Giving another person a car speaks volumes about your generosity. In fact, this grand gesture can change a life in so many ways.
No matter what the reason gifting a car, it’s a big deal. As such, this process requires some planning and legal considerations. If you’re in Ontario and considering gifting a car, this article can guide your journey. Here, we’ll take you through all the steps involved in gifting a car in Ontario, and provide essential information that can make the process smooth and stress-free.
Understanding the Process of Gifting a Car in Ontario
Gifting a car in Ontario involves transferring car ownership from one person to another without expecting anything in return. The process is similar to selling a car in Ontario, but without receiving payment in return. The recipient of the gift becomes the new owner and assumes all rights and responsibilities that come with it. Those include insurance, maintenance and registration.
When gifting a car, first consider the condition of the vehicle. If the car runs in poor condition, you may not want to waste the effort and cost of transferring ownership. Additionally, you’ll want to ensure that the recipient of the gift can take on the responsibilities of car ownership. If they cannot afford the cost of insurance, gas and repairs, then you’re giving them a burden not a bonus.
Reasons for Gifting a Car
We can list many reasons why someone may choose to give the gift of a car in Ontario. A parent may present one to their child for graduation, setting them up for commuting to a new job. Otherwise, a relative could give a car to another relative who needs it.
To start, you can only transfer a car to another person if you fully own it. In short, you cannot expect them to carry your loan or to make payments on a car that is no longer in your possession. So, pay off your debt then ask for a lien release from the lender. Once the car has a clear title, you can transfer it to someone else.
Gifting a car can also save you money on taxes compared to a sale outside your family. If you sell a car to someone outside your family, you must pay 13 percent in retail sales tax (RST). However, if the car is gifted to a family member, you don’t need to pay the RST when you transfer ownership. This applies to immediate family and in-laws.
If the vehicle belongs to two people, its recipient must be related to both jointly registered owners to qualify for an RST exemption. If you’re giving the vehicle to two people, both must qualify as family members to dodge this tax bill.
Legal Requirements and Documentation
Before gifting a car, you’ll want to understand the legal requirements and how to document each step. In Ontario, any legal owner of a car has the right to sell or give the car away. To transfer ownership of a car, you must provide specific documentation.
First, you both need to sign a form known as a Sworn Statement for a Family Gift of a Used Motor Vehicle in the Province of Ontario. Also, you must show proof of Ontario vehicle insurance, an Ontario driver’s licence, a Vehicle Ownership Permit with the back portion filled in. Further, the same car can only get transferred to a new owner within the family once a year.
If you are transferring the licence plate with the car, you need to sign a completed plate transfer declaration. You can only do this between spouses, parents and children. One additional special note: you must also acquire a Safety Standards Certificate, unless you transfer the car to your spouse and they complete a spousal declaration.
Of course, all documentation must be in order before gifting a car. If you omit any of the required documentation, or deliver it incomplete, the transfer of ownership may get delayed or denied. Finally, both the giver and the receiver must sign the ownership paper.
Taxes and Fees Associated with Gifting a Car
Remember, taxes and fees may apply during this process. The recipient of the car does not pay RST, but they must pay $32 for their own vehicle permit and $59 if they get their own licence plates (new and replacement), with permit: $59. You can pay for these fees with Visa, Mastercard, debit, cash or certified cheque at a ServiceOntario centre.
The car’s original owner may choose to cover these costs, but discuss it with the recipient before gifting the car. That way, you can budget for these and other expenses.
By following the proper steps and taking the time to prepare, gifting a car can be a rewarding experience for both the giver and the receiver. However, always handle the legal requirements, documentation and fees involved to ensure a smooth transfer of ownership.
Transferring Ownership of the Car
Transferring ownership of a car in Ontario involves completing specific forms and paperwork so it gets done correctly. At this phase, due diligence will help you avoid any legal issues or complications down the road.
Completing the Vehicle Registration Transfer
First, fill out a vehicle registration transfer form to transfer ownership of a car. You can collect this form at ServiceOntario centers or online. Next, fill in all sections correctly and accurately, including the car’s make, model and year, as well as your personal information. The new owner must also provide their personal details, including their driver’s license and proof of insurance. The vehicle registration transfer must be completed within six days of the sale.
To qualify as legally binding, you must sign this form while witnessed by a lawyer, notary public, justice of the peace, municipal clerk, deputy clerk, treasurer or head of a municipal council. If you need other options, call 1-866-668-8297 for commissioners in your area. If you fudge the information on this form, you could face a $1,000 fine, two-year imprisonment or both under the Retail Sales Tax Act.
Obtaining a Safety Standards Certificate
Before transferring ownership, the car must also pass a safety standards certificate inspection. This process ensures that the car meets the minimum safety requirements to operate on Ontario roads. Only an authorized mechanic at a licensed Motor Vehicle Inspection Station can perform this inspection, which remains valid for 36 days. If the transfer falls through in this period, the vehicle must pass a separate inspection.
The safety standards certificate covers various safety components of the car, including the brakes, steering and suspension. It takes about one hour and costs $100 to $150, depending on the repair shop’s fees. If any issues are found during the inspection, they must be fixed before the certificate can be issued.
Updating Insurance Information
Naturally, you’ll want to update the car insurance information to reflect the new owner’s details after the registration transfer. This will ensure that the new owner has full coverage and stays protected in case of a collision or theft.
