On August 26, 2011, the B.C. government announced that it will reinstate the combined 12% GST/PST tax system in the province following a referendum earlier in the month in which a majority of B.C. residents voted to scrap the HST system that has been in operation since July 1, 2010. The government confirmed that B.C.'s PST will be restored at its former rate of 7% with all permanent PST exemptions. However, it noted that "common sense administrative improvements" may be made to streamline the PST system when it is reintroduced.
Goods and services currently subject to the 12% HST, which will again be exempt from the 7% PST when the combined GST/PST system is reinstated include: new home purchases; real estate commissions; accounting services; veterinarian services; funeral services; residential telephone and basic cable television services; moving services; home renovation, landscaping and interior design services; restaurant meals and snack foods; domestic flights, and bus, rail and taxi travel; admission to professional sporting events, movies, museums and art galleries, live theatre and music concerts; gym and golf memberships; over-the-counter medications; and beauty salon and aesthetician services.
The expected transition period for returning to the combined GST/PST system is a minimum of 18 months, with an anticipated target date for reintroduction of March 31, 2013. During the transition period, the provincial portion of the HST will remain in place at 7% and eligible lower-income British Columbians will continue to receive the HST credit, which will then be replaced by the PST credit when the combined tax system is restored.
The B.C. government has established an action plan to guide the transition process back to the combined GST/PST system. Key elements of the action plan include: developing legislation to reinstate the PST (including any necessary provincial transition rules); re-establishing appropriate provincial governmental systems and personnel to administer the PST (including registration, reporting, data gathering, remittance/collection, audit, assessment and appeal processes); and working with the federal government on developing HST transition rules and making any necessary changes to systems and processes. The B.C. government will also discuss with the federal government how it will exit the Comprehensive Integrated Tax Coordination Agreement (CITCA) under which the federal government has been administering the HST on behalf of B.C., and return to the federal government the $1.6 billion of funding it received for adopting the HST. On that issue, a grass roots proposal currently being put forward by members of the business community could potentially enable the province not to terminate the CITCA and to keep the $1.6 billion in funding, while allowing it to fulfill its commitment to restore B.C.'s PST system.
Organizations doing business in B.C. should note the B.C. government's plans for business registration and outreach. The government's action plan indicates that by the time the PST is reinstated, there will be an estimated 30,000 new businesses in B.C. with no PST experience. In all, the government estimates that it will register approximately 100,000 businesses to collect PST prior to its reinstatement. As such, the government plans to provide information and training to businesses during the transition period on the application, collection, compliance and reporting rules relating to the PST.
No different than the previous transition to the HST system, the transition back to the combined GST/PST system will have a major impact on organizations doing business in B.C. Once again, businesses will need to carefully plan and execute the transition. Some of the main issues businesses will need to consider include:
- Impact on sales and purchasing systems
- IT changes required to transition back to 5% GST and 7% PST
- Impact of point-of-sale rules for goods and services supplied in/to B.C.
- Self-assessment of non-recoverable PST on taxable imports into B.C.
- Management of purchases of goods and services through the transition period:
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- Acceleration or delay of high dollar value purchases
- Management of real property supply and install contracts
- Budgeting, cash flow, costing and pricing model changes
- Adjusting for non-recoverable PST
- Impact on employee expense reporting
During the transition period, the B.C. government has undertaken to provide quarterly updates on the progress of returning to the GST/PST system. We will continue to monitor the government's progress during the transition period and will prepare an update on any significant developments.
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.
