HST—THE END
PAPER 1.1
Overview of the New Provincial Sales Tax
These materials were prepared by Noah Sarna of Thorsteinssons LLP, Vancouver, BC, for the Continuing Legal
Education Society of British Columbia, October 2012. The author thanks Rosemary J. Anderson and Terry G.
Barnett at Thorsteinssons LLP for their input.
© Noah Sarna
1.1.1
OVERVIEW OF THE NEW PROVINCIAL SALES TAX
I.
Introduction ....................................................................................................................................................... 1
A. A Very Brief Legal History of Sales Tax in Canada .......................................................................................................... 2
B. Excise Tax vs. Sales Tax vs. Value-Added Tax .................................................................................................................... 3
II.
The Mechanics of the PST ................................................................................................................................ 3
A. What is Taxed and what is Exempt from the Tax? ........................................................................................................ 3
1. Tangible Personal Property ............................................................................................................................................. 4
2. Software ..................................................................................................................................................................................... 4
3. Taxable Services..................................................................................................................................................................... 4
4. Gifts .............................................................................................................................................................................................. 5
B. How Much Tax Must be Paid? .................................................................................................................................................. 5
C. Who Must Pay the Tax?................................................................................................................................................................ 6
D. When Must the Tax be Paid? ..................................................................................................................................................... 6
E. Who Must Collect and Remit the Tax? ................................................................................................................................ 7
F. How is the Tax Administered? .................................................................................................................................................. 8
III.
Differences Between the PST and the SST .................................................................................................... 8
A. Classifications Within the Tax Base........................................................................................................................................ 8
B. Delineation of Tax Base and Related Exemptions .......................................................................................................... 9
C. Other Non-Structural Differences ....................................................................................................................................... 11
IV.
Expansion of the Tax Base: What’s Taxable Now? .....................................................................................11
A. PST on Services ............................................................................................................................................................................... 12
B. PST on Digital Products ............................................................................................................................................................. 13
1. Software .................................................................................................................................................................................. 13
2. Telecommunication Services ...................................................................................................................................... 13
V.
Summary ...........................................................................................................................................................14
I.
Introduction
On April 1, 2013, nearly every provision of the Provincial Sales Tax Act, S.B.C. 2012, c. 35 (the “PSTA”) will come
into force, and British Columbia’s flirtation with the Harmonized Sales Tax (the “HST”) will effectively be over.
Since the results of the referendum in August 2011, the provincial government has attempted to ease the
transition by affirming that the new or re-instated provincial sales tax (the “PST”) will be “substantially the
same” as the old social service tax (the “SST”), with the “same permanent exemptions—but in a new, modern,
clear, comprehensive [statute].”1
1
Common Questions About Returning to PST, online: British Columbia Ministry of Finance
<http://www.hstinbc.ca/moving-forward/faqs/faqs>.
1.1.2
It is still impossible to tell conclusively whether the differences between the PSTA and the Social Services Tax
Act, R.S.B.C. 1996, c. 431 (the “SSTA”), including the difference in legislative scheme, mean that the government
has failed or succeeded to live up to its claim of “substantially” re-instating the SST in the form of the PST. The
Regulations to the PSTA (the “PSTA Regulations”) are not expected until the end of 2012 and a press release
setting out the transitional rules was only very recently released. However, even with more of the legislation
still yet to come, and with the absence of technical notes or similar means of guidance, the government has
clearly used the opportunity to demolish and reconstruct the SSTA, and not simply bring us back to the studs,
with significant implications for businesses operating in the province.
Although the body of the PSTA is indeed somewhat clearer and more understandable than the SSTA, it is
nonetheless a very complicated statute. Before considering the ways in which it differs from the SSTA—
specifically in terms of the expansion of the tax base—it is useful to briefly contextualize the PST within the
history of sales tax in Canada and BC and consider the basic elements of sales tax regimes on a functional level.
The mechanics of the PST appear to be functionally similar in many respects to the mechanics of the SST but
with certain key differences, which are explored below. This analysis is intended to summarize certain aspects
of the PSTA and highlight certain differences between the PSTA and the SSTA; it does not—and, at this stage,
cannot for the reason mentioned above—provide a detailed review of the PSTA or an exhaustive comparison
of the two statutes. Anyone interested in obtaining a full understanding of the PSTA should consult it directly.
Finally, we understand that this paper’s readership may include lawyers with little or no prior knowledge of
sales taxes as well as others who are experts in the field, and we have prepared this paper in a manner that we
hope will prove it useful to all.
