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)
Administrative Policy
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
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
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.
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.
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.
Subsection 145(1)
Administrative Policy
Bulletin PST 200 "PST Exemptions and Documentation Requirements" June 2014
[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.
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 tax statutes, the Ministry is clear in PST 002 (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 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.
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) 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 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., self-assesed 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. Accordingly, it often may be appropriate for a vendor to obtain a representation of the purchaser that it will not self-assesss itself for PST on the purchase.
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.
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: