The Divorce is Official: British Columbia Is A Single Stage Sales Tax Province Again

1005 days ago, the British Columbia and federal sales tax systems joined in a value-added tax union called Harmonized Sales Tax or HST.  It was not long before the strains of the union started to show. It was not a match made in heaven (it was politically motivated - never a good starting point). Some say they was also outside interference in the relationship (Bill Vader Zalm did not wish this union to succeed).  With the outcome of the 2011 referendum, separation was certain.  In the months following the referendum, the steps to legally separate have been undertaken. On April 1, 2013, the divorce has become official. British Columbia sales tax has returned to being a single staged sales tax (a retail sales tax).

1005 days is not particularly long - but it is not as short as some Hollywood marriages:

  • Kim Kardashian's and Kris Humphries' marriage lasted 72 days (but the divorce proceedings are taking time - so, technically the marriage may last for longer than the HST - TBD);
  • Britney Spears' and Jason Alexander's marriage lasted only 55 hours;
  • Pamela Anderson's and Cris Rock's lasted 102 days; and
  • Elisabeth Taylor's and Conrad "Nicky" Hilton's marriage lasted 9 months.

Elizabeth Taylor married 8 times (twice to Richard Burton and the second marriage was 16 months after the couple divorced) - so their is hope that after a passage of time, another attempt at a harmonized sales tax in British Columbia may transpire.

This love/hate relationship will continue for some time. Chapters of this story are yet to be written - check back from time to time.

Canadian Lawyers May Need The BC PST "Application For Clearance" Re Transactions Closing After April 1, 2013

When a business sells its assets by way for a sale in bulk (or the Bulk Sales Act applies), it does not do so in the normal course of its business.  Usually, one of the preconditions to closing a transaction (one of the vendor closing documents in an asset purchase) is a certification from the provincial sales tax authorities to the vendor that all provincial sales taxes have been paid or arrangement have been made by the vendor to pay the taxes. The vendor provides this certification to the purchaser.  When this certification is provided, the provincial sales tax authorities cannot pursue the purchaser for the unpaid provincial sales taxes of the vendor.  When this certification is not obtained, the provincial sales tax authorities may pursue the purchaser for the unpaid sales taxes of the vendor.

If an asset purchase transaction involves or includes assets located in British Columbia on the closing date, it may be necessary to obtain a clearance certificate from British Columbia.

The BC Ministry of Finance released FIN 447 "Application for Certification" on March 28, 2013.  Vendors use this form to submit their application for a certificate.  It may be completed to cover provincial sales taxes and other provincial indirect/commodity taxes (such as tobacco tax, motor fuel tax, carbon tax, social service tax, and hotel room tax).

What is most interesting about this form is that the lawyers for the purchaser may file the form (previously, the lawyers for the vendor were the the party who requested the clearance certificate and could not control the delivery).  While the vendor (person whose tax records are to be searched) must sign the form giving authorization for the search, the purchaser may be the submitter of the form and the party receiving the information.

Everybody's Working For the Week-End (in BC)

April 1, 2013 is only 3 days away - so, everybody in British Columbia is working Easter week-end to get ready. The government bureaucrats are working hard releasing publications on returning to British Columbia provincial sales tax (BC PST). Business owners are busy reading the new publications and making systems changes to ensure compliance by Monday morning at midnight.

On March 28, 2013, the following forms and publications were released:

 

Why Are There So Many Tax Changes Coming Into Effect April 1?

There are many tax changes coming into effect on April 1 of each year.  Is it an April Fool's joke? No - the Government of Canada's year end is March 31 (the fiscal year runs April 1 - March 31).  The same holds true for the provinces. Tax changes are often implemented to start at the beginning of the government's new fiscal year.

This is why British Columbia de-harmonization occurs on April 1, 2013 and it is no longer an HST participating province.  Prince Edward Island becomes an HST participating province on April 1, 2013. The Government of Quebec must start to pay HST on its purchases starting on April 1, 2013 (did not start on the January 1, 2013 harmonization date). Many of the measures in the 2013 Budget take effect either budget day or April 1.