A.
A Very Brief Legal History of Sales Tax in Canada
BC’s return to a provincial sales tax regime must be placed in a historical context.
Taxes on goods, in one form or another, have been part of Canadian law for a long time, even since before
Confederation. At that time, the colonial governments charged taxes and made remittances to their mother
countries, England and France. In 1690, Louis XIV imposed an export tax on beaver pelts and moose hides. In
1751, the English colony of Nova Scotia began charging duties on sugar and other items and the following year
imposed taxes on tea, coffee and playing cards.
In 1867, the British North America Act gave the new government of Canada the power to use taxation to raise
money for federal purposes, while the provinces were empowered to use taxation to raise money for provincial
purposes as long as it involved direct taxation, which generally means that the tax must ultimately be paid by
the person who is intended to bear the burden (e.g., those who consume goods in a province).2
From the 1920s to the 1990s, taxes on goods at the federal level essentially involved a tax on everyone but the
final consumer. The Manufacturer’s Sales Tax was imposed in 1924 and was tinkered with over the years
before being replaced eventually with the Goods and Services Tax (the “GST”) in 1991.
In BC, a provincial sales tax, which was given the politically favourable name “social service tax,” was introduced
in 1948 and the SSTA was amended piecemeal over the decades before the implementation of the HST in
2010. The 2009 provincial budget estimated that approximately $5.284 billion of revenue would be generated
from the SST that year.3
2
See Reference re Quebec Sales Tax, [1994] 2 S.C.R. 715 (S.C.C.).
3
Estimates: Fiscal Year Ending March 31, 2011, online: British Columbia Ministry of Finance
<http://www.bcbudget.gov.bc.ca/2010/estimates/2010_Estimates.pdf>.
1.1.3
B.
Excise Tax vs. Sales Tax vs. Value-Added Tax
The various taxes that have been implemented over time in Canada and BC reflect different views on the form
of taxation (or the combination of forms) that is most likely to achieve certain social and economic policy
objectives. There are three main types of commodity taxes: excise taxes, sales taxes and value-added taxes
(“VATs”):

Excise taxes, such as pre-retail taxes on cigarettes, gasoline and alcohol, have as a tax base the
production or trading of specific goods that are either scarce or considered to be socially unhealthy.
These impact the consumer by being embedded in the retail sale price.

Sales taxes, such as the taxes on consumer transactions in many provinces, are generally designed to
apply to retail sales, even where the buyers will use their purchases for business purposes (other than
strictly for re-sale). Like excise taxes, sales taxes were conventionally focused on goods and not on
services, but that has changed over time.

VATs, such as the GST, apply to almost every good or service at every different stage of production
with the objective of collecting tax from the final consumer. They allow a business to recover the tax
paid to produce or re-sell a good or service, which avoids a cascading impact of multiple levels of tax
on the final sale price to a consumer.
BC’s transition to the PST involves moving from a 12% VAT to a 5% VAT and a re-instated 7% sales tax. On a
practical level, that means, among other things, moving from a singular federal system with 2.4 million
collectors of the provincial portion of the VAT to a provincial system with only 180,000 collectors and
significant self-assessing obligations for residents of BC. The results, unsurprisingly, will be messy.
II.
The Mechanics of the PST
Each type of commodity tax responds to same fundamental series of questions, which often spur a string of
further questions and set out the central mechanics of the tax. The simplest way of explaining a new tax, such
as the PST, is to outline how the underlying legislation addresses each of these questions.
The PSTA, on the most basic, general level, is the consequence of a decision made by British Columbians to
impose a tax on the consumption of certain items within BC, including the act of bringing those items into BC.
The points below reflect the essential questions that any business or consumer with a meaningful connection
to BC would ask in order to figure out how to incorporate the PST within their financial affairs.
A.
What is Taxed and what is Exempt from the Tax?
This question is aimed at identifying the boundaries of the tax base, which often relies on the core definitions
within the statute.
Unlike the SSTA, which expanded the tax base of the SST by defining software, electricity, heat and specified
fixtures as “tangible personal property,” the PSTA generally focuses on transactions involving three primary
categories of items: tangible personal property (“TPP”), software and certain services (“taxable services”). There
will likely be complications in relation to transactions that involve more than one of these categories, such as
software on a CD.4
4
See PSTA, s. 104. The provision specifies that software is not taxed twice if it arguably falls within two categories.
