Provincial Sales Tax Act

Section 1

Purchaser

Commentary

The Seven Mile Dam case (below) indicates that a general partnership is fiscally transparent so that, for example, if a PST collector sells tangible personal property to a general partnership of which it is a 60% partner, PST will be payable on only 40% of the purchase price. This approach is accepted in Bulletin PST 319, which states that "unless a written partnership agreement provides otherwise…each partner is considered to own a proportionate share of the partnership assets equal to that partner's interest in the partnership."

The Edenvale case (below) found that this approach did not apply to a limited partnership. The general partner of a limited partnership typically has the exclusive authority to acquire, manage and sell property on behalf of the partnership, i.e., as agent for all the partners. Accordingly, a purchase by the general partner was considered to come within the expanded definition of "purchaser," which refers to a person who acquires tangible personal property as agent – so that a purchase by the general partner was subject to full tax notwithstanding that the vendor had a proportionate interest as limited partner in the partnership. This approach also is accepted in Bulletin PST 319, which states that "unless a limited partnership agreement provides otherwise in writing, any transaction involving the limited partnership is considered to be a transaction with the general partner(s)" and that the acquisition of a limited partnership interest is not considered to be an acquisition of partnership assets, so that no PST is payable.

See Also

British Columbia v. Burlington Resources Canada Ltd., 2015 BCCA 19

provision of well casing cement was incidental to real property services

BJ Services Company Canada ("BJ Services") provided well cementing and well stimulation services to the respondent. BJ Services placed cement in the "annulus" of wells (the space between the outside of the casing and the well bore), which made the well casing an immoveable part of the realty.

In finding that the materials did not pass to the respondent before they lost their character as tangible personal property and became part of the realty, so that the respondent was not a purchaser under the Social Services Tax Act as one who acquires tangible personal property by sale, Chiasson, JA accepted (at paras. 50-51) the findings below that the "materials at the well head are of no use unless they are properly utilized with BJ Services' skill and equipment," "BJ Services controlled the materials at all times from their arrival at the site until the completion of the well service," BJ Services is "not paid if the materials delivered to the well site are not used" and "the materials used are incidental to the technical service provided."

Edenvale Restoration Specialists Ltd. v. The Queen, 2013 BCCA 85

general partner of LP was "purchaser" (as agent) of 100% of tpp acquired notwithstanding 15% LP ownership interest of vendor

The respondent ("Edenvale"), which was registered under the Social Service Tax Act (B.C.), sold tangible personal property to an Ontario limited partnership for consideration including units of the partnership representing 15% of the outstanding units, and only collected and remitted tax on 85% of the purchase price. The general partner had the authority to acquire, manage and sell property on behalf of the partnership.

After noting (at paras. 20, 26) that only the General Partner and not the limited partner had the ability to acquire and sell partnership assets and (at para. 21) distinguishing Seven Mile on the basis of the "different natures of a general partnership and a limited partnership," Tysoe JA stated (at paras. 27, 29):

The General Partner was a "purchaser"…because it acquired the property "on behalf of or as agent for a principal" and the property was intended to be used by "the principal or by another person at the expense of that principal." … The fact that the limited partners may have had an ownership interest in the assets did not detract from the conclusion that the General Partner was a "purchaser" within the meaning of the Tax Act and was required to pay tax on the full amount of the purchase price allocated to the tangible personal property.

Seven Mile Dam Contractors v. The Queen in Right of British Columbia (1980), 116 DLR (3d) 398, 1980 CanLII 451 (BCCA)

A partnership ("P1") sold equipment to another partnership ("P2"). The two partners of P1 had partnership interests totalling 50% in P2. Before finding that BC social services tax was payable on only one-half of the total price paid by P2 for the equipment, Hutcheon J.A. relied on the finding in Boyd v. Attorney General of British Columbia (1917), 54 SCR 532, at 559-60 that the partners have an undivided interest in the specific assets of a partnership.

Administrative Policy

Bulletin PST 208, Goods for Resale, April 2016

Goods for resale/no Certificate if registered

You are exempt from PST on goods you obtain solely for resale or lease to your customers. To purchase these goods exempt from PST, give the supplier your PST number or, if you do not have a PST number, a completed Certificate of Exemption - General (FIN 490).

Packaging exemption

You are exempt from PST on containers and packaging materials (except reusable containers) you obtain solely for packaging goods for sale or lease, or if you provide them to your customers with their purchases of goods….

