On February 17, 2012, the federal government announced proposed
transitional rules that would be enacted under the Excise Tax
Act to deal with British Columbia's transition away from
the Harmonized Sales Tax ("HST"). Last summer, following
a referendum on the issue, the Government of British Columbia
("BC") announced that it would be reinstating its
Provincial Sales Tax ("PST") and eliminating the HST.
Effective April 1, 2013, the 12% HST in BC will be replaced by the
5% Goods and Services Tax ("GST") and a 7% PST. As the
PST generally only applies to tangible personal property and some
limited services, the proposed transitional rules, if enacted, will
provide an opportunity for some businesses to reduce their tax
expenditures by strategically planning the timing of certain
purchases. On the other hand, poor timing could cause certain
businesses to incur unnecessary double taxation.
It is important to recognize that these rules do not paint a
complete picture of BC's transitional period. They address the
transition from the federal perspective (ie. as it relates
to the GST), but it still remains to be seen how the provincial
government will address the transition to the PST. On February 17,
2012, BC also released transitional rules related to the purchase
and sale of new homes, but it is expected that more complete
transitional rules will eventually follow. The federal transitional
rules described below will need to be read in conjunction with
BC's transitional rules for new homes (described below), and
with any other transitional rules eventually released by BC.
Supplies of property and services
Whether a taxable supply of a property or service is subject to
HST or GST will depend on when it becomes payable. If it is paid or
becomes payable before April 1, 2013 it will generally be subject
to HST. Conversely, if it becomes payable on or after April 1, 2013
and has not yet been paid, it will generally be subject to GST.
Generally, a supply of a property (excluding real property) or
service is considered to become "payable" on the earlier
of when it is paid, when an invoice is issued, or the date of the
invoice.
Similar to the federal rules, in a February 17, 2012 news release,
BC stated that PST would generally apply where tax becomes payable
on or after April 1, 2013. Based on these proposed rules, companies
who are entitled to claim input tax credits on their purchases
should consider purchasing any tangible personal property (desks,
computers, etc.) before April 1, 2013 so that they do not have to
pay any unrecoverable PST.
Property and services brought into BC
Tangible personal property brought into BC on or after April 1,
2013 will generally not be subject to the provincial portion of
HST. Similarly, property brought into BC before April 1, 2013, but
not delivered to a consignee until or after that date will
generally not be subject to the provincial portion of HST. Where a
service or intangible property is supplied in a non-participating
province to a resident of BC for consumption, use or supply in BC,
the BC component of the HST will generally not apply if payment
becomes due on or after April 1, 2013.
Financial institutions
Financial institutions with taxation years spanning April 1,
2013 will be required to assess their liability for the BC portion
of HST on an apportionment basis. The ratio will be based on the
number of days in the taxation year or reporting period prior to
April 1, 2013, compared to the total number of days in the taxation
year or reporting period.
Refunds and rebates
Eligibility for refunds and rebates for the BC component of the
HST will generally remain in place until the existing limitation
periods for claiming them have expired. However, there will be some
exceptions (for example, no refund will be available for tangible
personal property removed from BC on or after April 1, 2013).
Consequently, certain businesses should be wary of the possibility
that goods purchased and removed from BC could be subject to
provincial tax in their destination province, resulting in double
taxation with no available refund if the goods were purchased prior
to April 1, 2013 and removed after that date, and the purchaser
could not claim a full input tax credit for the HST paid.
Exchanges and refunds
If goods are purchased before April 1, 2013, but returned or
exchanged on or after that date, a refund of HST can generally be
given as long as a credit or debit note is issued.
New home buyers and builders - BC rules
Prior to BC's implementation of the HST, PST was not charged
on the purchase price of new homes. Rather, BC generally only
required that the builder pay 7% PST on its building materials. The
government estimated that, under the PST system, the embedded PST
accounted for approximately 2% of the cost of a new home. Under the
HST, while builders could claim input tax credits for the HST on
their costs, the entire cost of a new home became subject to HST.
To address this tax increase, the BC government put in place a new
housing rebate to effectively reduce the provincial portion of the
HST to 2% for the first $400,000 paid for a new home.
Effective April 1, 2013, BC's portion of the HST will no longer
apply to new home sales, and builders will once again pay 7% PST on
their building materials. In order to deal with distortions in the
housing market that would otherwise be caused by the transition,
effective April 1, 2012, BC will increase its new housing rebate
threshold to $850,000.
Where construction begins before April 1, 2013, but ownership and
possession transfer after, purchasers will not pay BC's portion
of the HST. However, they will pay a 2% transitional provincial tax
on the full house price (meant to reflect the 2% embedded PST
cost), and builders will receive temporary housing transition
rebates to offset PST paid on materials. This rule, combined with
the federal transition rules, and the increase in the rebate
threshold to $850,000 means that houses valued at $850,000 or less
should be treated the same regardless of when they are sold as long
as ownership and possession transfer on or after April 1, 2012 (if
ownership or possession transfer before April 1, 2012 and the house
is sold for more than $400,000, additional taxes will apply). For
houses worth more than $850,000, less overall tax should apply if
ownership and possession transfer on or after April 1, 2013.
New home buyers and builders - federal rules
Currently there are transitional rules in place to deal with
situations where housing transactions straddle July 1, 2010 (the
date when BC implemented the HST). Generally, these rules will
continue to apply. Under the existing transitional rules, sales of
certain newly constructed or substantially renovated homes, where
ownership transferred on or after July 1, 2010 but the purchase and
sale agreement was entered into on or before November 18, 2009,
were not be subject to HST. However, in these circumstances the
builder was generally required to pay a transitional tax adjustment
if the home was completed in whole or part after June 2010. This
transitional tax adjustment will only continue to apply if HST
becomes payable on the home before April 1, 2013.
Currently, the builder of a newly constructed or substantially
renovated home that is a residential condominium, traditional
apartment building, senior residence or long-term care facility may
be entitled to a transitional housing rebate if more than 10
percent of the construction was completed before July 1, 2010. This
rebate will continue to be available, but only in respect of homes
where the HST or the transitional tax adjustment applies.
Other provisions
The proposed federal transition rules also contain specific
rules dealing with self-supplies of real property; imported goods;
imported taxable supplies; pensions plans (deemed supplies and
rebates); taxable benefits; certain passenger vehicles and
aircrafts; employee/partner rebates; rebates for charities, not for
profits and public service bodies; streamlined accounting;
calculations of basic tax content and performance bonds.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