1.1.4
1.
Tangible Personal Property
The first category, TPP, composes the biggest portion of the PST’s tax base. TPP refers to personal property
that can be measured or touched or is otherwise perceptible to the senses, including gas, electricity and heat,
as well as certain affixed machinery and improvements to real property.5 Certain TPP that fits within that
broad description will be exempt, such as most food products for human consumption, water and ice.6
Presumably, the vast majority of the other TPP that was exempt under the SST will also be exempt under the
PST. TPP will also be subject to the PST when it is leased7 or imported into BC.8
2.
Software
The second category, software, has conventionally been difficult to classify in sales tax statutes, many of which
were drafted before software was commercially popular. Sales tax statutes historically imposed a tax on TPP,
while software often involves a tangible component, such as a shrink-wrapped CD, as well as an intangible
component, namely the intellectual property encoded within the CD; software is now more frequently
delivered in digital form and without any tangible component.
To address this issue, the PSTA defines software as a “software program that is delivered or accessed by any
means” and includes the right to use a software program, whether that right is exercised or not.9 However, the
purchase of software is exempt under various conditions, such as when it is incorporated into TPP for the
purpose of a retail sale or lease.10
Software is also a challenging concept in sales tax regimes because its location of use may be difficult to
pinpoint. The PSTA includes three provisions that apply the PST to software. One broadly imposes the tax
when there is use of software “on or with an electronic device ordinarily situated in British Columbia,”11 while
the other two provisions deal respectively with business use solely in BC and business use both in and outside
of BC.12 These rules represent an attempt to provide a legislative basis for the government’s former
administrative policy, under which businesses were required to estimate the extent of usage in BC. In the
absence of a legislative basis for pro-rating the use of software between jurisdictions, the constitutionality of
the administrative policy was uncertain.
3.
Taxable Services
The third category involves services. Part 5 of the PSTA imposes the PST on several different types of services.
Arguably, the most significant type involves services related to TPP. Unlike the SSTA, which essentially applied
the SST to a list of specific services, the term in the PSTA is defined such that it captures any service that is
provided “in relation to” TPP, except for a service to install TPP that will become an improvement to real
property or a service provided by an employee to their employer.13 This is an incredibly
5
Ibid., s. 1.
6
Ibid., s. 139.
7
Ibid., ss. 38-43.
8
Ibid., ss. 47-53.
9
Ibid., s. 1.
10
Ibid., s. 133(1)(a)(ii). Presumably, the purchase of software is exempt when it is incorporated into TPP for the
purpose of a retail sale or lease because PST will be collected on the resulting TPP.
11
Ibid., s. 105.
12
Ibid., ss. 106-7.
13
Ibid., s. 1.
1.1.5
broad class that will require a considerable claw-back in the PSTA Regulations in order to result in tax base
that is substantially similar in this area to the tax base under the SSTA.
Certain additional services are specifically identified as taxable under the PSTA, such as legal services14 and
telecommunication services.15 Short-term accommodation, which is included within the definition of a
“taxable service,” is also subject to the PST.16 Services in relation to software are not specifically subject to the
PST, 17 although some services, such as maintenance of software, were taxed under the SST.
4.
Gifts
The PSTA has been expanded to impose the PST on certain gifts, including TPP received by a BC resident from
outside of the province18 or a vehicle, boat or aircraft given in BC.19,20 In many cases, a tax on a gift will be difficult
to enforce, unless the registration of the transfer of ownership requires that the PST be paid or unless the good is
imported from outside of Canada.
B.
How Much Tax Must be Paid?
The amount of tax that must be paid depends on the price of the item being acquired, consumed or imported
as well as the location of the transaction. The PSTA includes provisions that deal with instances of price
reductions, trade-ins, depreciated items and bundled purchases that included non-taxable items.21 Gifts
generally involve a tax rate on the fair market value of the gifted item.22
There are various tax rates under the PSTA. 7% is the basic tax rate, which applies to the price of purchasing or
leasing most TPP and the purchase of software.23 The tax rate that applies to the purchase or lease of a
passenger vehicle depends on the original purchase price: 7% if the original purchase price is less than $55,000,
but as much as 10% if the original purchase price is more than $57,000.24 10% is the tax rate on liquor.25
14
Ibid., ss. 126-29.
15
Ibid., ss. 130-34.
16
Ibid., ss. 122-25.