This is why so many government budgets are released in the month of March every year. Even the provinces implement many changes to taxes on April 1.  For example, the government of Ontario (via Ontario Tire Stewardship) is implementing increases (and decreases) on April 1, 2013. Ontario Electronics Stewardship Fees change on May 1, 2013 (for something a little different).

The British Columbia PST Exemption Forms Help Auditors And Create Identify Theft & Other Risks For Buyers

In the week of March 18, 2013, The British Columbia Ministry of Finance released the following 3 exemption certificate forms:

The instructions on each of these forms is that the vendor must collect the information from the buyer or the vendor must collect PST. What this means that the information must be provided by the buyer or they must pay PST.

Looking at FIN 425 "Certificate of Exemption - Children's Clothing and Footwear", parents/grandparents (purchasers of children's clothing) must provide their name, address and telephone number to the retail clerk in order to benefit from the exemption contained in the law.  Forms must be competed and any number of people may access the information provided.  I am not suggesting that all retail locations are dishonest - not in the least.  There are elements in society who are dishonest and they may put themselves in a position to obtain this information.  If the buyer of the children's clothing pays by credit card (and isn't that usually the case?), the retail clerk would have a person's credit card number, name, address, telephone number and security code from the back of  the credit card.  What more will they need to engage in illegal activities for quick gain?

Businesses and consumers are at the mercy of telemarketers.  All three exemption certificates require a telephone number to be provided.  Names, addresses and telephone numbers can be added to marketing lists.

Finally, businesses must provide their PST number.  While this is understandable, how does a business prevent another person from using the information in order to make exempt purchases.  Based on experience from old Ontario RST days, it was common to see bar staff using ORST numbers to purchase alcohol for home party consumption.

It is understandable that the Ministry of Finance wants to be able to audit the use of purchase exemption certificates.  The government wants to protect the tax base. However, the people planning PST re-implementation should ask about protecting the people too. In my humble opinion, the exemption certificate forms are not balanced to protect buyers and this is a problem.  The quick retort that if a buyer wants to benefit from an exemption they should be willing to take the risk is not acceptable.  A person who is buying children's clothing should not be put in a position that they must pay PST or accept identity theft risk. 

Lawyers Receive Revised PST Guidance from British Columbia

On March 19, 2013, British Columbia issued revised PST Bulletin 106 "Legal Services", which provides guidance to lawyers about the new provincial sales tax ( BC PST) rules for lawyers and law firms.  Under the new BC PST rules for lawyers, legal services are subject to BC PST at a rate of 7%. This does not give much time to get ready and may cause some concern with respect to transactions not completed before April 1st (this may be a busy week for lawyers).

PST Bulletin 106 "Legal Services" is only three pages in length and provides limited guidance.  That being said, it raises a few red flags for law firms outside of British Columbia.  For example, PST indicates that legal services provided by any law firm with respect to "acting as legal counsel in negotiations, including settling terms of a business purchased in BC", are subject to the new BC PST. This could translate into exposure of lawyers and law firms outside British Columbia who act in a national sale of a business, including assets in British Columbia.  There is an audit risk for failure to register for BC PST purposes and failure to collect BC PST with respect to legal fees.  By the way, the bundling rules in the Provincial Sales Tax Act (British Columbia) add to the value of the risk because the auditors may try to argue tax is payable on the legal fees for the non-BC components of such a national/multi-provincial transaction.

PST Bulletin 106 "Legal Services" contains a short (but broad) list of legal services provided outside British Columbia that are considered to be subject to BC PST.  The list of legal services outside BC that are subject to BC PST includes the following (provided that a specific exemption does not apply):

  • legal services that relate to real property situated in BC
  • legal services that relate to tangible personal property that is ordinarily situated or brought into BC
  • legal services that relate to the ownership, possession or right to use any other property in BC
  • legal services that relate to a court or administrative proceeding in BC
  • legal services that relate to the incorporation of a company under the Business Corporations Act or Societies Act
  • legal services that relate to the registration of an extra-provincial company or society under the Business Corporations Act or Societies Act
  • legal services that relate to the interpretation or application of an enactment as defined in the Interpretation Act, or a former or proposed such amendment
  • legal services that relate to a contract or covenant (or the contemplation of a contract or a covenant) related to a physical or legal presence, activity or transaction in BC, or the contemplation thereof
  • legal services that relate to the interpretation or application of any enactment, or a former or proposed enactment of any jurisdiction, or the analysis or application of any law, if it relates to
    • a physical or legal presence in BC
    • any activity or transaction in BC
    • the contemplation of a presence, activity or transaction in BC
  • any other matter that relates to BC