Generally, you are not required to charge PST on the containers and packaging materials you provide with goods and services, unless you separately charge your customers for them…see Bulletin PST 305.…

Self-assessment

If you take taxable goods from your resale inventory for business or personal use, you must self-assess…

If you take taxable goods from your lease inventory for business or personal use, you must self-assess PST as explained in Bulletin PST 315

Articles

Robert G. Kreklewetz, Bryan Horrigan, "British Columbia Provincial Sales Tax and Oilfield Services", Sales and Use Tax (Federated Press), Vol. XIII, No. 1, 2015, p. 662.

The two decisions reviewed [Burlington and Husky Oil Operations Ltd. v. The Queen, 2014 SKQB 116]…can be reconciled on the basis of the significantly different contracts… . [I]t would likely have been possible to insert the contractual language into the contracts that could have disposed of the issue… . Of course, that will require that the parties come to an agreement…as tax avoided by the purchaser is generally required to be paid by the supplier.

Tangible Personal Property

Articles

Shane Onufrechuk, Warren Pashkowick, "Tax Considerations of Major Construction Projects", 2014 Conference Report, Canadian Tax Foundation, 10:1-35.

Supplies of real property v. tangible personal property (p. 10:31)

[R]eal property in British Columbia includes land, buildings and structures, and machinery, equipment, and other property that is attached to the land or buildings by some means other than their own weight. … If there is a large degree of affixation, the good either becomes incorporated into the real property as an improvement to the real property or it becomes affixed machinery. Examples of goods with a large degree of affixation are buildings and land, windows, plumbing, electrical and heating systems, and large industrial machinery that cannot be removed without damaging the structure to which it is affixed.

…It is important to determine where the dividing line is between real property and TPP because, although the construction services supplied to the facility are generally either supplies of or installation of real property, circumstances may exist in which the subcontractor supplies TPP. In those situations, the facility could be liable to pay PST.

Taxable Services

Articles

Shane Onufrechuk, Warren Pashkowick, "Tax Considerations of Major Construction Projects", 2014 Conference Report, Canadian Tax Foundation, 10:1-35.

Exemption for services to install TPP that will become real property (p. 10:31)

Taxable services include any service provided to install, assemble, repair, adjust, restore, recondition, or maintain any TPP. Not included are services provided to install TPP that will become real property on installation. Therefore, embedded labour costs within the contractor and subcontractor relationship are subject to PST to the extent that they are related to the installation or assembly of machinery, equipment, or furniture, or other items without a high degree of affixation to the facility itself.

Telecommunication Service

Administrative Policy

Bulletin PST 107 “Telecommunication Services” August 2014

B.C. situs

For a telecommunication service to be subject to PST in BC, the service must be utilized by means of an electronic device that is ordinarily situated in BC. …

Mobile electronic devices, such as mobile phones, are considered to be ordinarily situated in BC if they are assigned a BC area code.

Vendor

Subsection 26(3)

Commentary

Ss. 26(2) and (3) of the Provincial Sales Tax Act (B.C.) (the "PSTA") provide that where a "non-taxable component" such as real estate is sold together with a "taxable component" (such as FF&E) for a single price, then the purchase price of the taxable component is equal to its fair market value. Modifications to this general rule include s. 26(4)(b), which provides that the purchase price for the taxable component is deemed to be equal to the initial price accepted by the seller (or other person from whom the taxable component passes or is acquired) for all the taxable and non-taxable components sold for the single price if "the non-taxable component is not ordinarily available for sale separate from the taxable component or is not ordinarily provided separate from the taxable component for a price." It is not clear whether this rule could be applied to properties, such as those held or used in a hotel operation, which for the most part (i.e., with the exception of food and beverages) are not ordinarily for sale. Since a literal interpretation of this rule might result in PST being payable on the aggregate purchase price for the transaction which (at least in this hotel sale example) would be an absurd result, this provision presumably should be read restrictively so as not to apply in such circumstances.

S. 26 is supplemented by s. 27, whch provides that the Director may determine the fair market value of tangible personal property that inter alia passes at a sale, in which case for most purposes of the PSTA such fair market value of the property will be deemed to be its purchase price. Under general administrative law principles, such a determination would be difficult to challenge if there was no evidence that the Director had not acted fairly and carefully.