17
But see PSTA, s. 104. This provision of the PSTA implies that in certain circumstances software may be subject to
or exempt from PST as TPP, which further implies that services “in relation to” software may constitute “taxable
services” and be subject to PST. This ambiguity will hopefully be addressed in the PSTA Regulations.
18
PSTA, s. 49.
19
Ibid., s. 100.
20
See SSTA, s. 11.
21
PSTA, ss. 22-26.
22
Ibid., s. 36.
23
Ibid., ss. 34(1), 105(1).
24
Ibid., s. 34(6).
25
Ibid., s. 34(2).
1.1.6
The tax rate for most taxable services is 7%,26 including for legal services27 and telecommunication services.28
The tax on accommodation is 8% (with an extra 2% for accommodation in certain areas).29
C.
Who Must Pay the Tax?
The burden of paying the PST is generally on the purchaser, but that term is broadly defined in the PSTA such
that it is conceivable that more than one person could be liable to pay the PST on the same transaction. For
example, the purchaser of TPP is a person who acquires TPP at a sale:
•
for the person’s own use or consumption;
•
for the use or consumption of another person at the acquirer’s expense;
•
for the use or consumption by a principal for whom the acquirer is acting as agent; or
•
for the use or consumption by another person at the expense of a principal for whom the
acquirer is acting as agent.30
A person may be acquiring an item for any number of reasons, in any number of roles and at the person’s own
or at another person’s expense, and the person is still liable to pay the PST.31
Where there is a lease, the lessee must pay the tax,32 and that term is similarly defined.33 Where there is an
importation, the person bringing or sending the item into BC, or receiving the item in BC, is generally required
to pay the tax.34
D.
When Must the Tax be Paid?
The timing of payment of the PST depends on the details of the transaction. These rules are very similar to the
timing rules under the Excise Tax Act, R.S.C. 1985, c. E-15 (the “ETA”).35
Generally, the PST on a purchase or lease is payable on the earlier of the following:
•
the day the consideration for the purchase or lease is paid; and
•
the day the consideration for the purchase or lease becomes due.36
If the consideration is paid or becomes due on more than one day, such as in a lease with monthly payments,
the PST is payable on each day that is the earlier of when a portion is paid or when that portion is due. The
amount of PST that is payable on each of those days is calculated based on the portion of the purchase price
26
Ibid., s. 119(1).
27
Ibid., s. 126.
28
Ibid., s. 130(1).
29
Ibid., ss. 122-23.
30
Ibid., s. 1.
31
See ibid., s. 8.
32
Ibid., s. 39.
33
Section 1.
34
See, e.g., ibid., s. 49.
35
See ETA, s. 168.
36
PSTA, s. 28(3).
1.1.7
to which that payment corresponds.37 Additionally, there are special timing rules for various circumstances,
such as when ownership of TPP transfers before consideration is paid or becomes due, the payment of a
deposit and where the PST is not collected but is payable.
Consideration for a purchase or lease becomes due on the earliest of the following:
•
the earlier of the date the seller or lessor first issues an invoice in respect of the sale or lease
for the consideration or portion of that consideration, and the date of that invoice;
•
the day the seller or lessor would have, but for an undue delay, issued an invoice in respect of
the sale or lease for the consideration or portion of that consideration; and
•
the day the purchaser or lessee is required by a written contract to pay the consideration or
portion of consideration.38
If TPP, software or a taxable service is supplied by a “lease, licence or similar arrangement” under a written
contract, then all or a portion of the consideration becomes due on the day the purchaser or lessee is required
to pay that consideration or portion of that consideration.39 The PSTA involves usual drafting on this issue
given that it is unclear how a taxable service can be supplied by a “lease, licence or similar arrangement,” each
of which are terms that apply comfortably to the transfer or use of property but not to a service.
E.
Who Must Collect and Remit the Tax?
The provisions in the PSTA that impose the PST refer primarily to payment of the PST “to the government,”40
but everyone who is defined as a collector—generally, a person who is registered under the PSTA or who is
required to register under the PSTA—must levy and collect the tax.41
There are several categories of people who must register and thus would become collectors.42 Generally,
though, a person who ordinarily carries on a business in BC of selling or offering to sell TPP, software or taxable
services here, or of leasing or offering to lease TPP to a lessee here, must register under the PSTA.43
The amounts of PST that are collected are deemed to be held in trust for the government44 and must be
remitted in a manner that will be set out in the PSTA Regulations.45 However, it is expected that the due date
for remitting PST amounts and filing PST returns will be consistent with a business’ obligation to remit and file
for GST purposes.