Auditors have wide discretion take the position that they may assess a lawyer/law firm outside British Columbia under administrative policy or statutory provisions.  Canadian lawyers and law firms are at risk, as well as U.S. lawyers and law firms and lawyers/law firms outside North America.

Farmers Receive Guidance From British Columbia on New PST Regime

On March 22, 2013 (a week before the re-implementation of provincial sales tax in British Columbia), the Ministry of Finance issued PST Bulletin 101 "Farmers".  Old MacDonald has some guidance, but is it helpful enough?

The good news for farmers is that they have a bulletin.  The bad news is it is 19 pages to read, digest, synthesize and implement in one week,  The good news is that half of the pages are lists of exempt sales and taxable sales.  The bad news is that March 21 is a date many farmers start to prepare fields, orchards and farms for spring planting and start the business cycle - they do not have a lot of extra time like they did after harvest ended in Fall 2012.

As for content, PST bulletins are helpful.  PST Bulletin 101 "Farmers" does contain good lists and some thought and effort went into the preparation of the lists.  However, there is not much guidance on when the BC auditors will deny the exemption on the basis that the purchase is not "solely for farm purposes".

Not all the answers farmers require are contained in PST Bulletin 101 "Farmers".  Farmers may have to review other Bulletins, such as PST Bulletin 002 "Charging, Collecting and Remitting PST"PST Bulletin 301 "Related Services",  PST Bulletin 103 "Aquaculturists" (which is currently not released), Bulletin PST 110 "Production Equipment and Machinery Exemption" (which is currently not released), Bulletin PST 305 "Containers, Labels and Packaging Materials" (which is currently not released), and PST Bulletin 314 'Exemptions for First Nations" (which is currently not released) to name a few (not all).

Farmers may apply for an exemption card to show at the time of a purchase of exempt goods and/or services.  Farmers must apply for the exemption card using Certificate of Exemption - Farmers Form (FIN 458) (however, it is currently not released). In the meantime (and after re-implementation), farmers may use their BC Farmer Identity Card. Farmers who do not have a BC Farmer Identify Card may apply for one from the Ministry of Agriculture Council.  In light of the fact that PST re-implementation is April 1, 2013 and only one week away, it is unlikely that a farmer without a card will be able to receive one before April 1.  This is unfortunate in light of the fact that re-implementation coincides with the planting season.

That being said, the supplier is able to provide a refund of the PST paid within 180 days of the purchase if the documentation is subsequently provided.  However, retailers will need to have the ability to document refunds and expose themselves to assessments for making errors.  This is not an ideal situation for retailers.

Farmers may also seek from the BC Ministry of Finance refunds of PST paid in error or paid due to inadequate documentation to support a point of sale exemption. There will be a form (FIN 355/FAF), but it is currently not yet released.

British Columbia Ministry of Finance Releases FIN 492 Certificate of Exemption - Production Machinery and Equipment

On March 20, 2013, the British Columbia Ministry of Finance released form FIN 492 "Certificate of Exemption - Production Machinery and Equipment". Either my computer download capabilities are a not working properly or there is a problem with the form (or it is my eyes after too much reading of PST legislation).

The Certificate of Exemption is a purchase exemption certificate.  Businesses that may purchase exempt manufacturing and production machinery and equipment use this form when seeking a point of sale exemption or a blanket exemption and the vendor keeps the form on file. This purchase exemption certificate is different than the FIN 490 - Certificate of Exemption - General, which is to be used by businesses to purchase goods that are exempt for the purposes of resale or incorporation into goods for resale (or any other reason except it is production machinery and equipment).  I am not sure why there is the need for two separate forms (and why a few more potential boxes to check cannot be added to one form).  The two separate forms may give rise to confusion and assessment risk for vendors for having the wrong form completed.

