LEASE BUY-OUT

Dealers are sometimes approached by consumers who want to exercise a lease-end purchase option or an early buy-out of a vehicle being leased from a leasing company. Usually the customer wants to buy another car and wants to use the leased vehicle as a trade-in to reduce the taxes.

When a consumer exercises the buy-out

When a consumer exercises the buy-out under the lease, the buy-out is set by the lease contract, and HST are payable on the buy-out amount.

Dealer Asked to Exercise the Buy-out Directly from the Lessor
Sometimes the consumer will ask the dealer to exercise the buy-out from the lessor directly, to avoid paying the tax.

This is not a solution. Even if the dealer pays the buy-out, they are doing it on behalf of the lessee, and the lessor is responsible for collecting and remitting the taxes that would have been payable if the consumer were purchasing the vehicle directly from the lessor.

UCDA Recommendation
The simpler way to do it is to have the lessee pay their own buy-out, including applicable taxes and have the vehicle registered into the consumer’s name. They can then use the vehicle as a trade-in to reduce the taxes payable on their purchase from the dealer.