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My husband’s sister lives in Nova Scotia and has been undergoing some financial hardship. She has $20,000 left owing on a bank loan on a 2015 Toyota RAV4 with about 60,000 kilometres on it. We live in Ontario and have offered to take the car and take over the loan. We’ll have to have it shipped here at a cost of $1,500 – we can’t fly there to pick it up because of COVID-19 restrictions (we’ve already had to cancel plane tickets twice and couldn’t get a refund). We were under the belief that you can transfer ownership between siblings without paying sales tax. Is that true? I’m starting to regret what started as an altruistic gesture to help a family member. – Deborah

If you keep a vehicle in the family in Ontario, you don't have to pay the sales tax – but only if that vehicle was a gift.

If money is exchanged, you have to pay a 13-per-cent retail sales tax (RST).

“A specified vehicle may be transferred exempt from RST to a person from a member of his or her family provided no consideration was given in respect of the vehicle,” says the Ministry of Finance website.

Normally, if you're buying a car in Ontario from a private seller, whether it's from within Ontario or from any other province, you have to pay a provincial sales tax on vehicles.

It’s the buyer, not the seller who pays the tax. It’s paid to Service Ontario when you transfer ownership.

There are a few exceptions, including if you are left a vehicle after a death or if you get it as a gift from an immediate family member. That includes spouses, children, siblings, parents, in-laws, grandparents and great grandparents. It won’t work for cousins, uncles or aunts.

Family value?

If it is a family gift, both members have to sign a sworn statement saying that no money was exchanged.

Would taking over a loan count as exchanging money? Probably, but Ontario’s Ministry of Finance didn’t answer the question and said it can’t comment on individual situations.

"All situations have different variables, and for that reason, I will have to direct you back to the bulletin which clearly sets out the tax rules with regards to motor vehicles," an Ontario Finance spokesman said in an e-mail.

While rules vary between provinces, most others don't require taxes on gifts between family members. But some, including Quebec and Nova Scotia, only allow the exemption if both the giver and receiver live in the province.

In Nova Scotia, taking over a loan means that it's not a gift.

"In order for the transfer to be exempt from sales tax, the item being gifted would have to be free and clear of any loans [or] debt," Krista Higdon, a Nova Scotia government spokeswoman, said in an e-mail. "Taking over a loan on a vehicle is not a gift transaction as the outstanding loan amount is the declared purchase price."

A gift that keeps on taking?

The tax is based on whichever is greater – the sales price or the Canadian Red Book wholesale value. For instance, if the tax was based on a $20,000 loan, it would be $2,600.

If it was based on the wholesale value?

Canadian Red Book says the wholesale value of a 2015 Toyota RAV4 XLE with 60,000 kilometres of mileage would be $12,900, which seems low. So that would mean $1,677 in sales tax.

If you're bringing a vehicle into Ontario from another province, you also need a Safety Standards Certificate from an authorized garage. The cost is usually under $100, plus the cost of any required repairs.

Also, make sure that the bank will allow the loan to be transferred.

"This in itself may be an issue," said Warren N. Barnard, executive director of the Used Car Dealers Association of Ontario, in an e-mail.

It might be easier if you take out a fresh loan or put the vehicle on your line of credit, adds Viraf Baliwalla of the Automall Network, a Toronto-based car broker.

“This would be a cleaner transaction,” Baliwalla says.

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