The Provincial Sales Tax Act (“PSTA”) received royal assent on May 31, 2012 and the PST will be re-instated on April 1, 2013 which is about a month away. To help you prepare for the transition from HST to PST, we have summarized the main issues that you should be aware of.
The Provincial Sales Tax Act (“PSTA”) received royal assent on May 31, 2012 and the PST will be re-instated on April 1, 2013 which is about a month away. To help you prepare for the transition from HST to PST, we have summarized the main issues that you should be aware of.
In its simplest terms, the new PST replaces the existing 7% provincial component embedded in the 12% BC HST. The PSTA is similar to the former Social Service Tax Act (“SSTA”). However, the PSTA is not the old SSTA and some tax professionals have observed that the PSTA allows for the taxation of a broader range of services and intangibles than did the SSTA. Since covering every detail of the PST rules is impossible and goes beyond the intent of this memo we ask that you contact us to discuss any specifics and questions that you may have. Together we can make the transition as smooth as possible.
- Rates: 7% general rate; 10% on liquor; 8% on accommodation; 7% to 12% on vehicle purchases/leases/gifts; 7% or 12% on boat and aircraft purchases/leases/gifts.
- PST is applicable on the purchase of taxable goods, leases and services for personal or business use and is not applicable for goods purchased for resale.
- PST usually becomes payable at the earliest of: the day payment is made, the day the supplier issues an invoice without undue delay, and the day the purchaser is required to pay the consideration pursuant to a written agreement.
- Commission – maximum $198 per reporting period.
IMPACT OF PST
- Consumers will pay less tax since the PST applies more narrowly than the current HST.
- Costs will go up for businesses that are eligible to claim the 12% HST as Input Tax Credits under the current HST regime.
- Costs will go down for businesses that are HST exempt due to the narrower scope of application of PST when compared to the current HST.
IMPROVEMENT TO THE PST SYSTEM
- New online access for businesses, including the ability to register, update their account, and make payments.
- The due date for tax remittance and returns for monthly filers will be moved to the last day of the month to match GST remittance, simplifying administration for business.
- The Hotel Room Tax will now be incorporated into the PST—no more separate registration, remittance or returns.
- Businesses can register with their federal business number.
- Retailers will be allowed to refund tax to customers in a broader range of circumstances.
BUSINESS REQUIRED TO REGISTER
- For business located in BC, you need to register to collect PST if you sell or lease taxable goods, or provide taxable services in the ordinary course of business.
- For business located outside of BC but within Canada, you are required to register if you regularly do all of the following:
- Sell taxable goods or software to customers in BC
- Accept purchase orders (including by telephone, mail, e-mail or Internet) from customers located in BC
- Deliver taxable goods or software to a location in BC. Delivery into BC includes goods and software that you ship physically or electronically, even if you deliver the goods through a third party, such as a courier.
- Solicit sales in BC (through advertising or other means, including mail, e-mail, fax, newspaper or the Internet) for orders to purchase taxable goods or software.
You are also required to register if you are located outside of BC and you, as lessor, lease good in BC, lease goods that are located in BC at the time of the lease, or lease goods that are transferred to the lessee in BC
BUSINESS NOT REQUIRED TO REGISTER
- You are not required to register if you sell only non-taxable or exempt goods such as food for human consumption, bicycles or children’s clothing, you provide only non-taxable or exempt services such as transportation or dry cleaning services, you are a wholesaler, or you are a small supplier. You are a small supplier if you meet all of the criteria, some of which are:
- you are located in BC but do not maintain established commercial or business premises (e.g. you sell goods from your home)
- you do not, in the ordinary course of your business, sell vehicles, boats or aircraft;
- you do not sell liquor, other than under a special occasion licence;
- You have $10,000 or less in gross revenue from taxable sales and services for the previous 12 months, and your estimated gross revenue from taxable sales and services for the next 12 months is $10,000 or less;
- You are not a lessor.
