The 'new and improved' B.C. Provincial Sales Tax (PST)
has been in effect for almost a year now. With its implementation,
systems and procedure changes had to be made to (re)implement the
tax. One year in, you may still have a few issues to work out or
have some nagging uncertainties in the back of your mind.
Why is now a good time to take a step back and evaluate your PST
risks? When the province brought the tax back, the idea was to give
everyone the first year to re-implement the tax and seek guidance
from the province where needed. Now that this first year is
complete, PST audits will commence.
Here are some B.C. PST risk areas you may wish to consider.
Risks on sales
It's generally not difficult to make sure you are charging
PST on retail sales in B.C. If your cash register is programmed to
charge 7% PST on a bar of soap, the machine will do the work and
the tax will be collected.
But what about when something is taxable to the general public,
yet an exemption applies in specific circumstances? For example, if
you sell a computer to be delivered on a First Nation reserve, the
taxable supply may be exempt. All of the appropriate supporting
documentation to exempt the PST must be kept on file for
inspection. In one example, we saw a PST auditor ask for a
particular piece of documentation to substantiate an exempt sale
from more than a year ago. When that one piece of paper was too
faded to be legible anymore, the auditor proposed to multiply the
effect of that one transaction to be extrapolated to the entire
How about if you sell a computer to a business in B.C.? If the
business is going to use the computer as part of their operations,
you will have to charge PST. But if the business is going to resell
that computer to a customer, you need to retain the business's
PST number or a purchase exemption certificate in order to exempt
the tax. If the PST number that business gave you is not valid, you
may be liable for the PST you did not collect.
If you provide a 'related service' to tangible personal
property, be aware that the rules may have a broader reach than
under the old Social Service Tax. It is important to have a good
system in place to determine the PST status of a sale in order to
minimize your audit risk.
Risks on purchases
Compared to collecting PST on sales, mitigating the PST on
purchases is a struggle for many businesses. With so many variables
on the purchase side, it is not always easy to be certain how the
PST should be treated.
When a purchase invoice arrives at your accounts payable
department, that invoice cannot be relied on to determine the PST
status of your purchase. If PST was charged, was it supposed to be
charged? If PST was not charged, was it supposed to be exempt? Can
the purchase order (PO) be relied on for the PST status? Not
necessarily. Even if the purchase was made on an exempt basis
correctly at the time, PST liability could still arise later on
Let's take a construction supply business as an example. You
raise a PO to buy lumber as inventory for resale. On the PO, you
provide your PST number to the lumberyard to make the purchase free
of PST. When you mark up and sell the lumber to a consumer, you
would charge your customer PST on the sale. This is where the
straightforward part ends.
Assume for a minute that you also provide construction services
and you quote someone $20,000 to build walls in their house,
including all the materials. You take some lumber out of your
inventory (on which PST has not been paid) to build the walls. Now
you have to self-assess PST on the pieces of lumber you used to
build the walls, because you are considered to be the end user of
the material. When you are busy running your business and
fulfilling contracts, you also need to be a meticulous record
keeper in order to properly self-assess PST – something
that's easier said than done.
It's not just businesses in B.C. that need to be aware of
their B.C. PST risks. For example, if your business is located in
Alberta and you've just won a bid for a construction project in
B.C., you will need to consider the PST temporary import rules for
using your equipment or vehicle in B.C. Or if your business has
multiple locations across Canada, you may need to self-assess PST
because the B.C. employees use software that the Toronto
headquarters purchased licenses for from a U.S. vendor.
Waiting for an auditor to advise you what the PST risks are will
generally not work in your favour. To take a proactive approach,
start with a high-level assessment of the business's risk areas
and then hone in on specific areas of concern.
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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