Tax Alert - Transitional Rules Announced for the Elimination of the HST in B.C.
On February 17, 2012, the Federal Government and the B.C. Government announced transitional rules that will apply for the elimination of the Harmonized Sales Tax (HST) in B.C. As readers will remember, the province announced last year that the HST would be eliminated after the results of a referendum were released. The HST, which is a combination of a 5% federal component and a 7% provincial component, will be replaced by the Goods and Services Tax (GST) and a B.C. provincial sales tax (PST) on April 1, 2013, subject to some transitional rules.
In the balance of this Tax Alert, we have laid out an overview of the key transitional rules that were described in a summary from the Federal government. The B.C. government
also confirmed that the introduction of the PST will occur on April 1, 2013 and the
province also released changes that will affect homebuilders and their customers that we have summarized in a separate Tax Alert. Throughout this summary, in situations where
the Federal government states that the HST will not apply, it is assumed that PST will
apply along with the GST if the supply would have been subject to PST under the
pre-harmonization rules. The examples presented are from the Federal Department
of Finance.
Supplies of Property and Services
According to the information released, the general transitional rules will operate based on when the tax in respect of the supply becomes payable under the HST rules, as follows:
- HST applies if tax is payable or is paid before April 1, 2013.
- GST (and presumably PST where applicable) applies if tax becomes payable after March 31, 2013 without having been paid before April 1, 2013.
Generally, tax becomes payable on the earlier of the following dates:
- Date of the invoice (unless there was an “undue delay” in issuing the invoice, in which case the date the supplier would have issued the invoice but for the delay); or
- The day the purchaser is required to pay pursuant to a written agreement.
For supplies by way of lease, licence or similar arrangement under a written agreement, tax becomes payable on the day the purchaser is required to pay pursuant to that agreement.
Example #1 - On April 22, 2013, a person receives an invoice for seasonal yard maintenance services performed in March and April 2013 on a property in Victoria. The invoice is dated April 14, 2013 and is issued that day. HST would not apply because tax becomes payable after March 31, 2013. Tax becomes payable on April 14, 2013 because the consideration becomes due on that day. GST will apply to this supply.
Example #2 - On March 21, 2013, a person orders custom-made blinds over the Internet. The blinds are expected to be delivered to a residence in Kamloops on April 25, 2013. Payment is made immediately at the time of ordering. HST would apply because tax becomes payable before April 1, 2013. Tax becomes payable on March 21, 2013 because the consideration is paid on that day.
Deemed Self-Supplies of Real Property
For builders, there are situations where they may be deemed to have made and received a taxable supply by way of a sale of real property. For example, where a builder constructs or substantially renovates a residential complex and subsequently rents it out to others or occupies it as a place of residence, the builder is generally deemed to have sold and re-purchased the complex. In these situations, HST applies to a deemed self-supply if the deemed sale and re-purchase occurs before April 1, 2013. Only GST applies to a deemed self-supply by way of sale of real property made after March 31, 2013.
Example #3 – A builder constructs a new residential complex with the intent to sell it to a third party. He changes his intention and decides to live in the house instead. He moves into the house on January 1, 2013. The builder is required to self-assess the HST on the fair market value of the house, including the land.
Property and Services Brought into B.C.
The provincial component of the HST would not apply to tangible personal property brought into B.C. after March 31, 2013 and to such property that is brought into B.C. before April 2013 by a carrier where the property is delivered in B.C. to a consignee after March 31, 2013. The provincial component of the HST would also not apply to services or intangible personal property (e.g., software licenses) provided the payment that becomes due, or is paid without coming due, after March 31, 2013. Where a supply would have been subject to PST if purchased in B.C., self-assessment will presumably be required for supplies acquired outside of B.C. for use in the province in the same manner that was required under the pre-harmonization rules.
Imported Goods
The provincial component of the HST would not apply to non-commercial goods imported by residents of B.C. after March 31, 2013. However, the importer may be required to self-assess the reinstated PST if it is not collected by the Canada Border Services Agency or Canada Post pursuant to a collection agreement with the province.
Imported Services and Intangible Personal Property
The current HST rules tax imported non-good taxable supplies, which are generally supplies of intangible personal property and services made from outside Canada. The recipient of an imported taxable supply is generally required to self-assess and remit the tax on the value of the consideration for the supply. The provincial component of HST would not apply to an imported taxable supply made after March 31, 2013 or where the supply is made before April 1, 2013 to the extent payment for the supply becomes due, or is paid without coming due, after March 31, 2013. However, the recipient will be required to self-assess PST on any taxable services acquired outside of British Columbia for use in the province (other than software). Note that intangible personal property is generally not subject to PST.
Public Service Bodies
The current rebate percentages attributable to charities, qualifying non-profit organizations and selected public service bodies (PSBs) resident in B.C. would generally not apply for the purpose of determining a provincial component rebate for a claim period ending after March 31, 2013.
However, for the claim period of a person that includes March 31, 2013, a PSB rebate using a PSB rebate rate attributable to a PSB resident in B.C. could be claimed with respect to the provincial component of the HST if that tax became payable by the PSB before April 1, 2013.
Other Transitional Rules
The CRA document includes comments on the following topics:
- Financial Institutions
- Pension Plans
- Taxable Benefits
- Streamlined Accounting Methods (e.g., Quick Method)
- Refunds and Rebates
- Returns and Exchanges
- Basic Tax Content
- Tax on Self-Supplies of Subsidized Housing
- Performance Bonds
BDO will be providing more detailed information on these changes in upcoming tax publications. If you have any questions, please contact your BDO advisor.