- Online (using the new online system called eTaxBC), in person (at 1802 Douglas Street in Victoria), by fax (250-356-2195) or mail (complete form FIN418 and mail or fax it to the ministry).
- If the ministry approves your application, you will be provided with a letter advising you of your PST registration number (will be 11 characters long and will be in this format: PST-1234-5678) and your tax return filing schedule.
- The ministry has accepted registration starting January 2, 2013. It is recommended that you register at least two weeks before April 1, 2013 to avoid possible system jam near April 1, 2013.
REPORTING AND PAYING TAX
- Online (using the new online system called eTaxBC),
- In person (at 1802 Douglas Street in Victoria),
- By mail (mailing Address: Director, Provincial Sales Tax, PO Box 9443 Stn Prov Govt, Victoria BC V8W 9W7)
- By courier (courier address: Director, Provincial Sales Tax, Ministry of Finance, 1802 Douglas Street, Victoria, BC V8T 4K6)
- Due at end of month following reporting period
- Determined by type of business and amount of PST you collect each year, most monthly but also quarterly, annual and semi-annual.
GOODS AND SERVICES SUBJECT TO PST
The PST will generally apply to the same tangible personal property (goods) and services that were subject to PST prior to the implementation of the HST.
The PST will generally apply to:
- The purchase or lease of new and used goods in BC for personal and business consumption;
- Goods brought, sent or delivered into BC for personal and business consumption in BC;
- The purchase of:
- Related services (i.e., services to goods);
- Legal services; and
- Telecommunication services.
- Gifts of vehicles, boats and aircraft.
On February 28, 2013, Provincial Sales Tax Exemption and Refund Regulation was released. The regulation brings back into effect all of the permanent exemptions from the previous PST system, including but not limited to:
- Food for human consumption (e.g. basic groceries and prepared foods such as restaurant meals);
- Children’s sized clothing and footware;
- Adult sized clothing for children under 15 years of age;
- Books, newspapers and magazines;
- Real property such as residential housing or commercial real estate;
- Admissions and memberships
- Most services, including: transportation services (e.g. bus, train, ferry, and airline fares), personal services (e.g. haircuts, massages), dry cleaning and tailoring, and most professional services other than legal services (e.g. accounting and engineering).
As these exemptions are available to all purchasers, you don’t need to do anything to get the exemption.
However, some exemptions are only available to certain purchasers in certain circumstances. In this case, businesses need to keep specific information in their records to show why they did not charge PST on the sale or lease. If businesses don’t do this, they can be assessed for the tax that should have been collected, plus penalties and interest.
For example, a business can provide a PST exemption on the sale of taxable goods, software or taxable services that are purchased for resale by:
- a purchaser with a PST registration number, if the business documents the purchaser’s PST registration number on the sales invoice (or similar document);
- a vendor who has not yet received a PST registration number but who provides an exemption certificate, if the business keeps a copy of the vendor’s exemption certificate in their records;
- a wholesaler who provides an exemption certificate, if the business keeps a copy of the wholesaler’s exemption certificate in their records.
Other exemptions available to purchasers, including but not limited to:
- Goods purchased for lease
- Goods incorporated into goods for resale
- Eligible machinery and equipment used in manufacturing, logging, mining, mineral exploration, and oil and gas production
- Specified goods purchased for use by qualifying farmers and qualifying fishers
- Goods shipped directly by the vendor out of BC
GENERAL TRANSITIONAL RULES AND PLANNING TIPS
The BC government announced the transitional rules on the return to PST in Notice #2012-010 on October 15, 2012 and revised the Notice on February 18, 2013. These rules are designed to work in conjunction with the transitional rules released by the federal government to eliminate the HST in BC.
