With vehicle ownership at an all time high in Canada, more families own cars than homes, making the auto industry a booming market for business. However if you are looking to resell cars or flip cars for profit individually outside of a business entity, you have to be careful to not avoid breaking any laws.
The margins may not be as large as you think. The main issue with flipping cars without a dealer license is that you need to pay tax on the vehicle when you purchase it. All of a sudden your acquisition cost is much higher than expected, cutting significantly into your profit. Your final profits is the sale price, minus tax on purchase price and minus purchase price.
There are many people, misinformed or directly exploiting, the concept of paying tax on a vehicle that is purchased. By law, you must register all vehicles that you purchase, otherwise, a subsequent resale of the vehicle without registration is considered to be curbsiding. As a curbsider, you are evading tax by not registering the vehicle prior to resale.
Solutions #1 – Dealer License
The most straightforward solution is to get a dealer’s license. The process is extremely straightforward and the cost is minimal. There are many other benefits to having a dealer’s license, including a dealer plate and access to cheaper vehicles via auctions.
Keep in mind that selling a car with a dealer license has requirements that you have to fulfill before sale finalization.
Solutions #2 – Take the tax hit
If you know your cars and you know the market, even after taking the hit from tax you can earn money.
- Flipping low priced cars means that the tax on registration would be lower.
- Buying certain cars off 3 or 5 year leases has a window of value that you may be able to capture.
- Purchasing cars from acquaintances that don’t want the hassle of selling cars, ask them to take the tax hit.
We believe strongly that nothing illegal is sustainable, we advise our readers to abide by the law and play within the rules.