British Columbia intends to harmonize its provincial
sales tax (Social Services Tax, aka PST) with the Federal goods and services tax (GST) effective
July 1, 2010.
The current PST rate in BC is 7%, which, when combined
with the GST will result in a harmonized sales tax (HST) rate of 12%.
The implementation of HST in BC will be good for the
economy, which will be good for job-seekers and consumers. It
removes a consumer tax (PST) which is costly for businesses and
government to administer. Even a small business (such as a
self-employed person) which is not required to register to collect GST has
to register to collect PST if it sells or provides any amount of a
product or service which is subject to PST. The government has
auditors who must audit businesses, businesses have accountants who must
report on and remit the tax, and too often, lawyers and the courts are
brought into the picture because the Social Services Tax Act has many
parts that are open to interpretation. The implementation of the HST
eliminates an entire level of bureaucracy, which is always a good thing!
There will be a slight increased cost to consumers to
start, but because this is a consumption tax, those who spend the most
will pay the most. Those with low incomes will be affected the
least, because they spend the least, and a higher proportion of items
purchased by low-income people are not subject to HST, such as basic
groceries.
Another advantage of going to HST is that tax will no
longer be payable on most used goods purchased privately.
However, used vehicles, aircraft and boats purchased privately (not
from an HST registrant) would still be subject to provincial sales tax. Almost everything that is
subject to PST when purchased new is also subject to PST when purchased
used. Exceptions to this are used clothing or footwear priced at
less than $100, and certain used manufactured homes. Most people are
not aware that the Social Services Tax Act requires them to remit the tax
to the government when they buy used goods privately, or when they
purchase something from an out of province seller. We would guess
that most people don't remit the PST on this type of item, and are
therefore in contravention of the Social Services Tax Act.
Businesses which are registered to collect GST or HST can
claim input tax credits to recover all of the GST or HST that they have
paid. The change to HST will mean a significant savings and boost in
productivity for businesses in BC,
because:
they will no longer have to pay PST
they will no longer have to prepare PST remittances
they will save on consulting costs - the PST rules
are very complicated, and frequently require professional advice in
their interpretation
employees will spend much less time trying to find
the answers to PST questions
PST audits will be eliminated
Although consumers will now have to pay 12% HST on some
items on which they only paid 5% GST, several items which are currently PST exempt will
not be subject to the provincial portion of the HST.
These items are:
gasoline and diesel fuel for motor vehicles
books
children's-sized clothing and footwear
children's car seats and car booster seats
diapers and feminine hygiene products
In their September
2009 Budget Update, the provincial government announced that it also
proposes to provide a provincially administered HST exemption for
residential energy use. This was included in their HST
backgrounder (pdf) document.
Other provisions of the proposed HST:
New housing rebate for new homes purchased as a
primary residence - a partial rebate (71.43%) of the provincial portion of the
HST for new housing to ensure that new homes up to $525,000 (increased
from $400,000) will bear no more tax than under the current PST system,
while homes above $525,000 will receive a flat rebate of $26,250
Enhanced new rental housing rebate, same as above
rules for new primary residence homes - available to landlords who
purchase newly constructed or substantially
renovated rental housing which is subject to HST, or
construct or substantially renovate their own
rental housing, and are required to remit HST under the
self-supply rules.
a refundable BC HST credit will be paid quarterly
with the GST and carbon tax credit to offset the impact of the tax on
those with low incomes.
a temporary delay in the provision of input tax
credits for certain purchases by businesses with taxable sales in
excess of $10 million.
The proposed changes are subject to legislative
approval.
Farmers in BC
Currently, farmers are exempt from paying PST on the cost
of many items purchased for use in the farming business. If a farmer
is registered to collect GST/HST, any
HST paid on costs for the farming business are recoverable as input
tax credits. As most
agricultural products are zero-rated (they are considered taxable, but the
HST rate is zero), very little or no HST would be collected. Many
farmers are small suppliers, so registering to collect GST/HST is not
mandatory, but would probably be to their advantage. See Who
has to register to collect GST/HST?
Proposed General
Transitional Rules for BC HST
Transitional rules are required to determine which tax
- the existing PST (Social Services Tax) or the BC component of the HST -
would apply to transactions that straddle the July 1, 2010 implementation
date.
November 18, 2009 - New home sales - Grandparenting
Where written agreements of purchase and sale are
entered into on or before November 18, 2009, and both ownership and
possession of the homes are transferred under the agreement after June
2010, the sales will be subject to the federal component of the HST, but
not the provincial component. This would apply to sales of newly
constructed or substantially renovated single-unit homes to individuals,
and to sales of residential condominiums to all persons including
individuals.
Sales of these grandparented homes would not be
eligible for the new housing rebate or new rental housing rebate.
October 14, 2009
Certain businesses and public service bodies may have
to self-assess the BC component of the HST on consideration that becomes
due, or is paid, after October 14, 2009 and before May 1, 2010 for
property and services provided on or after July 1, 2010.
May 1, 2010
The HST would generally apply to consideration that
becomes due or is paid on or after this date, for property and services
provided on or after July 1, 2010.
Some items addressed in the proposed HST transitional
rules:
Funeral services - HST will not apply to
funeral services where the contract is entered into before July 1,
2010.
Transitional PST inventory rebate for
residential real property contracts - A rebate will be available
for PST embedded in construction materials purchased before July 1,
2010, but used in residential property contracts on or after July 1,
2010.
Subscriptions to newspapers, magazines and
other periodical publications - HST will not apply to subscriptions
paid before July 1, 2010.
Passenger transportation services - HST will
generally not apply to the cost of continuous journeys that commence
before July 1, 2010.
Freight transportation services - HST will
generally not apply to the cost of a freight transportation service
performed on or after July 1, 2010 if the service is part of a
continuous freight movement of goods that begins before July 2010.
For further information on the BC HST and the proposed
transitional rules, see the following on the BC
Ministry of Finance website
The information on this site is not intended to be a
substitute for professional advice. Each person's situation differs, and
a professional advisor can assist you in using the information on this web
site to your best advantage.
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