Importance of the Transitional Rules
The transitional rules provide guidance on determining the application of tax to transactions in BC straddling the April 1, 2013 re-implementation date. Unlike when the HST was introduced, the new transitional rules do not have a pre-implementation date to begin accounting for the new tax before April 1, 2013. In general, both the federal and BC governments have chosen to transition back to the GST and PST regime in a more simplistic manner: Invoices for goods and services are generally subject to HST if paid or payable prior to April 1, 2013, and subject to GST and PST if paid or payable on or after April 1, 2013, with certain exceptions.
Transitional Rules and Planning Tips
In the following sections, we will outline the general transitional rules, along with examples of applying these rules. We will also provide some planning tips for businesses in commercial activities that are entitled to input tax credits as such businesses can benefit by incurring expenditures under the HST regime.
For consumers, there is little planning that can be done, as they will generally be indifferent between buying most items under the HST or the PST regime. This is because most goods are subject to the same rate of tax either way. However, delaying the purchase of non-PST taxable goods and services (such as bicycles) until April 1, 2013 or later will be advantageous.
Sale of goods (excluding real property)
PST will apply to consideration for goods that is due on or after April 1, 2013 and is not paid before April 1, 2013.
If a customer purchases office equipment in March 2013 and the supplier issues an invoice on April 1, 2013, the equipment is subject to PST, because the consideration is payable on or after April 1, 2013.
Consider making capital purchases prior to April 1, 2013, or paying for the purchases prior to that date,
In December 2012, a customer buys a refrigerator under a layaway plan. Under the written agreement, the customer must make six equal payments from December 2012 to June 2013. Ownership and possession of the refrigerator would be transferred to the customer after the final payment is made.
PST applies to the payments made on or after April 1, 2013.
If the ownership or possession of the goods is transferred to the purchaser or if the seller delivers goods to the purchaser on approval, consignment, or a sale-and-return basis and the purchaser acquires ownership of the goods or makes them available to another person (other than the seller), then, generally, PST is payable at the end of the month immediately following the month in which that event takes place. However, PST is not applicable if:
- The end of the month immediately following the month in which that event takes place is before April 1, 2013; and
- All or any portion of the consideration has not been paid or become due on that day.
If a customer purchases office furniture in February 2013 and takes delivery and title to the furniture in that month, without making or having to make a payment until June 2013, then PST does not apply to the purchase. Even though the amount is payable after April 1, 2013, the end of the month immediately following the month in which delivery took place is March 31, 2013 (i.e., before April 1, 2013).
Lease of goods (excluding real property)
PST will apply on leases of goods in BC where the lease payment becomes due on or after April 1, 2013 and is not paid before April 1, 2013.
If a customer leases a photocopier under a 3-year agreement starting January 1, 2013, with monthly lease payments due at the first of each month, then PST only applies to the lease payments starting April 1, 2013.
When leases span the April 1, 2013 date, consider structuring the terms of such leases to maximize amounts payable prior to that date so as to minimize PST payable since it is not refundable as an input tax credit.
For leases of goods brought or sent into BC on or after April 1, 2013, PST will apply on the date the goods are brought or sent into BC. If goods are brought or sent into BC prior to April 1, 2013, PST will still apply to the consideration in respect of the lease of goods due on or after April 1, 2013 and not paid before April 1, 2013.
If a company leased computer equipment in Alberta and, subsequently, moved the equipment for use in BC in March 2013, PST will be applicable on the lease payments starting on April 1, 2013.
Goods brought into BC that are delivered by a seller within Canada
PST applies to the consideration in respect of the purchase that becomes due on or after April 1, 2013 and is not paid before April 1, 2013.
If a piece of equipment is shipped to a customer in BC by an Alberta vendor during March 2013 and the payment is due in April 2013, the equipment is subject to PST.
When planning to purchase capital assets from outside of BC, regardless of when the goods are scheduled to arrive in BC, consider negotiating the terms of payment to be due or paid before April 1, 2013 so PST is not applicable.
Goods brought Into BC that are delivered by a seller outside Canada
For goods brought, sent or delivered into BC on or after April 1, 2013 from outside of Canada, PST will apply.
