On August 26, 2011, British Columbians voted to scrap the
Harmonized Sales Tax ("HST") and return to the Goods and
Services Tax ("GST") and Provincial Sales Tax
("PST") regime that existed up to June 30, 2010. As a
result, companies with business activities in Canada will once
again be forced to change the way they collect and administer sales
taxes in British Columbia ("BC").
Canada has a form of value-added tax called the GST that
generally applies at a rate of 5%. On April 1, 1997, the provinces
of Nova Scotia, New Brunswick and Newfoundland harmonized their
provincial sales tax with the federal GST such that the GST and
provincial sales tax were replaced by the HST in these provinces.
Ontario and BC joined these provinces when they implemented the HST
on July 1, 2010. The HST rate in BC is 12%, which is comprised of a
5% federal portion and 7% provincial portion.
Almost 55% of those British Columbians who voted in the
province-wide referendum supported the elimination of the HST
despite a promise by the provincial government to reduce the HST
rate from 12% to 10% by July 1, 2014.
The BC Ministry of Finance (the "Ministry") has
indicated that the transition period is expected to take a minimum
of 18 months with the provincial portion of the HST remaining in
place at the existing 7% rate during this period. The Ministry
announced that the PST will be reinstated at a rate of 7% with
"all permanent PST exemptions". Minister of Finance Kevin
Falcon specifically cited restaurant meals, haircuts, bikes and gym
memberships as items that qualified for exemption under the old PST
regime which will qualify for exemption once the PST is
re-introduced. However, the Ministry provided that there may be
some "common sense administrative improvements to streamline
The Ministry has also advised that the Province is working on
developing the legislation and regulations necessary to
re-implement the PST. As the provincial PST transition rules need
to mirror the federal HST transition rules, the Province will be
required to develop the transitional rules in tandem with the
Federal Government. In addition, the Ministry will need to rebuild
its capacity to administer the PST as a large portion of its staff
had moved to the Canada Revenue Agency following the implementation
of the HST. In addition to figuring out the transition from HST to
PST, the Province needs to deal with the repayment to the Federal
Government of the $1.6 billion incentive payment it had received to
assist with its transition to the HST system.
The return to the PST means that businesses operating in BC will
need to change their electronic and manual systems and processes to
assess, collect, report and remit the PST and other related taxes
to the provincial government. In addition, 2 British Columbia's
rejection of HST spells change for BC businessesAug
2011 while the transitional rules have not yet been established, it
may be possible for some companies to obtain tax savings by
planning for the transition. For example, businesses engaged in
taxable activities may wish to consider accelerating their
purchases of assets before the PST is reinstated so that they do
not incur nonrecoverable PST thereon. Conversely, businesses
engaged in exempt activities, such as financial institutions, may
consider deferring purchases of PST-exempt items that are currently
subject to unrecoverable HST. However, the availability of these
tax-saving opportunities will not be known until the transitional
rules are announced as the transitional rules may be drafted to
reduce or eliminate them.
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.
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