After a provincial referendum in 2011 that called an end to the
HST era in BC, the government has spent the greater part of 18
months preparing to transition back to the GST/PST system. With the
provincial government's commitment to return to the GST/PST
system on April 1, 2013, businesses have been left to cope with the
various implications of changing the tax system. Principal among
those implications are the obligations on businesses to collect the
appropriate level of tax from their customers without exposing
themselves to liability or instigating disputes with customers.
While the general rule of thumb is that consumers will only pay
the PST on those goods and services which were subject to the PST
prior to the introduction of the HST system (i.e. pre-July 1,
2010), the new legislation contemplates various measures designed
to improve the efficiency of the PST system.
As we transition back to the GST/PST system, there are two key
areas of interest to landlords in the context of commercial
leasing: transactions that occur around April 1, 2013 and
transactions that are specifically subject to (or specifically
exempt from) GST and/or PST.
The Application of GST/PST to Leases of Real Property
in British Columbia
Prior to the introduction of the HST in British Columbia, the
PST did not apply to leases of real property (both commercial and
residential). As the province returns to the PST system, PST will
continue to not apply to leases of real
Generally, PST will only apply to sales and leases of
"tangible personal property" and, since real property is
not included in the definition of "tangible personal
property", leases of real property are not subject to PST.
With the transition back to the GST, all commercial leases of
real property in British Columbia will be subject to 5% GST as of
April 1, 2013. Use the transition rules discussed below to
determine whether GST or HST will apply to rent payments.
The complexity of reconfiguring the taxation system is
particularly magnified around the date of the actual transition,
April 1, 2013. This is the date that must be in the forefront of
all landlords' minds as they contemplate the impact of the new
taxation system. For commercial leases, this means that landlords
(or tenants) will encounter variances in the amount they collect
(or pay) as "tax" on commercial rentals, even if the
payments occur on the same day. The following are general
guidelines to follow when collecting or paying HST/GST on rent
under commercial leases:
GST applies to rent payments that are (a) due on or after April
1, 2013 and (b) made on or after April 1, 2013.
HST applies to rent payments made before April 1, 2013 OR to
payments due before April 1, 2013. When considering the application
of the relevant tax, consider which event occurs first: the date
the payment is due or the date the consideration is paid. The
earlier of the two dates determines which tax is applicable. If the
earlier date is before April 1, 2013, then HST applies. If the
earlier date is on or after April 1, 2013, GST applies.
Using these general rules in the context of commercial leases,
consider the following examples:
1. A lease payment is due on (or before) March 31, 2013. The
payment is made on (or after) April 1, 2013: HST applies because
the earlier of the two dates is March 31, 2013 and that date is
part of the "HST era"
2. A lease payment is due on (or before) March 31, 2013. The
payment is made on (or before) Marc2. h 31, 2013: HST applies
because the earlier of the two dates (in this case both dates) is
March 31, 2013 and that date is part of the "HST
3. A lease payment is due on (or after) April 1, 2013. The
payment is made on (or after) April 1, 2013: GST applies because
the earlier of the two dates (in this case both dates) is April 1,
2013 and that date is part of the "GST era".
4. A lease payment is due on April 1, 2013. The payment is made
on (or before) March 31, 2013: HS4. T applies because the earlier
of the two dates is March 31, 2013 and that date is part of the
It is noteworthy that even when payments are due on or after
April 1, 2013, if a payment is made prior to April 1, 2013, it is
subject to HST.
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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