If a business orders computer equipment from a supplier in the United States in March 2013 and the equipment is processed by Customs on or after April 1, 2013, PST will apply on the equipment.
When arranging for shipment of goods from outside Canada, consider negotiating the shipment terms so that the goods arrive in BC before April 1, 2013.
Goods used in improvements to real property
Goods purchased or imported by a contractor for the purpose of fulfilling certain supply-and-install contracts will attract PST based on the general rules for goods acquired in the province, brought into the province from a seller within Canada, or imported, as the case may be.
However, it is important to note that a special rule ensures that PST will apply even where the goods do not attract tax under the general rules, if those same goods will be used in such a manner that they no longer constitute personal property (i.e., they become improvements to real property) on or after April 1, 2013.
A flooring contractor has a contract to install new flooring in a house. The contractor purchases the materials in BC in February 2013 and installs them in the house on or after April 1, 2013. Even where the consideration for the materials was due and paid before April, 1, 2013, PST will apply to the purchase price of the flooring, because it was used to improve real property on or after April 1, 2013.
Similar rules apply to goods incorporated into real property that is subject to tax under the New Housing Transition Tax and Rebate Act (or would be subject to tax under that Act if ownership or possession transferred before April 1, 2015).
As there is a specific rule to ensure that materials used after April 1, 2013 attract PST even where the tax would not apply under the general rules, there are limited planning opportunities in this area. Builders may consider installing or using materials to make improvements to real property before April 1, 2013. Alternatively, they may consider structuring contracts to ensure that the commercial customer is responsible for PST and then advise the customer to acquire the materials before April 1, 2013.
Businesses should have a system (e.g. inventory count at March 31, 2013) in place to account for any materials to be used in improvements of real property in order to self-assess PST properly.
Services are considered “related services” if they are services provided to tangible personal property or services provided to install such property. PST will apply to consideration for related services supplied in BC, if it becomes due on or after April 1, 2013 and is not paid before April 1, 2013.
Where a related service is purchased outside BC by a person who resides, ordinarily resides or carries on business in BC, because:
- The goods are taken or sent out of BC primarily for the purpose of having a related service provided in respect of the goods; and
- The goods are subsequently brought, sent or received into BC after the related service has been provided,
PST will apply, if the goods re-enter BC after April 1, 2013.
On March 11, 2013, a company carrying on business in BC takes drilling equipment from BC to Alberta primarily for the purpose of having the drilling equipment repaired. The repaired drilling equipment is shipped back to BC on April 10, 2013. PST applies to the purchase price of the repairs.
Consider bringing all equipment that is undergoing maintenance or repair in other provinces back into BC before April 1, 2013.
PST will apply at the rate of 8% to the purchase of accommodation in BC (hotel, motel, resort, bed and breakfast, etc. with four rooms or more) on the consideration that becomes due on or after April 1, 2013 and is not paid before April 1, 2013. (Note: the Hotel Room Tax Act, which previously taxed the purchase of accommodation, has been repealed. As well, the application of the up to 2% Municipal and Regional District Tax on the purchase price of accommodation will be unaffected by the reimplementation of the PST and repeal of the Hotel Room Tax Act.).
On March 27, 2013, a person checks into a hotel to stay for 6 nights. The consideration for the accommodation is due at the time of check-out on April 2, 2013. PST applies to the full purchase price of the 6 nights of accommodation. (Note: if the consideration was due at the time of check-in, no PST would apply.)
Consider paying at check-in for accommodation that spans April 1, 2013. Consider pre-paying (not deposit) at time of booking for accommodation after April 1, 2013.
PST will apply to consideration that is due on or after April 1, 2013 and is not paid before April 1, 2013.
Legal services are provided by a lawyer in BC in March 2013, and the lawyer issues an invoice for the legal services on or after April 1, 2013. PST applies to the purchase price of the legal services, even though the services were rendered prior to April 1, 2013.