Documentation of exempt of exempt transactions used to be a hot audit topic under the old PST regimes in British Columbia and Ontario.  Auditors would ask for the documentation and the vendor under audit would look or seek forms from their buyers/customers.  In many cases, it was not possible to satisfy the auditor and the vendor was assessed a penalty for failure to collect PST.  I recommend that businesses keep a folder of the forms for buyers to complete (please note that individual names are scrutinized as opposed to business names and forms without a PST number of the buyer are also scrutinzed by auditors).  I recommend that all completed forms be scanned and saved in computerized records - this was an electronic folder can be used as a back-up (do not throw out the completed forms because an auditor may demand the original).

List of British Columbia PST Publications (as at March 15, 2013)

On April 1, 2013, British Columbia will no longer be an HST (harmonized sales tax) province and will be a PST (provincial sales tax) province again. The publications that have been issued so far to assist vendors and buyers are:

More bulletins and notices will undoubtedly be published. Also, please note that any notice of publication is subject to change without notice.

The blanks above mean that a document has not been published yet. I know, there are 14 days until April 1st. Maybe the Ministry of Finance is working overtime to get the publications ready.

Graphic Design Industry in British Columbia Needs Publication to Guide Them Throuh PST Minefield

In the years before Ontario and British Columbia harmonized their provincial sales taxes with the GST, the graphic design industry was under close scrutiny by PST auditors.  Some graphic design services were considered to result in deliverables of tangible personal property (goods) and, therefore, were PST-taxable.  Some graphic design services were accepted by auditors as being purely services and, therefore, not PST-taxable.  In this situation, where some sales are PST-taxable and some sales are PST-non-taxable, the industry is in desperate need of guidance.  As of March 10, 2013, the graphic design industry in British Columbia has not seen a new bulletin or specific guidance for the industry.  This industry in an important industry in Canada and needs guidance.

The Provincial Sales Tax Act does not contain a provision dedicated to graphic designers.  That being said, there are many general provisions of the Provincial Sales Tax Act that apply to graphic designers (including the new provision on bundled services, the software provisions).  However, since the rules for graphic designers are not simply set out in one or two provisions, statutory interpretation is required and consideration of the administrative policies (to the extent there are policies).

The old British Columbia Bulletin SS 128 Graphic Designers may be under re-development and the administrative position may change dramatically.  However, the old bulletin may be a helpful starting point in planning for post-April 1, 2013. When reading the old Bulletin, please remember some of the old underlying statutory provisions have changed.

One of the problems for the graphic design industry is that not all graphic designers do the same thing. There are many categories of graphic designer.  Prior to harmonization in Ontario, I worked with the Association of Registered Graphic Designers to develop charts so that the industry could help the Ontario Ministry of Finance develop its policy.  The charts used to be publicly available to the graphic design industry, but have been removed since they do not apply in an HST world. The categories of graphic designers in the charts for which we explained the phases of a typical project were:

  • Exhibit Design
  • Environmental/Architectural Graphics and Wayfinding Design
  • Editorial Design
  • Identify/Branding
  • Web Design
  • Package Design
  • Advertising Design
  • Corporate Communications

Based on previous experience in Ontario, graphic designers and graphic design firms must start with the question - What is the deliverable?  If the answer is a good (such as business cards, brochures, packaging, promotional materials or a movable display/booth), then the deliverable is taxable and all or some of the services prior to the final deliverable will likely be considered to be PST-taxable.  If the answer is real property (such as wayfinding), then all or some of the services prior to the final deliverable will likely be considered to be not PST-taxable. If the answer is services (such as the development of concept or a logo provided electronically only), then all or some of the services prior to the final deliverable will likely be considered to be not PST-taxable.

To make things more complicated, the interpretations by Ontario and British Columbia would permit a design project to be divided into more than one component.  It was recognized that in any project, there could be a bundle of identifiable PST-taxable deliverables and PST-non-taxable services/intangibles or real property. For example, in most graphic design projects, there is a creative pre-implementation phase that could have non-PST-taxable services (e.g., concept development, creative ideas storming).  Under the previous rules, there needed to a clear point in time when the entire project might end because the graphic design proposals were rejected (e.g., the client did not like any of the logos presented).  Whether or not British Columbia will still permit non-taxable components is yet to be determined - but, would be consistent with their rules with respect to software.