Administrative Policy

Bulletin PST 316 "Bundled Sales and Leases"

You are not selling goods if you provide goods, software or telecommunication services that are merely incidental to a contract for the provision of non-taxable services. In this case, the bundled sales rules do not apply. For goods, software or telecommunication services to be merely incidental to a contract for the provision of non-taxable services, all of the following criteria must be met:

  • the main purpose of the contract is for your service and not for the goods, software or telecommunication services,
  • there is no separate charge for the goods, software or telecommunication services, and
  • the total price for the service, including the goods is the same as or only marginally different from the price you would charge if the goods were not provided.

For example, you are a home designer and provide new home and renovation design services (non-taxable) for an all-inclusive price. As part of your service, you provide your customer with draft plans that they may keep and use to review and suggest additional revisions. In this case, the plans are incidental to the provision of your non-taxable design services.

Subsection 37(1)

Administrative Policy

 PST 210 "Related Party Asset Transfers" May 2015

Effect of amalgmations

For the purposes of the PST, if assets are transferred from a predecessor corporation(s) to an amalgamated corporation, that transfer is not a taxable sale if the amalgamation:

  • is formed under legislation such as the Business Corporations Act or the Canada Business Corporations Act, and
  • meets continuation requirements.

This includes amalgamations formed under a plan of arrangement or under foreign legislation.

...To show continuation, the predecessor corporations that held title or registered rights to use or occupy the assets must continue into the amalgamated corporation and all of the property, interests, rights, and liabilities of the predecessor corporations must become those of the amalgamated corporation.

Section 141

Subsection 141(1)

Paragraph 141(1)(c)

Administrative Policy

Bulletin PST 208, Goods for Resale, April 2016

Certificate not required if registered

You are exempt from PST on goods you obtain solely for processing, fabricating, manufacturing, attaching, or incorporating into other goods for resale or lease. To purchase these items exempt from PST, give the supplier your PST number. If you do not have a PST number and you qualify, give the supplier a completed Certificate of Exemption - General (FIN 490).

Subsection 145(1)

Administrative Policy

Bulletin PST 200 "PST Exemptions and Documentation Requirements" April 2016

[T]o claim an exemption on a purchase of goods for resale, the customer must provide the collector with their PST number or, if they do not have a PST number, a completed exemption certificate.

Section 147

Administrative Policy

Bulletin PST 400 “PST Refunds” 25 October 2018

Refund of overcharge

If you charged your customer PST on the purchase of goods, software or taxable services, or on the lease of goods, and they were not required to pay it, you may refund or credit your customer the PST within 180 days of the date the PST was paid.

For example, your customer paid PST on exempt goods that did not require any information or documentation to claim the exemption (e.g. a non-motorized bicycle).

After the 180 days, you cannot refund your customer the PST (if you do, you are not eligible to make an adjustment on your PST return for this amount and you are not eligible for a refund from us). However, your customer may claim a refund from us (see Refunds from the Ministry below).

Subsection 179(1)

Commentary

S. 179(1) inter alia requires the collection by a collector of the tax imposed in relation to tangible personal property, software or a taxable service sold or provided by the collector at the time the tax is payable under s. 28. S. 28(3) stipulates that the tax generally is payable on the day that the consideration for the purchase becomes due (or is paid, if earlier).

This can give rise to practical difficulties where tangible personal property is sold together with other assets such as real estate or goodwill, and the purchase price allocation is subject to post-closing adjustments - or worse yet, where the parties have not agreed on a purchase price allocation at the time of closing. As a practical matter, it often will be appropriate for tangible personal property to be considered to have a value equal to no more than its book value - so that any excess of the overall purchase price over the net book value of the purchased assets will be considered to be allocable to other assets such as goodwill or real estate.

In contrast to the practice that may have obtained under other retail sales tax statutes, the Ministry is clear in PST 005 (below) that the vendor, if a collector, must collect PST on a sale of the tangible personal property included in a sale of its business, even though such sale is occurring outside the ordinary course of business.

Administrative Policy

Bulletin PST 005, "Buying and Selling a Business", Issued: November 2014; Revised: April 2015

When buying a business, PST applies to all taxable business assets. If the seller is a collector, the seller must collect and remit PST on the sale of taxable business assets. A collector must collect and remit PST on taxable sales until the date of cancellation of their registration.

If the seller is not a collector or does not charge PST on the taxable assets, the purchaser must self-assess and remit the PST due on their next PST return.