The PSTA has created an exceptional class of vendors defined as small sellers, who are permitted to carry on
business in BC without being required to register under the PSTA or to levy, collect and remit the PST. To the
contrary, the PSTA prohibits small sellers from levying or collecting PST.46 Among the criteria for qualifying as
a small seller, a person generally must have made $10,000 or less in the past year from all sales of TPP, software
and taxable services.
37
Ibid., ss. 28(4) and (5).
38
Ibid., s. 33(1).
39
Ibid., s. 33(2).
40
See, e.g., ibid., 37(1).
41
Ibid., s. 178.
42
See ibid., ss. 168-69.
43
Ibid., s. 169.
44
Ibid., s. 184.
45
Ibid., s. 179.
46
Ibid., s. 183(a).
1.1.8
In certain circumstances, a person has the obligation to remit PST directly to the government.47 For example, if
a person acquired TPP that was exempt at that time because the TPP was to be used for a particular purpose,
and the person subsequently used that TPP for a different purpose, then the person must pay PST.48
F.
How is the Tax Administered?
Someone has to be responsible for ensuring a complicated statute, such as the PSTA, is implemented effectively,
and the appropriate rules must be in place to address the messy reality of law in everyday life.
The PSTA is administered by the director, who is designated by the Minister of Finance. The director has
considerable inspection and audit powers to determine whether the PSTA is being complied with, including
the power to enter a specified location occupied by a person to inspect and examine their records, and that
person must produce all the records required by the director.49
The director must issue notices of assessment under certain circumstances, such as when assessing a collector
for failing to remit the appropriate amount of PST50 or when imposing a penalty if a person has failed to
register when required.51
III.
Differences Between the PST and the SST
Various aspects of the PST are functionally identical to the SST. However, there are countless differences
between the PSTA and the SSTA, particularly on a structural level, which demonstrate profound distinctions
between the two statutes.
Differences that are expected to be resolved by the enactment of the PSTA Regulations are not discussed
below.
A.
Classifications Within the Tax Base
The first, and arguably the most obvious, difference between the two statutes involves the classifications within
the tax base. The SSTA was introduced long before television, the internet and the rise of the global knowledge
economy. The SSTA was originally designed to tax TPP and through incremental amendments began taxing
items that were otherwise beyond the scope of that term, such as fixtures to real property, software and
certain services. The consequences involved, for example, the inclusion of “software” within the definition of
“tangible personal property” in s. 1(1) of the SSTA.
The PSTA, in contrast, has a far more modern structure, and the segments of the tax base are distinguished
more properly. For example, Part 3 of the PSTA deals with TPP, while Part 4 deals with software, which for the
most part52 is clearly identified, unlike under the SSTA, as being distinct from TPP. The numerous charging
provisions throughout the PSTA may be annoying, but they largely avoid certain items from awkwardly being
included within terms that simply do not fit.
47
See ibid., s. 192.
48
Ibid., s. 82.
49
Ibid., s. 194.
50
Ibid., s. 199.
51
Ibid., s. 202.
52
See ibid., s. 104.
1.1.9
Additionally, the definition of “software” in the PSTA is considerably easier to understand than the
equivalent definition in the SSTA, even though the PSTA’s definition has arguably expanded the tax base,
which is discussed further below. Consider, for example, the definition in s. 1(1) of the SSTA:
“software” means packaged or prewritten software programs, or the right to use such
programs, whether the software is delivered by electronic, disk, tape or other means, but does
not include
(a) [Repealed 2006-2-21.]
(b) software that is modified in a manner that involves changes to the source code,
and that is modified solely to meet the requirements of a specific person if
(i) the purchase price or lease price, as applicable, is for the software as
modified, and
(ii) that purchase price or lease price is greater than double what it would
have been for the software in its unmodified form, or
(c) custom software, being
(i) software programs developed solely to meet the requirements of a
specific person, and
(ii) modifications to software referred to in subparagraph (i) when performed
for the person for whom the software was originally developed,
unless the software is a copy of software referred to in paragraph (b) or (c), or the right to use
such software, that is sold or leased to someone other than the specific person for whom the
software was originally modified or developed;
In contrast, consider the definition in s. 1 of the PSTA:
“software” means the following:
(a) a software program that is delivered or accessed by any means;
(b) the right, whether exercised or not, to use a software program that is delivered
or accessed by any means;
On the issue of software, another change is that under the PSTA whether software is subject to the PST turns
on whether it was purchased “for use on or with an electronic device ordinarily situated in British Columbia.”
