Have you recently sold your car? Like thousands of people, you may have made an interesting profit… but taxable!
Many consumers have bought a new or used vehicle and resold it for a profit a few months or years later.
Others bought back their leased vehicle at the end of the lease because the contractual residual value was below market value. They then resold it for a profit to buy or lease another vehicle.
Taxable Income
For what? Capitalism 101: Over the past two years, demand for used cars has exploded and prices have risen accordingly as manufacturers struggle to supply the new car market.
Specifically, if you make more than $1,000 in profit from the sale of an asset, such as a vehicle, you must declare it on your tax return.
In fact, it qualifies as taxable income, just like when you dig up a rare hockey card or a piece of art by a famous painter and the sale makes more than $1000 in profit.
The mechanic
Regardless of whether you sold your old car on Kijiji or at the dealership, you must declare this gain to the tax authorities.
If you take the risk of not doing this, be aware that this information will be sent to the Société d’assurance automobile du Québec (SAAQ) as it is the company that collects sales taxes at registration. However, Revenu Québec has access to this information.
“For example: You made a profit of $8,000 on the sale of your car: This profit is considered a capital gain and is therefore taxable at 50%. If your annual income is $60,000 and your marginal tax rate (2022) is 37.12%, the $4,000 taxable profit results in a tax liability of $1,484, calculates Thomas Godet, CPA, at Altitude Conseils Financiers. This amount must be added to your total taxable income.
This bill comes as a nasty surprise, especially for a taxpayer whose taxes have been deducted at source.
“That’s a lot of money in times of high inflation and high interest rates,” he admits.
Advice
- In a hurry to change vehicles? If your current car isn’t too expensive to maintain, it may be worth keeping for a few more months. Delivery times for new vehicles will almost normalize in 2024, which will lead to lower prices for used vehicles. According to some observers, interest rates are also likely to fall. Consumers then have more leeway to negotiate price and financing.
- Do you resell your old car to the dealer and the dealer deducts the residual value from the new car price? Attention ! If the value he gives to your old vehicle results in a gain of more than 1,000 euros on the purchase price, you must declare this gain in your tax return!
- While a gain from the resale of a personal vehicle is taxable, a loss is not deductible.