A lawyer in Ontario provides legal services related to the incorporation of a business in BC under the BC Business Corporations Act to a person who carries on business in BC and issues an invoice for the legal services on or after April 1, 2013.
PST applies to the purchase price of the legal services.
Consider having the lawyer issue the invoice for legal services rendered prior to April 1, 2013 by March 31, 2013, to avoid paying PST.
PST will apply to consideration in respect of the purchase of telecommunication services that become due on or after April 1, 2013 and are not paid before April 1, 2013.
On April 23, 2013, an invoice is issued for long distance telephone calls that were made in British Columbia in March 2013.
PST applies to the purchase price of the long distance telephone calls.
Passenger vehicle rental tax
The $1.50 per day passenger vehicle rental tax will also be re-implemented and will apply to a passenger vehicle that is leased in BC for more than 8 consecutive hours and less than 28 consecutive days. PST will apply to consideration in respect of the lease for the days after April 1, 2013.
A passenger vehicle is leased from March 27 to April 6, 2013, and consideration becomes due on the return of the vehicle on April 6, 2013. The $1.50 per day passenger vehicle rental tax applies to the lease of the passenger vehicle for April 1 to April 6, 2013.
Tax on energy products to raise revenue for Innovative Clean Energy Fund
The PSTA will re-implement a 0.4% tax on energy products to raise revenue for the Innovative Clean Energy Fund. Electricity will not be subject to this tax.
If the energy products are purchased in BC or delivered into BC by the seller from within Canada, PST will apply to consideration that becomes due on or after April 1, 2013 and is not paid before April 1, 2013. If the seller is from outside Canada, PST will apply if the energy product is brought or sent into BC, or delivered into BC by the seller or imported on or after April 1, 2013.
REAL ESTATE SECTOR
Currently, purchasers pay 12 % HST on commercial property and new residential properties and tenants pay 12% on leases of commercial real property. Starting April 1, 2013, purchasers and tenants will pay 5% GST subject to transitional rules.
Lease of Real Property
The GST would apply to a lease payment that becomes due on or after April 1, 2013, unless it was paid before that date, in which case the HST applies. The 12% HST rate applies to a lease payment that becomes due before April 2013, even if it is paid on or after April 1, 2013.
A GST/HST-registered landlord receives a prepayment of rent on February 10, 2013 for a taxable lease of real property. The term of the lease is from April 1, 2013 to December 31, 2013.
The HST applies to the prepayment since the lease payment is paid before April 1, 2013.
Purchase of Real Property
General transitional rules
Under the transitional rules, the BC provincial component of the HST generally will cease to apply to sales of real property (including new residential housing) if ownership and possession transfer after March 31, 2013. This will be the case, regardless of whether:
- the agreement of purchase and sale was entered into before April 1, 2013; or
- construction of the newly built home began before April 1, 2013.
In general, PST will not apply to sales of real property. However, PST will apply if:
- at the time of purchase, the housing is tangible personal property (e.g., a mobile home not affixed to land); and
- possession transfers after March 31, 2013.
The PST will also apply to construction materials that are used to improve real property after March 31, 2013.
Other areas related to transition
- Temporary 2% transition tax for purchasers and transition rebate for builders/sellers (Both the tax and the rebate will be administered by the CRA.)
- The transition tax will come into effect on April 1, 2013 and will apply to the sale of newly constructed or substantially renovated residential homes that are 10% or more complete as of April 1, 2013, and ownership and possession transfer after March 31, 2013. Purchasers will pay 5% GST and 2% transition tax on the full purchase price. The tax will end on March 31, 2015.
- The rebate is available to builders/sellers and will be calculated based on the degree of completion on April 1, 2013.
- Grandparented sales of new housing
- Effective April 1, 2013, a new 2% transition tax will apply to these housing sales if:
- the agreement of purchase and sale was entered before November 19, 2009; and
- both ownership and possession transfer under the agreement after March 31, 2013.
