What You Need to Know about BC's Return to the PST
Industry Insights · April 2012
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By Ken Ghag, CA
Due to the results of a binding referendum held last year, British Columbia will be undoing the harmonization of its provincial sales tax (PST) with the federal goods and services tax (GST) on April 1, 2013. There are many issues businesses will need to consider and steps they'll need to take before then to make the transition as smooth as possible for their operations and their customers.
Let's take a look at what companies can expect between now and the implementation date, what issues they'll need to consider, and what steps they'll need to take to be ready.
What do we know now?
Many issues and questions are currently unknown or unanswered. However, there are certain facts we do know about the transition back to the PST:
- The reinstatement date will be April 1, 2013.
- The PST will be reinstated in the same form as before, with the same exemptions, but there will be some "administrative improvements" to streamline and improve its administration.
- Other related taxes, such as the hotel room tax and the motor fuel tax on propane, will also be reinstated on April 1, 2013.
- Approximately 100,000 businesses will need to register for the PST; approximately 30,000 of these businesses will be new businesses that were not in
operation when the PST was eliminated on July 1, 2010.
- The federal government has provided a general description of the proposed transitional rules to bring about the elimination of the harmonized sales tax (HST) in BC.
- The BC government announced transitional rules for the application of BC PST to new residential housing.
- There will be no PST pre-collection date (this would have required vendors to charge and collect PST on invoices issued before April 1, 2013, for taxable transactions that occurred after March 31, 2013).
- Generally, the PST will apply if the vendor invoice for PST-taxable goods or services is dated after March 31, 2013.
- The detailed PST transitional rules are expected to be announced before the end of March 2012.
The unknown transition date
One key date that may be announced by the BC government will affect businesses in their reversion back to the PST: the transition date, between now and April 1, 2013, after which purchasers will be required to self-assess PST on taxable purchases made during the HST period, where the goods or services will be consumed or used after April 1, 2013.
This date will have implications for businesses because any PST-taxable purchases made by businesses engaged in commercial activities before this date, but still being used after April 1, 2013, will not be subject to any tax. The earlier the transition date, the greater the potential PST that businesses would have to self-assess.
What do businesses need to do?
The following are some of the key steps businesses need to take to prepare for the reversion back to the PST:
- Develop a "de-harmonization" plan. Review all business operations and assess the impact the reversion is going to have on costs, systems, processes, and procedures.
- Watch out for the announcement of the detailed PST transitional rules. Review these rules carefully, and determine how—specifically—they will impact your business processes for charging and collecting PST and HST on sales, and paying PST and HST on purchases.
- Determine whether accelerating capital purchases will benefit the business.
- If there are any unique PST issues for your industry that impact the industry's competitiveness or that of the BC economy, make a submission to the Expert Panel on Tax6 to see if these issues can be addressed in the new legislation.
Begin taking steps to update all your business systems and processes to incorporate the PST rules. Steps should include the following:
- Update product and billing systems to correctly account for GST/HST and PST during the transition period and after April 1, 2013.
- Update accounting systems, including accounts payable, to properly book tax paid on purchases; set up new G/L accounts; update tax codes and expense report templates; and remove restricted input tax credit processes.
- Set up a PST self-assessment system and processes.
- Set up a PST return preparation process.
- Develop a training plan for your staff to deal with customer and supplier questions relating to transactions such as returned goods, exchanges, and warranty claims made during the transition period and after the implementation date. Also, develop a training plan for accounts payable, sales, and purchasing staff.
- Determine if your business will be able to absorb the additional PST costs, or if you will need to pass them on to customers in price increases.
- Develop an external communication plan for customers and suppliers to explain changes to pricing, billing, and contract processes.
- Register for PST purposes if required and pick the appropriate filing period.
- Review all sales and purchase contracts to see if they contain appropriate tax clauses to
allow unrecoverable tax costs to be passed on or to minimize the amount of unrecoverable PST costs imbedded in the contract price.
These are the main issues businesses need to start thinking about as they develop plans for the return to the PST. And the sooner businesses begin, the better, as the implementation date is only a short time away.
Ken Ghag, CA, is an associate partner with Ernst & Young, and is the leader of its Western Canadian indirect tax practice. He is based in Vancouver, BC. For more free information on this topic, visit www.ey.com/CA/en/Services/Tax/Indirect-Tax.
- Transitional Rules Relating to the Elimination of the HST in British Columbia, released on February 17, 2012. (www.fin.gc.ca/n12/data/12-017_1-eng.asp)
- Ministry of Finance, Tax Information Notice #12, February 17, 2012. (www.pstinbc.ca/media/2012_housing_rules_FEB.pdf)
- At the time of this writing, the detailed PST transitional rules had not yet been announced. Watch for updates at www.gov.bc.ca/fin/ or www.sbr.gov.bc.ca/msbr/whats_new/consumer_taxes/whatsnew.htm.
- For example, if a retailer purchased computers for use in its store before the transition date, it will have paid HST at 12% and claimed a full input tax credit. The retailer will not be required to self-assess any PST on the value of the computers even though it will continue to use them after April 1, 2013. Thus, there will be an incentive for all commercial businesses to accelerate the purchase of taxable fixed assets and consumables so that it occurs before the transition date.
- See footnote #3.
- See following link for information on the Expert Panel on Tax: www.newsroom.gov.bc.ca/2012/01/panel-to-advise-on-bc-tax-competitiveness.html.
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