Under s. 1, an “electronic device” is defined as follows:
“electronic device” means a device by which a person may
(a) send or receive telecommunications,
(b) download, view or access signs, signals, writing, images, sound or intelligence of
any nature, or
(c) send, receive, access or use software;
This term is not included within the SSTA, but the term “transmitter” is used as the closest equivalent.
The definition of “taxable services” in the two statutes is also substantially different, but that is discussed
below.
B.
Delineation of Tax Base and Related Exemptions
Another obvious and significant structural difference between the two statutes involves the delineation of the
tax base and the related exemptions.
The SSTA functioned with a relatively narrow tax base in the act itself. For example, TPP is defined in s. 1(1) as
follows:
“tangible personal property” means
(a) personal property that can be seen, weighed, measured, felt or touched, or that
is in any other way perceptible to the senses, and includes natural or
manufactured gas,
(b) software,
1.1.10
(c)
(d)
(e)
electricity,
fixtures, other than prescribed types of fixtures, and
heat;
The TPP that was exempt from the imposition of the SST was expressly included in the act. For example, the
following items were identified as exempt under ss. 70 and 71 of the SSTA:
•
food products for human consumption;
•
natural water;
•
candies and confections;
•
soft drinks;
•
bottles that are to be used to hold a milk product that is sold at a retail sale and that are
returnable to and reusable by a dairy;
•
clothing patterns and, if intended for the purpose of making or repairing clothing, yarn,
natural fibres and yard good materials;
•
sales of used clothing or used footwear if the purchase price of the item of clothing or
footwear is less than $100;
•
vitamins and dietary supplements;
•
artificial limbs and orthopaedic appliances;
•
equipment designed solely for the use of persons with a permanent disability or handicap;
•
hearing aids and dentures;
•
dental and optical appliances, when (i) sold on the prescription of a dentist, an optometrist or
a physician, or (ii) provided as part of a promotional distribution to a dentist, an optometrist,
an optician or a physician, if the dental or optical appliances are otherwise available to
patients only by prescription;
•
diabetic and ostomy supplies; and
•
self-contained smoke or fire alarm devices designed for use in residential premises and selling
for a unit price of less than $250.
In contrast, the definition of TPP in the PSTA is not that dissimilar, other than the exclusion of software, yet
almost none of the exemptions listed above are included in the PSTA (though most are expected to be
included in the PSTA Regulations). The most commonly known exemption—food for human consumption—
is expressly identified in s. 139 of the PSTA, but it is qualified with the words “other than prescribed food
products.” Section 241 of the PSTA allows the Lieutenant Governor in Council “to make regulations providing
for exemptions from one or more provisions of this Act,” including “exempting any tangible personal property,
software or taxable service from taxation.”
In other words, while the SSTA was drafted with the SST’s tax base limited primarily in the SSTA itself, and
certain additional limitations were included in the Social Service Tax Act Regulations, B.C. Reg. 84/58 (the
“SSTA Regulations”), the PSTA contains a relatively wide tax base with the bulk of the limitations expected to
be included in the PSTA Regulations.
The impact of this difference between the PSTA and the SSTA is substantial because shifting most of the
exemptions from the act to the regulations of a taxing statute in BC means moving considerable taxing
authority from the legislature to the cabinet. Because of BC’s rules of governance, if in the future a
1.1.11
government wanted to remove or restrict an exemption from the PSTA, such a change would be far easier to
accomplish than it was under the SSTA.
This ability is even more concerning when one considers s. 236(5) of the PSTA, which provides that a PSTA
Regulation “made on or before March 31, 2016 under this Act may be made retroactive to April 1, 2013 or a
later date.” This means that if a government disagrees with certain positions taken by collectors or taxpayers,
or becomes aware of a loophole under the PSTA that was clear but perhaps unintended, it may be able to
buttress its position by enacting or amending PSTA Regulations with retroactive effect.
C.
Other Non-Structural Differences
There are a series of other differences between the SSTA and the PSTA that do not pertain directly to the
structure of each statute or their central concepts, including the following:
•
There is a new tax rate applicable to the purchase of a vehicle, boat or aircraft at a private sale
of 12%, which is currently included in the Consumption Tax Rebate and Transition Act, S.B.C.
