Christmas is coming, and if you’re feeling extremely generous, you might even consider gifting a car to one of your family members. Gifting a car is a thoughtful way to help a loved one along life’s journey, but what’s involved in transferring the ownership? What are the implications for both you and the recipient? Let’s take a look at what’s involved in the process.
The cost of owning a car
If you’ve been the primary driver of a car, you know that operating a vehicle isn’t a one-time financial investment. There are a lot of other costs involved, some of which you probably didn’t consider when you purchased your first vehicle. Factors such as gas, maintenance, and insurance all add up – and these costs only seem to be rising every day. If you eliminate financing from the equation, running a car can cost about $600 a month – not exactly a free ride.
When you’re transferring a car to a family member, you need to take into consideration their financial situation and what the car will be used for. Gifting a new Ford Mustang to a student who needs to get to school might seem like a great idea, but is it really realistic if they can’t afford the maintenance and the student car insurance on the vehicle?
Insuring a gifted vehicle
If you’re gifting a car to someone who already has an insurance policy, the recipient typically has about 14 days to register the vehicle with their insurance provider. This is important to keep in mind, especially if the new owner wants to add coverage for their new car. The 14-day grace period on coverage is only applicable to the existing policy the car’s owner has. So if there are any additions wanted, such as comprehensive coverage, it’s important to get them in place before the window has closed.
If this is the first car that the recipient has ever owned, there are some important things to remember. It’s illegal to drive a car without insurance in Canada, so if the recipient is going to be named as the primary driver and owner of the car, they’re going to need their own insurance policy. The recipient will want to find the best rate possible for their car insurance, and there are a lot of factors that contribute to how much an insurance policy will cost. Considerations such as age, gender, and the type of car you drive all come into play when determining the policy rate. If you’re going to be gifting a car to a new driver, you can help them out by comparing car insurance quotes using Ratehub.ca's auto insurance calculator to ensure they’re getting the best deal possible.
Remember, the cost of insurance is high for young people, especially students. For people managing student loans and debts, the added responsibility of running a car may be prohibitive. Talk to the person you intend to give the car to, and see if they are able to absorb the additional costs. It might be a better idea to simply maintain the car yourself and add the intended recipient as a secondary driver to your insurance policy, if they only need the vehicle occasionally.
If you intend to list the would-be recipient as a secondary driver instead, keep in mind that you can’t lie about how often they operate the vehicle to your insurance provider. If the recipient is going to be the primary driver, you may have to shell out and have the insurance policy put under their name instead.
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The requirements of gifting a car in Ontario
The process of gifting a car to a family member involves a few steps, but it isn’t too difficult of a process. Once you have all the paperwork ready, you simply go to your nearest ServiceOntario centre where they can help you with the process.
Before you start, you’re going to need to make sure the car you’re gifting is fully paid off. If you currently have a balance owing on a loan, you want to get this resolved quickly, so you have a clean title. After this, you’ll be able to get a statement from your lender saying there is no balance owing. This is essential if you want to give the car to another party as without owning the vehicle completely, it’s not really yours to give away.
When you go to ServiceOntario, be prepared to show the following paperwork/identifications:
- Proof of insurance
- Both your and the recipient’s drivers license
- The bill of sale, including all the vehicle’s information, such as the make, model, year, mileage, and vehicle identification number (VIN)
- The vehicle ownership permit – this document allows you to transfer the ownership of the vehicle. It’s the green document you receive when you first purchase a car. This document also contains the information needed for the new owner to attach their own license plate to the car.
- The Safety Standards Certificate (SSC) – this document shows that the vehicle is compliant with emissions standards.
If you’re transferring a used car to a family member, you will also need to complete the Sworn Statement for a Family Gift of a Used Motor Vehicle in the Province of Ontario to be exempt from taxation. And if you’re also planning to transfer the license plate (which is only permitted between parents, spouses, and children), you’ll also need to complete the plate transfer declaration.
Be aware that there are a few costs associated with transferring a car to a new owner. A vehicle permit fee will cost you $32 while the license plate stickers and plate fees cost $120 in Southern Ontario and $60 in Northern Ontario.
Do you save tax when gifting a car?
Besides receiving a vehicle as a gift, the recipient gets an added bonus of not having to pay the retail sales tax (RST) on the car. Normally when a car is sold, there’s a tax of 13% added on to the price. The RST is based on the Canadian Red Book value of the car, but if it’s going to a family member, this fee is waived. In Ontario, the definition of a family member also includes spouses, in-laws, adopted siblings, and half-siblings.
The bottom line
If you’re thinking of giving a car as a gift to a family member, take the time to help them out by getting all the paperwork ready in advance. And if you’re feeling very generous, you can even help them out by covering the cost of insurance. But above all, speak with the recipient to ensure that the gift is going to be a blessing, instead of a burden.