If the purchaser does not have a PST number, they must self-assess the PST due using a Casual Remittance Return (FIN 405) on or before the last day of the month following the month the taxable items were purchased.

Bulletin PST 002 "Charging, Collecting and Remitting PST" February 2014

As a collector, if you sell or lease your new or used taxable business assets in BC, you must collect and remit PST from the purchaser or lessee of the assets, unless a specific exemption applies.

Examples of taxable business assets that you may sell in your business may include:

  • office equipment, such as desks, chairs and cash registers
  • computer hardware
  • business equipment, such as vehicles, shop equipment and appliances
  • tools and machinery
  • affixed machinery (see Bulletin PST 104, Real Property Contractors)

If you do not collect and remit PST on a sale or lease of a taxable business asset, you may be subject to penalties and interest charges.

Subsection 187(2)

Administrative Policy

Bulletin PST 005, "Buying and Selling a Business", Issued: November 2014; Revised: April 2015

clearance certificate

Before buying a business or buying goods, software or an interest in a business through a bulk transaction, the purchaser should ensure that they have a clearance certificate issued by us. The certificate confirms that the collector has paid and remitted all outstanding PST and any related penalties and interest (up to the date the certificate was issued). If the purchaser does not obtain the certificate, they are liable for an amount equal to any outstanding amount owed by the collector.

The collector can apply for duplicate copies of the clearance certificate and provide one copy to the purchaser or, with the consent of the collector, the purchaser can obtain a copy of the clearance certificate directly by completing an Application for Clearance (FIN 447).

Section 192

Forms

FIN 400 "Provincial Sales Tax Return"

FIN 405 "Casual Remittance Form"

Complete this form if you do not have a registration number and you:

  • bought an existing business that included assets such as inventory, furniture or equipment;
  • collected PST on sales of taxable goods, software or services;
  • purchased or leased taxable goods, purchased software or taxable services, or brought, sent or received delivery of taxable goods in BC on which PST was not paid;
  • acquired (purchased or received as a gift) a vehicle, boat or aircraft privately and in the case of a vehicle, you have not already paid tax to ICBC; or
  • are a real property contractor and used goods on or after April 1, 2013 which were acquired prior to April 1, 2013, to fulfill a contract for the supply and installation of affixed machinery or improvement to real property.

Subsection 201(3)

Commentary

S. 201(3) of the PSTA provides that "if a transaction is an avoidance transaction, the director [of taxation] may determine the tax consequences to a person in a manner that is reasonable in the circumstances in order to deny a tax benefit… ." "Avoidance transaction" is defined quite similarly to the definitions in the HST and federal income tax "general anti-avoidance rules." However, unlike those "GAAR" rules, there is no safe harbour here for transactions which are not abusive. The wording which indicates that a taxpayer likely is not permitted to apply the federal GAAR to one of its transactions (Copthorne Holdings Ltd. v. The Queen, 2007 TCC 481, at para. 78, aff'd 2011 SCC 63) also is present in the PST anti-avoidance rule.

Subsection 203(1)

Commentary

Ss. 203(1) and (1.1) of the PSTA generally provide that when a collector (which is defined in s. 1 to include a person who is required to be registered but failed to do so, as well as a "registrant," which can include a person who has been registered but has not recently been making taxable sales) has failed to levy PST on a sale to a purchaser, the collector is liable to a penalty equal to 100% of the amount of such unlevied tax. However, s. 203(1.01) provides that if the Director of Taxation is satisfied that the purchaser paid the tax (or would be entitled to a refund if it had paid the tax), the amount of the penalty may be imposed in a correspondingly lowered amount. S. 203(2) provides that payment of the penalty by the collector satisfies the original liability of the purchaser to pay the tax. S. 203(2.1) provides that a collector who has paid the 100% penalty may sue the purchaser in order to recover an amount not exceeding the difference between the 100% penalty imposed upon it and paid by it, and the amount of such unlevied tax which the purchaser itself paid under the PSTA (i.e., where it self-assessed itself for that tax).

Accordingly, imposition of the 100% penalty generally will only give rise to double taxation to the extent that the purchaser has self-assessed itself for (and remitted) the tax and the Director has not been provided with satisfactory evidence of this before imposing the penalty on the collector. However, if a vendor which is a registrant has not charged, collected and remitted the tax at the time of sale, and the purchaser also has not self-assessed itself for the tax, the vendor may have difficulty in collecting that amount (pursuant to s. 203(2.1)) well after the time of the closing of the sale upon being assessed by the Director for its failure to collect and remit the tax.

