For accounting and finance teams, navigating the nuances of provincial sales tax between the Western Canadian provinces of British Columbia, Alberta, Manitoba, and Saskatchewan can be a monumental task. In all four Western Canadian provinces, the only thing you can count on is that GST/HST is generally quite consistent as none of them have chosen to harmonize with HST. However, three of those provinces, namely British Columbia, Saskatchewan, and Manitoba, currently have kept their own provincial sales tax (PST) that differs a lot from GST/HST. Although they are similar in many ways, there are inconsistencies that can be difficult for certain types of businesses to navigate.
Provincial Sales Tax vs. Accounting & Finance Professionals
Tax relief for businesses is primarily implemented in the form of exemptions from being charged by the vendor, refunds from the vendor, or applications made to the respective provincial governments rather than general ledger entries. The rules and procedures can vary significantly between the PST provinces. Nowadays, accounting and finance teams are constantly pressured to do more with less. Sales tax is another task among many other urgent and important ones. Accounting professionals proficient at tackling the accounting cycle like clockwork often find that dealing with inconsistent sales tax rules to be out of their comfort zone. Mistakes can be incredibly costly in the form of government audit assessments, overpaid taxes, and time.
Provincial Sales Tax Rules:
A) Contracts to Install Real Property
The rules around installation to real property can vary between the three PST provinces. One province treats an installation the same way it treats sales of goods. In that particular province, tax is to be collected on sales to customers, while tax on materials is exempt conditional to meeting documentation requirements. Subcontractors will generally be required to charge the tax, but the same exemption may be available.
Two PST provinces consider installations to real property to be non-tax services. The real property contractor would be considered the user or consumer of the materials installed into the property. PST would not be required to be collected from the customer, but tax would be required to paid via self-assessment if it has not already been paid. Among these two provinces, the definition of “real property” is inconsistent. As a result, identical projects in these two provinces can be classified differently with tax implications with respect to PST.
B) Equipment Rental versus Equipment Provided with an Operator
All three PST provinces tax the rental or lease of goods. However, the criteria for determining whether a transaction is a rental or an operator service can be inconsistent. The determination is often a question of fact and the analysis becomes more complex when a project involves the provision of a combination of labour, equipment, and materials. Whether or not each of the elements is separately listed, all of the charges for the project can be considered a rental or a service, or a combination of both. If it is a service, further analysis would need to be conducted to determine whether the service is taxable. The differences can have significant tax implications.
C) Processing and Manufacturing
Exemptions for the industry can vary a lot between the PST provinces. Two of the provinces limit exemptions to input materials processed or manufactured into the product that is ultimately sold.One province extends the exemption to equipment used directly in the manufacturing process. Besides the equipment itself, the exemption applies also to parts, electrical power systems, pollution control systems, waste management systems, and software control systems directly linked to the manufacturing equipment.
All of the PST provinces provide exemptions for input materials incorporated into the final product. For chemical processes, the exemption includes both direct agents as well as catalysts. For these types of exemptions, the challenge often involves understanding the technical aspects of the manufacturing process from a scientific and engineering perspective.
Furthermore, the industry is often impacted by inconsistent tax relief provisions around R&D,clean energy, safety equipment, cleaning services, and certain goods between the three PST provinces. Clarity around a particular situation may be difficult to obtain.
Understanding the administrative procedures can vary between each of the three PST provinces can cost valuable time and resources devoted to an exercise that has unclear benefits for the business. Neglecting it can result in significant risks and overspending for the business. If your business has been impacted by the aforementioned issues, do not wait to book a free consultation to discuss this further!
