On August 26, 2011, Elections B.C. announced that British Columbians voted against the controversial Harmonized Sales Tax (“HST”). In a historic and binding mail-in referendum, approximately 1.6 million British Columbians representing 54.73% of the electorate voted to extinguish the HST. The former B.C. Provincial Sales Tax (“PST”) and Goods and Services Tax (“GST”) regimes will now be restored.
Finance Minister Kevin Falcon indicated it will take at least 18 months to transition back to the old PST and GST regimes. The Ministry of Finance has disclosed certain information regarding its action plan to ensure the timely and efficient transition back to the former PST and GST regimes. The 12% HST regime will remain in force during the period throughout which the mechanics of the transition are worked out. In general, the B.C. government plans to transition back to a system of separate tax regimes (7% PST and 5% GST). It intends to re-establish all of the previous exemptions to the PST and make administrative improvements to simplify the tax collection process.
Preparing for the PST
The B.C. Government’s action plan will involve, among other things, developing HST transitional rules at the federal and provincial level, drafting new PST legislation, and creating policies for the interpretation, administration and enforcement of the PST. The details of the new PST legislation and policies have not yet been released including when it will be levied, what exemptions will apply and how it will be collected.
It is useful to consider some of the previous exemptions from the PST in order to get a sense of what the new PST legislation may look like. If the B.C. government plans to restore the previous exemptions to the PST then businesses can identify those exemptions with a view to minimizing the tax cost of planned purchases. For example, the timing of certain sales transactions might be accelerated or delayed before the PST is restored, depending upon the circumstances.
PST Exemptions and Non-Taxable Services
Under the former PST regime, a number of specific goods and services were not taxable either because the goods were specifically exempted from the PST or because the services were considered non-taxable. These exempt goods and non-taxable services included:
- Food products for human consumption
- Prescribed drugs and medicines
- Children’s clothing and footwear
- Specified safety equipment
- Goods purchased for resale
- Haircuts, medical services and other personal services
- Services in respect of items that are exempt from tax
- Services in respect of software, such as installation, configuration, repair or restoration
- Services provided by way of diagnosis, test, safety inspection or estimate
- Services relating to real property including services to construct, adjust, repair, renovate, restore or maintain real property
This list provides some guidance on the type of goods or services that may be exempt or non-taxable under the new PST legislation.
While transitional rules have yet to be implemented, businesses should plan to deal with the positive and negative impacts of going back to the PST. For instance, one may consider whether or not to delay plans to hire contractors to perform renovations or to build new properties. The tax cost associated with these services may be lower when the PST is restored. Consumer spending in certain areas may be impacted. Consider, for example, restaurant meals, which were not subject to PST, but which are subject to HST. Of particular concern is the fact that businesses will have to plan and budget for the implementation of systems and processes to again account for PST.
The B.C. Business Council and other organizations have asked the B.C. government to focus its attention on the short-term impacts of the transition from the HST regime to PST and GST regimes. Some have voiced concerns regarding how the return to the PST will impact the competitiveness of B.C. businesses. At the present time, businesses should keep informed of developments and seek specific planning advice to take advantage of potential tax-savings opportunities.