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Tow truck tax services: HST on the call, the yard, and the sale
A tow company charges HST on more than the tow itself — the storage fee, the after-hours surcharge, and eventually the lien sale of an unclaimed vehicle are all taxable supplies, even though only one of them looks like an obvious service. We file the HST return, prepare the T2125 or T2, and claim the fleet-specific deductions that a general small-business return usually misses.
By the AnalytIQ Accounting team · Last reviewed: August 12, 2026
HST applies to the whole file, not just the hook-up fee
The base tow charge carries 13 percent HST like any other service in Ontario, and so do the lines customers and lienholders sometimes assume are separate: mileage, after-hours or weekend surcharges, and the daily storage rate once a vehicle sits in the yard. None of these are pass-through disbursements — they are consideration for services your company supplied, and they are taxed and reported as revenue the same way. Even a winching or recovery surcharge for a difficult extraction is part of the same taxable supply, and splitting it out on the invoice does not change how it is taxed.
The one line that genuinely is a disbursement, not revenue, is a third-party fee your company merely passes through unchanged — a municipal impound release fee paid directly to the city, for example. Marking those correctly in the books keeps them out of both revenue and HST that was never actually yours to collect.
Lien sales are a sale, and the CRA treats them like one
When a vehicle is sold under the Repair and Storage Liens Act to recover unpaid towing and storage charges, the sale is made in the course of your commercial activity, and HST generally applies to it the same as any other disposal of property by a GST/HST registrant. The tow and storage charges recovered from the proceeds are revenue you have now actually earned; anything paid out above that to the vehicle's owner is not. Keep the notice-and-sale paperwork with the accounting file — it is what turns a disputed sale into a defensible one, and it is also the evidence CRA will want if the HST treatment of a particular sale is ever questioned.
| Revenue line | HST treatment |
|---|---|
| Base tow, mileage, after-hours surcharge | Taxable at 13 percent, part of the same invoice |
| Daily storage fee | Taxable at 13 percent, accrued daily as it is earned |
| Lien-sale proceeds | Taxable on the recovered tow and storage charges; surplus paid to the owner is not revenue |
| Fuel, parts, insurance | HST paid recoverable as an input tax credit |
CCA on the fleet: matching the class to the truck
Not every truck in a towing fleet depreciates at the same rate. Light-duty wreckers generally sit in Class 10 at 30 percent declining balance, while heavier rotators and integrated carriers above roughly 11,788 kg gross vehicle weight can qualify for Class 16 at 40 percent — a meaningful difference on a six-figure unit, and one worth confirming truck by truck rather than filing the whole fleet under one class by habit. The half-year rule applies to the year of purchase either way, and a truck bought used still starts its own CCA schedule from your acquisition cost, not the previous owner's. Structural decisions about who owns each truck are covered on our incorporation page for towing companies.
Deductions that are easy to miss in a towing file
- TSSEA operator, driver, and vehicle-storage certificate fees and renewals — ordinary business expenses, deductible when incurred.
- Dispatch and GPS-tracking software subscriptions, fully deductible operating costs.
- Fuel and commercial auto insurance, which run high relative to revenue in a 24/7 towing operation and deserve their own line rather than a blended vehicle-expense bucket.
- Bad debts on insurer or fleet-account short-pays that are genuinely written off, not simply unpaid this quarter.
- Cellular and radio dispatch equipment, plus the two-way communication tools that keep a 24/7 operation coordinated.
- Uniforms, safety gear, and high-visibility equipment required for roadside work, distinct from ordinary clothing that is not deductible.
Whether the business should be a T2125 sole proprietorship or a T2 corporation is mostly a liability and reinvestment question — accidents happen at speed and in traffic — and it is covered in more depth on our incorporation page. Either way, the fleet numbers behind the return come from the monthly file kept through our towing bookkeeping service, and a return built from reconciled books is far less likely to draw a follow-up question from CRA in the first place. Instalment planning also deserves attention in a business this seasonal in call volume — winter storms and summer breakdown season can each produce a heavy quarter, and instalments calculated off a flat prior-year estimate can leave a company either short at filing time or carrying more cash with CRA than it needs to.
Common questions.
Do we charge HST on storage fees for an impounded vehicle?
Yes — storage is consideration for a service your company supplied, taxed the same as the tow itself, whether the customer, an insurer, or eventually a lien sale ends up paying it.
Is the sale of an unclaimed vehicle under a lien taxable?
Generally yes. It is a sale made in the course of your commercial activity, and HST applies to it like any other disposal of company property. Only the recovered tow and storage charges are your revenue; any surplus paid to the owner is not.
Do all our trucks depreciate at the same CCA rate?
Not necessarily. Lighter wreckers typically fall in Class 10 at 30 percent, while heavier rotators over roughly 11,788 kg gross vehicle weight can qualify for Class 16 at 40 percent — worth checking truck by truck.
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