Recently, there has been media attention highlighting companies which have gone through PST audits and their reaction to the PST assessments received. Also, the Consumer Taxation Branch (CTB) has hired dozens of new auditors, which only implies that more companies will be selected for audit. As a result, we feel it is necessary that organizations and individuals proactively assess their PST exposure. To assist with this, here is a list of some of the hot topics:
- Businesses – tax must be paid on taxable goods purchased or leased outside BC, which are to be used or consumed by the business in BC (and not for further resale or lease). If the seller did not collect the tax, the purchaser must self-assess and remit the tax to the CTB. PST must be calculated on the total amount paid to the supplier, which includes charges for duty and freight into BC! A frequent cause for assessments is the purchase of software licenses over the internet. If the software is to be used on a computer in BC, tax is payable on the initial license and any related payments thereafter.
- Individuals – the same rules apply for individuals as for businesses; however, PST on goods purchased for individual consumption may have been collected as the goods arrive in the province. In most cases, PST is supposed to be collected at the border or, if delivered, by Canada Post or the courier. Make sure to review your import and delivery slips to determine that collection has occurred. If not, you must self-assess.
- Temporary importation – take a situation where equipment is brought into the province for a short period of time to fulfill the requirements of a specific contract. If the equipment is in the province more than 5 days per year, tax based upon 1/3 of the taxable value is due. So, if the equipment remains in the province for 2 years and 5 days, tax is payable on the full value.
Computer Software and Services
Generally, the sale, installation or modification of computer software and hardware is subject to PST unless specifically excluded in the Act. These services include hands-on work at a computer and work done off-site via a modem. PST need not be charged on software that is custom developed or modified for a specific person. Both “custom” and “modification” are specifically defined and we would encourage you to review this carefully.
Mandatory maintenance contracts sold with taxable hardware or software are also taxable, as are optional contracts if they involve scheduled maintenance or provide coverage for a specified or limited number of service calls. Optional contracts are exempt where work is performed on an as-needed basis.
Production Equipment Exemption
In 2001, new legislation permits exemptions on the purchase or lease of equipment for use at a manufacturing site and to be used primarily (greater than 50%) and directly in the manufacture of other taxable personal property, the development of software or mining. “Manufacturing” and the “manufacturing site” are specifically defined in the Act and are quite complex. Please contact us if you think you might qualify for an exemption.