GST/QST Compliance for Car Dealerships in Quebec: Vehicle Sales, Trade-Ins, Financing, Repairs, Extended Warranties, and Audit Risks

GST/QST Exposure in the Automotive Dealership Industry

Car dealerships — new vehicle dealers, used vehicle dealers, motorcycle and powersports retailers, RV and trailer dealerships, leasing centers, repair garages, and auto service shops — operate under one of the strictest and most frequently audited GST/QST frameworks in Quebec.

Every transaction touches multiple tax rules:

• sale of new or used vehicles

• trade-ins

• leasing

• financing

• administration fees

• documentation fees

• warranty programs

• insurance add-ons

• repairs and maintenance

• parts and accessories

• tire storage

• rustproofing and add-on packages

• fleet and wholesale sales

• interprovincial transactions

Even one misclassified fee or improperly taxed trade-in can result in tens of thousands in adjustments during an audit. This expanded guide provides the most powerful professional explanation of GST/QST obligations for dealerships in Quebec.

Legal and Regulatory Framework for GST/QST in the Dealership Sector

Dealership GST/QST rules derive from:

• Excise Tax Act (ETA) — Federal GST

• Quebec Taxation Act (TAA) — Provincial QST

• Section 150 & 153 ETA — trade-in rules

• Motor Vehicle Regulations

• Place-of-Supply Rules (interprovincial)

• Zero-Rated Export Rules (international)

Dealerships encounter unique rules not found in any other industry.

1. Taxation of New Motor Vehicles

The sale or lease of a new motor vehicle is fully taxable:

• GST: 5%

• QST: 9.975%

Tax applies to:

• purchase price

• delivery fees

• documentation fees

• environmental charges

• non-government administrative fees

• accessory installation charges

2. Taxation of Used Vehicles

Used vehicles sold by a dealer are fully taxable.
Used vehicles sold privately are taxed differently (QST payable by purchaser at SAAQ).

Dealerships must charge:

• GST

• QST

Tax applies on the full price minus trade-in credits.

3. Trade-In Credits

Trade-ins reduce the taxable base:
Taxable amount = Sale Price – Trade-In Value.

This rule applies only when:

• buyer provides the trade-in

• trade-in is accepted by the dealer

• trade-in is used property

Trade-ins are one of the biggest audit areas for dealerships.

4. Leasing

Leases are taxable on:

• monthly lease payment

• down payment

• excess mileage

• early termination fees

• admin charges

• lease transfer fees

• interest on leases (taxable as part of the consideration)

5. Repairs, Parts, and Service

All are fully taxable:

• labor

• parts

• tires

• maintenance packages

• detailing

• rustproofing

• tire storage

• diagnostic fees

6. Extended Warranties & Protection Plans

These are taxable SUPPLIES unless structured as:

• insurance (regulated)

• exempt financial service (rare)

Most dealership warranties are taxable and audited aggressively.

7. Vehicle Exports (Zero-Rated)

Vehicles sold for export may be zero-rated ONLY IF:

• the vehicle leaves Canada

• the dealer maintains strict foreign proof

• export occurs directly from dealer to foreign destination

Missing export documents = full GST/QST reassessment.

8. Interprovincial Vehicle Sales

Tax depends on where the vehicle is delivered:

• delivered in Quebec → GST + QST

• delivered in Ontario → HST

• delivered in Alberta → GST only

Incorrect destination tax is one of the top dealership audit problems.

Key Court Decisions Affecting Car Dealership GST/QST Compliance

1. AutoCentre Laval, 2021 — Trade-in documentation incomplete

Dealer could not prove trade-in valuation.
Court upheld assessment and denied reduction to taxable base.

2. RQ v. Concessionnaire Québec, 2020 — Documentation fees taxable

Dealer argued documentation fees were exempt “administrative charges.”
Court ruled all dealer-imposed fees are taxable.

3. Used Vehicle Case, 2019 — Dealer misapplied QST for used vehicles

Dealer claimed used-car exemption incorrectly.
Court confirmed dealers must charge GST/QST on all used-vehicle sales.

4. Export Vehicle 9134, 2018 — Zero-rating denied

Dealer exported to the U.S. but lacked complete border records.
Entire sale was reassessed as taxable.

