Did Quebecers overpay taxes when they bought an extended warranty or protection plan for their new vehicle? The law firm BGA certainly thinks they did, and has filed a motion in the province’s Superior Court seeking authorization to bring an action collective (class-action lawsuit) against the automakers involved. According to the lawsuit, extended warranties offered to new-car buyers during the “mandatory” visit to a dealer’s F&I office should have been taxed the same as insurance premiums, which means they should have been exempt from federal taxes and only subject to Quebec’s Tax Insurance Premium (TIP), which is 9%.
In fact, because such “protection” plans include elements that cover risks in the same way insurance premiums do — by offering, for example, roadside assistance — BGA says they should not have been subject to the combined GST-HST levy — that’s 15.56% — and therefore many customers were overcharged some 6.56%. So far, the suit covers new-car purchasers who bought Ford-Protect; Extra Care Protection (Toyota); Global Protection (Honda); Gold or Platinum (Nissan); and Diamond Plan (Mitsubishi) products, as well as a few other optional plans sold by dealers when new vehicles were purchased or leased.
The class-action lawsuit, filed January 25 by Benoît Gamache in the Montreal Court District, estimates that “tens, if not hundreds, of thousands” of Quebec consumers have been wronged by this practice, each for as much as $50 to $150.
Manufacturers—or insurers?
The extended coverage plans we’re talking about, which typically cost between $1,000 and $3,000, are designed primarily to cover mechanical defects or production defects that may occur after the manufacturer’s basic warranty has expired. However, to boost sales of these optional programs, automakers have added other benefits over the years — benefits “that do not arise solely or at all from a defect or from the extension of the manufacturer’s basic warranty,” according to the class-action lawsuit.
Instead, these benefits include roadside assistance (towing, boosting, fuel delivery, door-unlocking); replacement of tires and rims in the event of road damage; replacement of lost keys or remote controls; cosmetic restoration of the bodywork; and even repairs in the cabin (stained seats, torn upholstery).
Some plans even offer “payment protection,” winching of a vehicle fallen into a ditch, legal assistance services—and even a bail bond ($5,000) in the event of an arrest for a traffic offence. “In fact, manufacturers are acting like insurers by offering protection products through their dealers,” the court documents say.
Which manufacturers are targeted?
The class-action is broad in scope, naming virtually all Canadian divisions of manufacturers that commercialize vehicles in Quebec. The defendants are Mercedes-Benz, Toyota, Ford, General Motors, Hyundai, Kia, Honda, Nissan, FCA (now Stellantis), Mazda, Volkswagen, Subaru, Mitsubishi, Audi, BMW, Volvo, and the finance arms of Toyota, Honda, Ford, and GM.
Note that Jaguar, Land Rover, Lucid, Polestar, Rivian, Tesla, and VinFast are not mentioned, nor are ultra-luxury brands such as Aston Martin, Bentley, Ferrari, Lamborghini, Pagani, and Rolls-Royce.
Who represents the plaintiffs?
The lawsuit is represented by two plaintiffs, Sandra Dalpé-Palerme; and Richard Gagné. Dalpé-Palerme purchased a Subaru WRX from Subaru Repentigy in June 2023, along with an extended warranty for $1,893. The GST and QST were then applied—for $283.48. But according to the class-action, just $170.37 should have been charged, a difference of $113.11.
The other plaintiff, Gagné, leased a Mercedes-Benz from Park Avenue on January 26, 2024. He chose the First Class Protection product covering excessive wear, for which he paid $1,615, plus $241.85 in GST and QST. Again, the lawsuit claims the tax on insurance premiums should have been charged, which would have been $145.35, a difference of $96.50.
Because such ‘protection’ plans include elements that cover risks like insurance premiums do — by offering, for example, roadside assistance — BGA says they should not have been subject to the combined GST-HST levy, and therefore many customers were overcharged 6.56%
The BGA law firm bases its claims on a decision by L’Autorité des marchés financiers, which ruled that coverage for damage caused by risks other than a “defect” or “malfunction” of an asset (in this case, a vehicle) are insurance products (subject to the TIP) and not extended warranties (subject to the GST and QST).
Claims of nearly $54 million
According to Benoît Gamache of Cabinet BGA, claims could reach nearly $54 million. “It appears that almost 50% of new car sales (and leases) are accompanied by the sale of a protection plan,” he says. “With an average price of $1,500 per unit and 200,000 potential sales per year, that’s close to $300 million in sales per year—or about $18 million in overcharged taxes.”
However, the number of years these alleged offences went on has not yet been determined. “No decision has been made [on this issue],” says Gamache. “The principle is usually three years, but theoretically we could go back much, much further. If we take the minimum three-year period for the scope of the group and assume that the practice stops today, that’s almost $54 million in damages that can be claimed by members.”
The class-action alleges the vast majority of new-car dealers in the province use sales contracts designed by the Corporation des concessionnaires d’automobiles du Québec (CCAQ). However, Gamache says, these forms make no mention of the TIP: “The application of the GST-TVQ to the protection plans in question is widespread and systemic in the automobile industry,” the lawsuit states.
Last year, a record 463,646 new vehicles were sold in Quebec. The year before, 2023, Quebecers purchased 413,646 new vehicles; and in 2022, they bought 369,982 new vehicles.
Who could benefit from this class-action?
If authorized by a Superior Court Judge, Class Action No. 500-06-001356-258intends to include the following “members”: “All Quebec residents who paid GST and QST on the price of a protection plan sold by the on the Defendants when purchasing or leasing a vehicle”.
The class-action seeks to recover for the members the amounts wrongly paid, as well as damages for false or misleading practices under section 227.1 of the Consumer Protection Act: No person may, by any means whatever, make false or misleading representations concerning the existence, charge, amount, or rate of duties payable under a federal or provincial statute.
Driving.ca asked Gamache if he believed the overcharged taxes were improperly kept in the dealers’ or manufacturer’s pockets, or if they were remit into government coffers, with the merchants believing they were doing the right thing. The lawman replied: “We have no indication or proof that the transfers were not made to the revenue ministry. [But] whether they kept the excess [taxes] or not is irrelevant to the obligation to collect the right taxes.”
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