, you benefit from a significant provincial tax advantage. The Harmonized Sales Tax (HST) is applied only to the *net price* of the new vehicle, which is the purchase price minus the agreed-upon trade-in value.

This means you effectively avoid paying the 13% HST on the value of your trade-in. For example, if you purchase a $40,000 vehicle and receive a $15,000 trade-in credit, you will only pay HST on $25,000, saving you $1,950 in tax (13% of $15,000). This benefit directly reduces the overall cost of your vehicle purchase and, consequently, the principal amount you need to finance, leading to lower monthly loan payments and less interest paid over the term of your car loan.

Understanding this provincial rule is crucial for any car buyer in Ontario, as it can significantly impact your budgeting and financing strategy, especially in the competitive 2025 automotive market where maximizing savings is key. It's a primary reason why trading in at a dealership can be more financially advantageous than selling privately and then buying a new vehicle separately, as selling privately would mean paying full HST on your new purchase without any offset.

References:

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