2010, c. 5 (the “CTRTA”), but which was not a part of the SSTA.53 A private sale generally
refers to a sale where the seller is not a “registrant” under the ETA, or where the seller is a
“registrant” but the sale is not a “taxable supply” under the ETA. Before the implementation
of the HST and the introduction of the CTRTA in 2010, the tax rate applicable to the purchase
of a vehicle, boat or aircraft at a private sale under the SSTA was 7%.
•
There is a new definition of a “BC resident” in s. 1 that is not included in the SSTA. Similarly,
there is a new deeming rule under s. 5 of the PSTA that may capture certain people residing
outside of BC who will be considered to be carrying on a business in BC for PST purposes.
•
There are a series of new rules in the PSTA in relation to “small sellers,” most of which were
not included in the SSTA.54
•
There are a series of differences with respect to liquor. For example, see s. 98 of the PSTA and
s. 7 of the SSTA.
•
There are new rules in the PSTA that entrench certain administrative policies but were not
included in the SSTA, such as those pertaining to “direct sellers” and “independent sales
contractors.”55
•
There is a new anti-avoidance rule in s. 201 of the PSTA that may dramatically impact tax
planning in relation to the PST.
There are other differences that may be more or less significant to businesses and individuals depending on
their circumstances or industry. The PSTA should be consulted to ensure there are no unexpected changes.
IV. Expansion of the Tax Base: What’s Taxable Now?
As discussed above, it is impossible to tell conclusively whether the PSTA has created an expanded tax base for
the PST without having a copy of the entire legislation. However, the ways in which certain terms have been
defined in the PSTA indicate that indeed the tax base will be expanded, specifically in relation to services and
digital products.
53
Ibid., s. 34(3).
54
See SSTA, s. 92.2.
55
See, e.g., PSTA, ss. 99, 171.
1.1.12
A.
PST on Services
There is a profound difference between the treatment of services under the SSTA and under the PSTA, notably
with respect to basic definitions.
Under s. 1(1) of the SSTA, a “taxable service” is defined as follows:
“taxable service” means any service provided to install, assemble, dismantle, repair, adjust,
restore, recondition, refinish or maintain tangible personal property, but does not include a
service
(a) provided to install tangible personal property that will become real property on
installation,
(b) provided to install, assemble, dismantle, repair, adjust, restore, recondition,
refinish or maintain prescribed tangible personal property, or
(c) provided by a person to that person's employer in the course of employment;
This definition begins with identifying a required relationship between a service and TPP—i.e., to include “any
service provided to install … maintain [TPP]”—but that relationship is narrowed significantly in the latter
portion of the definition itself, particularly by reference to “prescribed” TPP. There are certain further
exemptions contained elsewhere in the SSTA.56 As well, a series of services are exempt in ss. 2.45 to 2.486 of the
SSTA Regulations, such as “cleaning services.”
In contrast, the treatment of services under the PSTA points to a far broader tax base. Under s. 1 of the PSTA, a
“taxable service” is defined as follows:
“taxable service” means any of the following:
(a) services described in section 116(2)(b) [tax if contract for property conversion
related to purchase] that are provided under the contract referred to in that
provision;
(b) services described in section 117(2)(b) [tax if contract for modification of
purchased property] that are provided under the contract referred to in section
117(2)(a)(i) or (ii);
(c) a related service;
(d) accommodation;
(e) legal services;
(f) a telecommunication service; (emphasis added)
Most significantly, a “related service” is defined in s. 1 as follows:
“related service”, except in relation to legally related services, means any service provided in
relation to tangible personal property, but does not include a service
(a) provided to install tangible personal property that will become an
improvement to real property on installation, or
(b) provided by a person to the person's employer in the course of employment;
The relationship between a service and TPP in these definitions—i.e., to include “any service provided in
relation to [TPP]” and excluding an equivalent to paragraph (b) in the definition of “taxable service” under the
SSTA—indicates something far broader. This turns the analysis of the taxation of services from what is taxable
(under the SSTA) to what is exempt (under the PSTA), or rather, at this particular stage before the introduction
of the PSTA Regulations, what will be exempt.
While it is possible that the government will introduce sufficient exemptions in the PSTA Regulations to
achieve the same tax base that existed under the SSTA, there will still be at least one important difference: it
will be relatively easy for the government to broaden the tax base in respect of services at any point in the
56
See SSTA, s. 42.
1.1.13
future. As well, the concern highlighted above, namely that the government has the power to implement
retroactive amendments to the regulations until 2016, applies in this case as well.