- For this purpose, the contracted purchase price for the grandparented housing will be deemed to include the 2% transition tax. Therefore, the transition tax equals 2/102 of the consideration established for GST purposes at the time the agreement was entered into.
- Builders will also be eligible for a new B.C. transition rebate.
- Non-grandparented sales of new housing (agreement of purchase and sale was entered into after November 18, 2009)
- Effective April 1, 2013, a new temporary 2% transition tax is intended to apply to these housing sales when:
- construction began before July 1, 2010; and
- ownership and possession of the housing both transfer after March 31, 2013.
- However, this transition tax will not apply if:
- construction was substantially completed before July I, 2010; and
- the July 2010 PST transitional new housing rebate was not claimed as of February 17, 2012.
- Builders will be eligible for a new BC transition rebate based on the degree of completion at July 1, 2010, subject to some adjustment.
- Disclosure requirements for builders
- Builders that enter into a written agreement of purchase and sale after February 17, 2012 and before April 1, 2015 for newly constructed or substantially renovated housing must provide specific information in writing to the purchaser
- In some cases the information must be provided in the written agreement of purchase and sale while in other cases the information must be provided in a written addendum to the agreement.
- In addition, other specific information must be provided to the purchaser in the statement of adjustments or other document if the BC transition tax is payable on the sale.
- The information that the builder must provide depends on the date of the written agreement.
- Significant penalties apply for non-compliance – maximum $10,000 per sale for failing to fully and accurately disclose; maximum $40,000 per sale for knowingly making false statement or grossly negligent in disclosure.
- Enhanced new housing rebate [maximum rebate increased from $26,250 (5% on $525,000 house price) to $42,500 (5% on $850,000 house price) for newly constructed or substantially renovated homes purchased or constructed as a primary residence if the 12% HST is payable after March 31, 2012, and before April I, 2013] (administered by the CRA)
- Basic tax content
- Basic Tax Content is a formula that determines the non-recoverable GST/HST inherent in a property and is relevant for changes of use.
- $10,000 BC First-Time New Home Buyers’ Bonus (administered by the BC Government)
- Grant for New Secondary or Recreational Housing outside of Capital Regional District and the Greater Vancouver Regional District (administered by the BC Government)
PREPARATION FOR THE TRANSITION
- Cash registers should be programmed and ready for the new rate.
- Register PST before April 1, 2013.
- Businesses need to assess if some of their inventories held at March 31, 2013 will be used in their own business and therefore are subject to self-assessment rules, and conduct inventory count accordingly.
- Development of processes and procedures, including self-assessments, to mitigate PST exposure and ensure compliance.
- Provision of training and/or manuals for an effective conversion and ongoing compliance.
- Consideration of budgets and impact analyses.
MAIN REFERENCES USED FOR THE PREPARATION OF THIS MEMO:
For your convenience, we are listing the main references we have used for the preparation of this memo should you need further information in specific areas:
Published by the BC Government:
- PST Bulletin 001 Registering to Collect PST
- PST Notice 2012-010 General Transitional Rules for the Re-implementation of the Provincial Sales Tax (Issued: October 15, 2012, Revised: February 18, 2013)
- General publication: Tax Exemptions
- General publication: What’s Taxable under the PST and What’s Not?
- General publication: PST in BC – The B.C. First-Time New Home Buyers’ Bonus
- HST Notice # 13 Guide to the Grant for New Secondary or Recreational Housing (Issued: June 2012)
- Provincial Sales Tax Act
Published by the Canada Revenue Agency
- GST/HST Notice #270 Elimination of the HST in British Columbia in 2013 – Questions and Answers (Issued: March 2012)
- GST/HST Notice #272 Harmonized Sales Tax – Proposed Enhancements to the British Columbia New Housing Rebates and New Residential Rental Property Rebates (Issued: March 2012)
- GST/HST Notice #276 Elimination of the HST in British Columbia in 2013 – Transitional Rules for Real Property Including New Housing published by the Canada Revenue Agency (Issued: November 2012)