Paragraph 205(c)

Commentary

S. 205(c) generally provides for the imposition of a 10% penalty where the Director is satisfied that a person has failed to levy, remit or pay tax. S. 29 of the PSTA provides that the purchaser must self-assess itself for any PST which the collector fails to levy on it. Accordingly, this 10% penalty could apply to a purchaser as well as a collector. (In case of evasion "by wilfully making a false or deceptive statement or by wilful default or fraud," the penalty under s. 205(b) is 25% of the amount evaded.)

If the only basis for considering that an exemption was not available was the anti-avoidance provision (s. 201), it would appear that there would have been no obligation for the purchaser to self-assess itself under that provision or for the vendor (collector) to levy PST on the basis of that provision applying (see Copthorne Holdings Ltd. v. The Queen, 2007 TCC 481, at para. 78, aff'd 2011 SCC 63) – on which basis, no penalty should be payable by either party as there had been no "failure" to levy or self-assess the tax.

Administrative Policy

Bulletin CTB 005 “Penalties and Interest” July 2011 rev’d January 2016

We will generally apply a 10% penalty on first tax assessments if the facts indicate that you are aware of the obligation but did not charge, collect, pay or remit the correct amount as required. We will also generally apply a 10% penalty to all tax assessments where you were previously advised of an error (e.g. failing to charge collect, pay or remit as required) and you are assessed again for the same error.

Provincial Sales Tax Exemption and Refund Regulation

Subsection 151(2)

Administrative Policy

PST 319 "Partnerships" February 2014

For PST purposes, unless a limited partnership agreement provides otherwise in writing, the general partner(s) is considered to own the partnership's assets. If you acquire a limited interest in such a partnership, you are not considered to be purchasing an interest in the partnership's assets and, therefore, do not need to pay PST.

Unless a limited partnership agreement provides otherwise in writing, any transaction involving the limited partnership is considered to be a transaction with the general partner(s). A transfer of assets from the partnership to a limited partner is treated as a sale from the general partner to the limited partner. The limited partner pays PST on the full value of the taxable assets because the limited partner does not have an interest in the assets prior to the transfer.

Paragraph 152(3)(a)

Commentary

The relevant requirements for the transfer of equipment or other tangible personal property by a registered vendor (the collector) to the purchaser to be exempt from B.C. PST under s.152 of the Provincial Sales Tax Exemption and Refund Regulation are:

  1. The collector must have paid tax in respect of a previous purchase by it of the equipment (ss. 152(3) and (4), and 151(3)(a)). For these purposes, "tax" includes most PST, and social services tax under the previous retail sales tax statute, but does not include provincial HST if the collector was entitled to an input tax credit therefor. However, tax does not include PST paid on lease payments (s. 151(4)(a)(i)). Accordingly, equipment which was leased before the introduction of the HST on July 1, 2010, and was acquired from the lessor during the HST period (ending on March 31, 2013) will not qualify as tax-paid equipment. Conversely, it would appear that equipment which had been leased during the HST period by the collector and which after the end of that period was acquired on a taxable basis from the lessor would qualify as tax-paid equipment of the collector, as it would qualify as tangible personal property in respect of which the collector had paid PST (s. 151(3)(a)(i)) – i.e., it would not appear to matter that it was also equipment in respect of which during the HST period the collector had paid HST which was eligible for an input tax credit (s. 151(3)(a)(ii)).
  2. The equipment must not be acquired by the purchaser after it has commenced to carry on business or from a person who wholly-owns or controls it (s. 152(2)(a)).
  3. "The consideration for the purchase or acquisition of the tangible personal property by the corporation [the purchaser] is the issue or transfer of shares in that corporation to the previous owner of the tangible personal property" (s. 152(5)(a)).
  4. The date of such issue is not more than 30 days after the "transfer date," i.e., the purchase date (s. 152(5)(b)).
  5. "The previous owner beneficially owns and holds legal title to all of the shares so acquired for a period of at least 8 months after the transfer date" (s. 152(5)(c)).
  6. The fair market value of the shares referred to in 3 must be equal to or greater than that of the tangible personal property (s. 152(6)(a)). To the extent this is not the case, there is a pro tanto reduction in the amount of the exemption.

Administrative Policy