How it Works
When you trade-in a car at a dealer, you only get taxed on the difference between your purchase price and the trade in price. The theory is that you’ve already paid the tax on your old car, and you shouldn’t be taxed twice. The simplest way to calculate the savings is to take your “trade-in price” x “tax rate” for your province or state. That is the money you save.
How Dealers Win
In the example above, the dealer will say you are getting $11,300 in value ($10k + $1,300 tax savings). Maybe you think you can sell privately for $11,700. The dealer will argue that you are going through all that effort just to make an extra $400. The dealer is basically taking your tax savings, by giving you a low trade-in value. My advice is to stick to your guns. Know the value of your car, and insist upon getting that value. Then apply the tax savings on top.
See what OMVIC says about tax calculations and other common dealer disclosure issues.