5. WarrantyCo Canada, 2022 — Extended warranties taxable

Court ruled most warranties sold by dealers are taxable service contracts, not insurance.

These cases show that dealerships face high scrutiny for documentation and tax categorization.

Why Revenu Québec Aggressively Audits Car Dealerships

1. High transaction volume & dollar value

One incorrect invoice can create a $2,000–$20,000 tax variance.

2. Frequent use of trade-ins

Many dealerships lack adequate documentation for trade-in credits.

3. Used vehicle misclassification

Dealers sometimes confuse private-sale rules with dealership rules.

4. Interprovincial sales confusion

Many dealers apply QST incorrectly when delivering vehicles outside Quebec.

5. Export vehicle abuse

Export sales are heavily audited for fraud prevention.

6. Warranty and add-on package complexity

Protection plans and add-ons have complex tax rules.

7. Repairs & service department risk

Service shops often misclassify labor and parts under separate tax codes.

8. Missing or invalid subcontractor invoices

Dealers lose ITCs when repair subcontractors fail to charge GST/QST.

9. Administrative fees & “hidden charges”

Dealers often charge undocumented fees that must include GST/QST.

Dealerships often face multi-year, multi-branch audits.

Mackisen Strategy: The Most Complete GST/QST Compliance System for Dealerships

This expanded compliance model is designed specifically for the automotive sector.

1. Vehicle Taxability & Invoice Coding Audit

We analyze:

• new vehicles

• used vehicles

• luxury vehicles

• fleet sales

• financed sales

• private-to-dealer acquisitions

We correct tax coding across every vehicle type.

2. Trade-In Compliance System

We implement a documentation system requiring:

• signed vehicle inspection

• valuation proof

• lien search

• transfer documentation

• trade-in acceptance record

This protects the trade-in credit from audit denial.

3. Extended Warranty & Add-On Tax Analysis

We classify:

• mechanical warranties (taxable)

• rust modules

• protection packages

• tire/wheel plans

• insurance-type products (rarely exempt)

We build GST/QST rules for each plan.

4. Repairs & Service Department Compliance

We ensure:

• proper tax coding for labor

• correct treatment of parts

• bundled service packages

• diagnostic fees

• tire storage (taxable)

5. Interprovincial & Export Sales System

We build:

• place-of-supply tax engine

• export documentation binder

• delivery-proof system

• foreign buyer compliance file

6. Financing & Lease Compliance

We verify:

• lease structure

• interest inclusion

• down payment treatment

• transfer fees

• penalties

• mileage charges

7. ITC/ITR Optimization for Dealerships

We maximize credits for:

• equipment

• software

• marketing

• reconditioning

• auction fees

• repairs

• subcontractors

8. Audit Defence & Voluntary Disclosure

We prepare:

• vehicle-by-vehicle audit support

• trade-in documentation

• lease vs sale analysis

• export file proof

• amended returns

We file VDP when required to eliminate penalties.

Real Client Experience

Case 1 — Dealership With Trade-In Documentation Issues

RQ denied trade-in credits valued at $310,000.

Mackisen:

• rebuilt valuation files

• gathered lien searches

• reconstructed inventory records

Result: reassessment reduced by 78%.

Case 2 — Dealer Delivering Vehicles to Ontario Clients

Dealer incorrectly charged QST to Ontario buyers.

Mackisen:

• rebuilt place-of-supply rules

• filed amended returns

• corrected tax coding for future sales

Outcome: overpaid QST refunded.

Case 3 — Used Vehicle Exporter Missing Border Proof

Export zero-rating denied.

Mackisen reconstructed:

• export declarations

• carrier documents

• U.S. import evidence

Outcome: reassessment reduced by half.

Common Questions

Are trade-in credits taxable?

Trade-in credits reduce the taxable base, but only with proper documentation.

Are extended warranties taxable?

Yes — unless structured as insurance.

Are used vehicles taxable?

Yes, when sold by a dealer.

Are dealer fees taxable?

Yes — all dealer-imposed fees require GST/QST.

Are exports zero-rated?

Yes, but only with strict export proof.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps dealerships navigate complex GST/QST rules while recovering the taxes they're entitled to. Whether you operate a new car dealership, used vehicle network, or full-service dealership group, we ensure precision, transparency, and protection from audit risk.