B.
PST on Digital Products
Digital products are another area in which the PSTA, as it currently exists, points to an expanded tax base and a
considerable difference from the SSTA.
1.
Software
The definition of “software” under the SSTA is included in full above, and there is no need to reproduce it here
as well. The scope of that definition was limited to exclude modified or customized software. In contrast, the
definition of “software” in the PSTA, which is also included above, includes no equivalent limitation. Although
s. 113 of the PSTA provides for certain exemptions in respect of software, there is nothing in the act itself that
refers to an exemption for modified or customized software.
Presumably, the PSTA Regulations will include equivalent exemptions, but the same concern identified above
with respect to the ease of amendments persists.
Furthermore, the introduction of a new test for taxing software, which turns on the location of an “electronic
device” and which is discussed above, is likely to generate more tax revenues than using the residence of the
purchaser, among other factors, as the reference point, which was the test under the SSTA.57 It is not clear how
one will determine the “ordinary” location of such a device, and one assumes that it may be based on the
address provided to the related service provider.
2.
Telecommunication Services
Similar to the differences between the SSTA and the PSTA highlighted above, there is a noticeable distinction
between the definitions of “telecommunication services” in the two statutes. Under s. 1(1) of the SSTA, a
“telecommunication service” is defined as follows:
“telecommunication service” means the right, whether exercised or not, to send or receive
one or more telecommunications by means of a transmitter that is ordinarily situated in
British Columbia, and includes
(a) the sending or receiving of a telecommunication by means of a transmitter that
is ordinarily situated in British Columbia, and
(b) a dedicated telecommunication service;
In contrast, a “telecommunication service” is defined in s. 1 of the PSTA as follows:
“telecommunication service” means any of the following:
(a) the right, whether exercised or not, to send or receive one or more
telecommunications by means of an electronic device that is ordinarily situated
in British Columbia;
(b) the sending or receiving of 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 means of a
telecommunication effected through an electronic device that is ordinarily
situated in British Columbia, signs, signals, writing, images, sound or intelligence
of any nature other than software; (emphasis added)
57
See Bulletin SST 040: Computer Software and Hardware, online: British Columbia Ministry of Finance
<http://www.sbr.gov.bc.ca/documents_library/bulletins/sst_040.pdf>.
1.1.14
Various terms included in these definitions, such as a “telecommunication,” are defined similarly in the two
statutes, and “transmitter” in the SSTA has been replaced with “electronic device” in the PSTA. However, a far
more important aspect to note is the inclusion of paragraph (d) in the PSTA definition of a
“telecommunication service.”
The most apparent meaning of (d) is that it refers to any right to access digital information, including right to
use a website or to download a song, movie or book. This is not expressly included in the definition in the
SSTA, and before harmonization the government did not assert that these activities were subject to SST. In
Bulletin SST 107: Telecommunications Industry, the government specified that internet services, including “web
browsing and the ability to send and receive e-mail,” were subject to SST, and there is no reference to the
application of the tax to downloading digital products or accessing exclusive website content.
In other words, the SST generally applied to the point of a customer being able to get online and perform basic
functions, but beyond that any rights to intangible personal property that the customer acquired were outside
of the SST’s tax base. This distinction is analogous to the difference between a vehicle or pipeline and its
contents. The right to use or benefit from the means of transmission and the right to contents obtained
through those means are each independently valuable, but they are distinct entitlements. The provision of a
“telecommunication service”—i.e., the service that enables sending and receiving information over the
internet—was taxable under the SSTA, but the provision of a digital product by means of a
“telecommunication service”—i.e., acquiring a right to an item that is delivered through that service—was not
taxable under the SSTA.
The addition of (d) in the PSTA creates a definition of a “telecommunication service” that includes both the
service that enables sending and receiving information over the internet and the right to an item that is
delivered through that service. In effect, both the medium and its contents are now included within the tax
base.
Again, the regulations to the PSTA will likely replicate the exemptions under the SSTA, but the same concern
identified above with respect to the ease of amendments persists.
V.
Summary
This paper was written based on the information that we have as of October 2012. There is no question that
we will know more about the PST and its application as we move closer to its implementation date.
Based on the legislation we have, it is clear that the new PST is very different from the SST that it is supposed
to emulate. More specifically, taxpayers and their advisors will need to change their analysis from determining
if a property or services being supplied or acquired is taxable to determining if it is exempt.