The Sins of Retail Tax on Private Used Car, illustrated

Nov 8, 2010
($50,000 car example)

Given that the moment you purchased your car, the 13% tax you paid on your purchase is gone
forever! That's because even though you paid the whole 13% sales tax, whenever you sell your
car in a private sale, the 13% tax on the residual value goes to the Ontario government, and not
to you. What about leasing: where the 13% tax is only on the portion you used? And how about
the tax on interest?

Below, I am calculating the cumulative total costs using the same set of assumptions. On one
side, it's purchase financing with equal monthly payments to the end of the period. And end of
period loan outstanding equals disposal proceeds. On the other side, it's a lease.

Initial Car Value before Tax: $ 50,000, Sales Tax: 13.0%, Interest: APR 4.00%

Depreciation Assumption:
12m (12 month period): 20%
24m: 35%
36m: 45%
48m: 52%
60m: 57%

Purchase Financing versus Leasing

PURCHASE (P)

Depreciation + Sales Tax + Interest + Interest on Tax = Total Cost

12m: 10,000 + 6,500 + 1,818 + 142 = $ 18,460
24m: 17,500 + 6,500 + 3,338 + 274 = $ 27,612
36m: 22,500 + 6,500 + 4,714 + 409 = $ 34,123
48m: 26,000 + 6,500 + 6,019 + 545 = $ 39,064
60m: 28,500 + 6,500 + 7,292 + 682 = $ 42,974

LEASE (L)

Depreciation + Sales Tax + Interest + Tax on Interest = Total Cost

12m: 10,000 + 1,300 + 1,818 + 236 = $ 13,354
24m: 17,500 + 2,275 + 3,338 + 434 = $ 23,547
36m: 22,500 + 2,925 + 4,714 + 613 = $ 30,752
48m: 26,000 + 3,380 + 6,019 + 782 = $ 36,181
60m: 28,500 + 3,705 + 7,292 + 948 = $ 40,445
COMPARISON

P$/mth , L$/mth , % P Greater than L , Lease Savings

12m: $ 1,538 , $ 1,113 , 38% , $ 5,106
24m: $ 1,150 , $ 981 , 17% , $ 4,065
36m: $ 948 , $ 854 , 11% , $ 3,371
48m: $ 814 , $ 754 , 8% , $ 2,883
60m: $ 716 , $ 674 , 6% , $ 2,529

VERDICT

Is it clear enough now?