Transferring ownership of a car goes through a rigorous process, but by following these steps, you can ensure you do it correctly and legally. So, take the time to complete each step thoroughly and accurately to avoid any problems later.
Further Tax Exemptions when Gifting a Car
Two other situations impact how you can gift a car to a family member in Ontario. Sadly, both relate to the end of a relationship. Here’s what you need to know about transferring a car after a breakup or a death:
If a spouse or former spouse hands over a car after a breakdown in the relationship, no one pays RST. However, the transfer must appear as part of a settlement under the Family Law Act. At the ServiceOntario centre, present either Sworn Statement for the Transfer of a Used Motor Vehicle in the Province of Ontario, a Separation Agreement, a Divorce Agreement, or other similar court document.
Family Member’s Death
The ownership of a vehicle can become tricky if a person dies without their wishes getting captured in a recent will. In this case, you can take the following steps to work through the process of gifting a car in Ontario.
Within a will, the document must clearly name the estate trustee and the beneficiary (the person inheriting the vehicle). If an estate trustee is not identified in the will, the beneficiary will also require a copy of the Certificate of Appointment of Estate Trustee or a similar court document.
On the other hand, if the will doesn’t specifically state the name of the beneficiary, you will require further documentation. This includes a letter from the estate trustee, detailing their name, who will inherit the vehicle and its VIN, year, make and model.
If a will does not exist, the beneficiary must have a lawyer’s letter or a court document) naming the person as the legal beneficiary of the vehicle. Printed on a lawyer’s letterhead, it must clearly state that a will does not exist. Further, it must name the beneficiary and the vehicle’s VIN.
If one person dies and their spouse lives on, the survivor can transfer a jointly registered vehicle. However, they only need a death certificate or a certified copy. In all other joint ownership cases, including common-law relationships, the surviving owner must provide the supporting documents listed above to transfer the vehicle without paying RST.
What About a Gift Tax?
Although your lucky recipient won’t have to pay RST on a gifted car in Ontario, they may worry about a gift tax. Fortunately, Canada and its provinces don’t have a gift tax. While it applies in the United States, you won’t have to pay a gift tax here. Regardless, the new owner of the car should get prepared to take on the other day-to-day costs of running a car.
Overall, gifting a car can be a wonderful way to show your love and appreciation for a family member or loved one. Now, you can make an informed decision as you and the recipient of the gifted car enjoy the maximum benefits.
Gifting a Car in Ontario: The Bottom Line
Gifting a car in Ontario can serve as a thoughtful and practical option. However, knowing the legal requirements and documentation involved spares you from any taxes or fees that may apply. Additionally, preparing the car so it’s in good condition can help make the gifting process stress-free and enjoyable for both the giver and the recipient.
FAQs About Gifting a Car in Ontario
Gifting a car in Ontario requires the completion of a few key steps. To transfer the car, you need to fill out the “Transfer of Ownership” section on the vehicle’s ownership permit, signed by both parties. A crucial Sworn Statement for a Family Gift of a Used Motor Vehicle in the Province of Ontario document affirms the vehicle is being gifted exempt from Retail Sales Tax (RST). All paperwork gets finalized at a ServiceOntario centre in one visit if you have all the right papers with you.
In Ontario, you can gift a car to anyone, including immediate family members and in-laws. The act of gifting a car involves certain procedures, such as getting a safety certificate, completing a sworn statement for a family gift of a motor vehicle, and finalizing the process at a ServiceOntario centre. However, there is a distinct tax advantage when gifting a car to a family member, as defined by ServiceOntario guidelines. Eligible family members can receive the car gift without paying Retail Sales Tax (RST) on the vehicle’s value, providing a significant financial benefit. This includes children, grandchildren, parents, grandparents, spouses, siblings, stepchildren, stepparents, step-grandparents, step-grandchildren, parents-in-law and children-in-law,
A grandparent can indeed gift a car to a grandchild in Ontario. The process involves preparing a sworn statement for a family gift of a used motor vehicle. Grandchildren fall under the family member category per ServiceOntario guidelines, which means they avoid paying Retail Sales Tax (RST). However, always consider the grandchild’s financial situation before gifting, as car ownership comes with various ongoing costs.
A company in Ontario can gift a car to an employee, but should consider important tax implications. Gifts only apply when provided for a special occasion, such as a religious holiday, a birthday, a wedding or the birth of a child. The car may qualify as a taxable benefit, which could lead to the employee paying income tax based on the fair market value of the vehicle. Unlike family member gifts, when a company gifts a vehicle, the recipient will likely need to pay Retail Sales Tax (RST) based on the Canadian Red Book value of the vehicle.
Yes, a parent can gift a car to their son or daughter in Ontario. The process involves completing a sworn statement and transferring the vehicle’s ownership. Sons and daughters are eligible for the Retail Sales Tax (RST) exemption. However, you should also consider whether they can handle the costs associated with owning a car, such as insurance, maintenance and gas.
In Ontario, whether a car is purchased or received as a gift, Retail Sales Tax (RST) usually applies based on the fair market value of the vehicle. However, there is an exemption for certain family members, such as spouses, parents, grandparents, children, grandchildren and siblings. If you gift a car to a qualifying family member, you can claim an RST exemption, saving the recipient from paying the tax. Yet, cousins, aunts and uncles don’t make the list. For non-family members or those not on the exemption list, RST indeed applies, based on the Canadian Red Book value of the vehicle.
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