The trade-in tax savings advantage works in the following manner. The taxable value of the car you are purchasing is reduced by the value of the car you are trading in. Let's take an example. Say you are buying a used pick-up truck in Prince Edward Island and you have a Volkswagen Golf to trade in. The pick-up truck costs $35k and you can trade in the Golf for $5k. Prince Edward Island has an HST rate of 15% meaning that normally you would $5,250 to pay in tax. With the trade-in however you can reduce the taxable value like this: $35,000 - $5,000 = $30,000 15% of $30,000 = $4,500 Therefore the trade-in not only reduces the price of the purchase but also, in this case, reduces your tax bill by $750.