If a graphic designer or graphic design firm does not charge a client PST on the entire contract price, they will have to justify not charging PST.  There is the opportunity to claim a competitive advantage over graphic designers located in Ontario and Quebec who must charge HST on the entire purchase price. If a B.C. graphic designer plans to use the new PST rules to their advantage, it will be important to develop clearly drafted contracts that divide the project into components.  It will also be important to develop other paperwork to document any component of the project where PST is not charged. We would be pleased to help.

List of British Columbia PST Bulletins and Notices (as at March 8, 2013)

On April 1, 2013, British Columbia will no longer be an HST (harmonized sales tax) province and will be a PST (provincial sales tax) province again. The publications that have been issued so far to assist vendors and buyers are:

More bulletins and notices will undoubtedly be published. Also, please note that any notice of publication is subject to change without notice.

The blanks above mean that a document has not been published yet. I know, there are 21 days until April 1st. Maybe the Ministry of Finance is working overtime to get the publications ready.

British Columbia Residents and Businesses May Have to Self-Assess BC PST on Goods Brought Into the Province

In November 2012, the British Columbia Ministry of Finance issued Bulletin PST-013 "Tangible Personal Property (Goods) Brought Into British Columbia". On February 7, 2013, the British Columbia Ministry of Finance reissued Bulletin PST-013 "Tangible Personal Property (Goods) Brought Into British Columbia".

Self-assessment on goods brought into British Columbia was an issue under the previous social services tax regime - and it is back again with PST.  Individuals who bought goods outside British Columbia were required to self-assess BCSST when they imported the goods into British Columbia (even if the importation was in their luggage or vehicle).  Similarly, individuals from Alberta/Washington State (elsewhere) with chalets in the beautiful British Columbia mountains were required to self-assess BCSST.  These rules return with the implementation of the new and improved BC PST on April 1, 2013.

Some businesses who use imported goods for their own use (and the goods are not exempted) must self-assess BC PST with respect to importations of goods that occur after April 1, 2013.  Under the previous BCSST regime, this was a problem for many businesses.  Often there was documentation issues with respect to inter-provincial transactions because inter-Canada transactions do not require reporting to border officer (as is the case with importations from outside of Canada).

For example, I have a client in the Ontario who has a small branch operation in British Columbia. They load information on laptops in Ontario and train the BC employees on the systems in Ontario.  The employees return to British Columbia with their new computers after the training.  They will need to monitor these transfers as BC PST will be payable.

Another example would be the BC resident who travels to Ontario (or another Canadian province) for a vacation and buys artwork or clothing or other personal items.  Another example is a BC resident who buys a motor home or vehicle or boat in Alberta (or other province) and drives home to British Columbia.  These individuals will be required to self-assess BC PST whether they bring the goods to BC themselves or have the goods shipped to be delivered in BC.

Bulletin PST-013 "Tangible Personal Property (Goods) Brought Into British Columbia contains useful information for individuals about some of the applicable exemptions. However, there are no statutory references or references to the regulations because the publication was prepared prior to the finalizing of the laws.

Call Me Maybe - But Is BC PST Payable On the Call?

In December 2012, the British Columbia Ministry of Finance issued Bulletin 2012-018 "Telecommunication Services".  On February 25, 2013, they re-issued Bulletin 2012-018 "Telecommunication Services".

The Bulletin must be read in conjunction with the Provincial Sales Tax Act, Bill 2 Provincial Sales Tax Transitional Provisions and Amendments Act, 2013, and the Provincial Sales Tax Exemptions and Refunds Regulations.

The purchase of a taxable telecommunication service will be subject to PST at a rate of 7%.

