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Ask Joanne

Car buyer finds rebate program too taxing Add to ...

I bought a new vehicle and was eligible for $2,500 cash back from the manufacturer. The dealer said I had to pay the sales tax on the car before the rebate was applied ($30,000 x 13 per cent = $3,900) as opposed to ($27,500 x 13 per cent = $3,575), a difference of $325. Did I get ripped off? – Joe

What was it the Beatles sang about the taxman? If you drive a car, they’ll tax the street. George Harrison’s opening goes: “Let me tell you how it will be. There’s one for you, 19 for me. ’Cause I’m the taxman, yeah, I’m the taxman.” That may have been back in 1966, but it seems as true as ever.

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When it comes to understanding rebates, though, let’s remember that there are a few different kinds of potential discounts to be had on a new vehicle. The difference between the manufacturer’s suggested retail price and what the dealer paid for the vehicle provides room for negotiation. On top of this, there are incentives which come direct from the factory to either the dealer, or the consumer. Not every vehicle has a factory rebate at all times, though.

“Factory rebates come and go, quite literally, daily. The factory-to-dealer rebates are something the factory offers to the dealer to move certain cars at certain times of year, or for a million different reasons. They may say, just for example, ‘Okay Mr. Dealer, this month if you sell X number of pickups, we’ll give you a factory-to-dealer rebate of $5,000.’ So the dealer knows that’s factored into the price he works with. Then they’ll have a factory-to-consumer rebate, for example a holiday bonus or boxing week special; the stuff which you typically see advertised is typically factory to consumer incentives,” says Paul Timoteo, president of Car Cost Canada.

Based on the information you provided, it sounds as though your rebate falls in the factory-to-consumer category. Remember all those mail-in rebate cards accumulating in the bottom of your desk drawer?

Whether it’s a car, a camera, or a kitchen mixer – manufacturer-to-consumer rebates are usually applied after the goods have been purchased from a dealer or retailer, and tax has been paid on the full purchase price. Manufacturers may prefer to keep initial prices high and offer rebates, rather than lower prices, to keep their revenue figures high. Unfortunately, while ultimately you pay the same for the actual goods, and their net sales figure is the same, you end up paying that bit more – to the taxman.

According to the GST/HST experts at the Canada Revenue Agency, the wording of an offer makes all the difference in the tax you pay. “How the coupon or rebate is written up determines if it’s either a reduction in price or a reward for buying a particular item or good. If it’s written as a coupon on price, and the effect is that it reduces the price, the base on which GST/HST is calculated is reduced. If the price isn’t reduced, it means the rebate is a reward for buying the vehicle; most commonly this would be a manufacturer’s rebate. This is treated as the manufacturer rewarding you for having purchased a vehicle after-the-fact, and it doesn’t alter the base on which the GST/HST is charged.”

As for whether you were “ripped off,” remember, it’s not the dealer who pockets your tax dollars. Whether you were misled may depend on if, and most importantly how, your rebate was advertised.

“If a dealer is going to advertise a vehicle that comes with a rebate they have to make it very clear in the advertising whether the price includes the rebate applied or whether it doesn’t, and whether it’s a taxable rebate or not,” says Terry O’Keefe, Manager of Communications at the Ontario Motor Vehicle Industry Council (OMVIC).

The Motor Vehicle Dealers Act (MVDA) in Ontario has extensive requirements for dealer advertising, though it doesn’t specifically name rebates. OMVIC’s code of ethics states that advertising must be legal, decent, ethical, and truthful. If you feel you were misled by a rebate advertisement, you can file a complaint with OMVIC and it will use the code of ethics when examining it.

“Based on the information provided, however, and not knowing whether there was an advertisement involved, it doesn’t appear that anything untoward has occurred. This is the way almost all manufacturer rebates work not only in the automotive sector, but in almost any sector – be it a printer, or snow tires,” says O’Keefe.

Send your automotive questions to Ask Joanne at globedrive@globeandmail.com

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