It is important to recognize that the old rules no longer apply.  The new BC PST has new and more expansive rules.  British Columbia has taken the opportunity to fill in some of the gaps. For example, the new definition of "telecommunication service" in the Provincial Sales Tax Act is broader than the old version and means any of the following:

(a) the right, whether exercised or not, to utilize a telecommunication system to send or receive a telecommunication by means of an electronic device that is ordinarily situated in British Columbia;

(b) the utilization of a telecommunication system to send or receive a telecommunication by means of an electronic device that is ordinarily situated in British Columbia;

(c) a dedicated telecommunication service;

(d) the right, whether exercised or not, to download, view or access, by utilizing a telecommunication system, one or more of the following telecommunications by means of an electronic device that is ordinarily situated in British Columbia:

(i) an audio book;

(ii) an audio program;

(iii) music;

(iv) a ring tone;

(v) a television program, motion picture or other video.

The term "telecommunication" is broadly defined to mean "signs, signals, writing, images, sound or intelligence of any nature." A "telecommunication system" is defined to mean "a wire, cable, radio, optical or other electromagnetic system, or similar technical system, for the transmission, emission or reception of a telecommunication."

A number of the previously permitted exemptions are being reinstated.  Please refer to sections 83-88 in Division 5 of Part 4 of the Provincial Sales Tax Exemptions and Refunds Regulations signed into law on February 28, 2013.

If you require legal advice concerning the application of the new PST rules, please do not hesitate to contact us at 416-307-4168.

British Columbia Issues Revised Bulletin for Registering for New BC PST

In December 2012, the British Columbia Ministry of Finance issued Bulletin PST-001 "Registering to Collect Provincial Sales Tax".  On February 26, 2013, the British Columbia Ministry of Finance issued a revised Bulletin PST-001 "Registering to Collect Provincial Sales Tax". Since the British Columbia PST starts on April 1, 2013, businesses need to turn their minds to whether they must register for BC PST purposes. There isn't much time left to you have your number on time and inputted into your compliance systems.

Businesses inside and outside British Columbia that were registered under the old and defunct social services tax regime cannot use their old BCSST number.  They must re-apply for and obtain a new PST registration number.  New businesses that have come into existence after harmonization (and those that existed prior to harmonization) will no longer be permitted to use their GST/HST number with respect to provincial sales tax (they will still use the number to collect and remit GST). These businesses in British Columbia need to register for and obtain a BC PST number.

Many non-resident businesses are also required to obtain a BC PST registration number.  I will leave it to another post to discuss the far-reaching nature of the registration and collection requirements in the new BC legislation.

Registration is possible on-line, in person or by fax.  The on-line registration process appears to be simple.  Please let us know if you have used the electronic registration method and how soon did you get your number.

We would be pleased to speak with non-residents of British Columbia concerning the new registration rules.  The British Columbia government closed gaps in the law (real and perceived) in order to ensure a greater tax base of registered businesses.

Finally the New BC PST Rules: The British Columbia Sales Tax Regulations Signed Into Law

We have been waiting patiently to report on the new (and improved) British Columbia provincial sales tax (de-harmonization) rules.  We are finally able to notify our readers of the regulations.

On February 28, 2013, the Administrator (on behalf of the Lieutentant Governor in Council of the Province of British Columbia) signed the Provincial Sales Tax Regulation and the Provincial Sales Tax Exemption and Refund Regulations. Since the BC PST comes into effect on April 1, 2013, businesses in British Columbia have one month the read the new PST rules and implement them in their systems. This will be quite a feat - especially where the rules are not the same as the previous version of the PST called the social services tax.

These new BC PST rules are the meat and potatoes of the new provincial sales tax.  There is also the Provincial Sales Tax Act (that received Royal Assent in May 2012) and Bill 2 - 2013 "Provincial Sales Tax Transitional Provisions and Amendments Act, 2013" (tabled February 13, 2013 and subject to change before becoming law).

The new BS PST is redesigned to permit changes in the PST without  the support of opposition parties.  Regulations are promulgated by the Lieutenant Governor in Council (the BC Cabinet) and do not need to be tabled in the Legislature for a vote.  As a result, the regulations can be changed by the governing party (with no public or legislative debate) to pursue their tax policy objectives.

Previously, the core rules were in the Act and the complimentary rules were in the regulations. 

Please refer back to The HST Blog for posts on the new BC PST rules.