Recent Provincial Sales Tax Updates
TAX ALERT |
This Tax Alert sets out provincial sales tax (PST) updates released by the Provinces of Saskatchewan and British Columbia (BC) over the last few months. Our Tax Alert is not intended to cover all of the miscellaneous changes from the spring provincial budgets for each province, however our coverage of those changes can be found here.
In particular, both provinces have introduced new rules that require certain non-resident suppliers to register for PST, even if the supplier does not have a physical presence in the province. Additionally, the Province of BC has introduced a temporary PST rebate for select machinery and equipment purchased between September 17, 2020 and September 30, 2021.
New rules for remote sellers
With the proliferation of online marketplaces and digital services, jurisdictions across the world have moved to impose sales tax collection requirements on non-resident vendors who sell into the jurisdiction without having a physical presence there. This has become prolific during the pandemic, with remote sellers needing to expand their market, and with willing consumers looking to order physical goods and also consume digital goods and services online.
In the United States, the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. gave many states the “green light” to impose a requirement on remote sellers to charge and collect state sales tax, even if the retailer did not have a physical presence in the state.
Closer to home, Quebec introduced new rules in 2019 requiring certain non-residents of the province and Canada to register for, charge and collect QST on most taxable supplies made to individuals who are not registered for Quebec sales tax, and otherwise unable to claim refunds of the QST.
Similarly, Saskatchewan and BC have now imposed similar rules that require many non-resident remote sellers of most taxable physical goods, as well as many digital goods and services, to register for, and administer PST related to sales into these provinces. The new rules are discussed further in this article.
BC registration requirements expanded
The Government of BC announced in its February 2020 budget address that registration requirements for BC PST were expanding, particularly for remote sellers, effective April 1, 2021.
Under the existing rules, suppliers are required to register as a collector of BC PST if they have a physical presence in Canada but outside of BC, and in the ordinary course of their business: solicit sales in BC, accept purchases orders originating in BC, sell or provide tangible personal property (TPP) to a person in BC, and cause the TPP to be delivered in BC.
Additionally, under the current rules, suppliers who are not resident in BC, including those located outside of Canada, are generally required to register for BC PST if they make sales of TPP to BC customers and the remote seller maintains inventory in BC, from which orders are fulfilled for sales to BC customers.
The new rules surrounding TPP have now removed the solicitation requirement and set out a new revenue threshold. If a supplier of TPP located in Canada generates, or estimates to generate revenue of $10,000 CAD of taxable sales within a prior or prospective twelve-month period for orders originating in BC and for delivery in BC, the supplier will have a requirement to register as a collector under the BC Provincial Sales Tax Act, as of April 1, 2021 and begin collecting BC PST.
The second change addresses PST registration requirements for all suppliers, irrespective of their location, selling software or telecommunication services (i.e. digital services) for the use on or with an electronic device situated in BC. The media has sometimes referred to this as the “Netflix Tax”, as this tax will have a significant impact on digital service providers such as Netflix, amongst many others. The new legislation removes the requirement to have a physical presence in Canada. Suppliers operating in these industries will be required to register as collectors of BC PST effective April 1, 2021 if they have, or are expected to have estimated sales greater than $10,000 in a trailing or prospective twelve-month period.
Note that for the purposes of these rules, “consumers” includes businesses who are acquiring the taxable TPP, software, or telecommunication services for their own consumption and not for resale. Accordingly, these rules differ from the rules introduced in Quebec in 2019, which only applies to certain sales made to individuals and certain businesses who are not registered for QST and otherwise not entitled to a refund of the tax paid or payable.
Saskatchewan introduces new PST rules for remote sellers
Prior to the Saskatchewan budget in March 2020, the PST rules required persons who do not otherwise carry on business in Saskatchewan, to register for, and collect Saskatchewan PST if selling or providing TPP, insurance, or taxable services, including software, to Saskatchewan customers.
The 2020 budget introduced retroactive changes to Saskatchewan’s Provincial Sales Tax Act, creating new Saskatchewan PST obligations for operators of electronic distribution platforms, operators of online accommodation platforms, and marketplace facilitators. Furthermore, these changes, which were announced this summer, came into force retroactively on January 1, 2020 and as such, caught several Canadian and non-resident businesses off-guard.
The amendments include new definitions for the following terms:
- “electronic distribution platform”;
- “online accommodation platform”; and
- “marketplace facilitator”.
Under the new rules, persons who operate one of the above two platforms or who meet the definition of “marketplace facilitator” are required to be registered for Saskatchewan PST if selling to consumers and businesses located in Saskatchewan, even if the person is not carrying on business in Saskatchewan and otherwise required to register under the existing expanded registration rules introduced in the 2017 budget.
In addition, the definition of “taxable service” was amended to include services that are delivered, streamed or accessed through a digital platform (examples are movies, television shows, and music) or accommodation services offered or accessed through an online accommodation platform.
“Electronic distribution platform”
The new definition of “electronic distribution platform” includes websites, portals, and applications that allow consumers to purchase TPP or services that are delivered electronically.
Pursuant to these changes, operators or electronic distribution platforms are required to register for Saskatchewan PST and are required to charge and collect Saskatchewan PST on purchases made through the platform, including content delivered through the electronic distribution platform.
“Online accommodation platform”
Under the amendments, online marketplaces that facilitate transactions in relation to accommodation services located in Saskatchewan are required to register for Saskatchewan PST. Operators of online accommodation platforms are also required to charge and collect PST on taxable accommodation supplied through the platform.
Accommodation service providers who exclusively sell via an online accommodation platform are not required to be registered for Saskatchewan PST if the operator of the platform is registered for, and collecting the PST.
If an online platform is only providing listing or advertising services and does not collect payments on behalf of accommodation service providers, the platform would not be regarded as an online accommodation platform.
Marketplaces that make or facilitate an online presence for sales to consumers and businesses in the province, and who collect payments from customers on behalf of sellers, will generally be regarded as “marketplace facilitators” and will be required to register for Saskatchewan PST and administer the tax through charging, reporting and remitting PST.
A person who makes sales to customers in Saskatchewan through a physical or electronic marketplace owned, operated, or controlled by a marketplace facilitator will be regarded as a “marketplace seller” for Saskatchewan PST purposes.
Under these amendments, marketplace facilitators will be required to register for Saskatchewan PST and will be required to charge, collect, and remit PST on taxable sales made through the marketplace. Further, marketplace sellers who exclusively sell through marketplace facilitators will not be required to register for Saskatchewan PST if the marketplace facilitator is registered for, and collecting Saskatchewan PST.
Potential issues with changes
Saskatchewan's new legislation does not explicitly state which party would be liable for PST if it were not collected or remitted. Under the current legislation, it is believed that joint and several liability exists.
Many non-resident businesses who made supplies to customers located in Saskatchewan were (or arguably should have been) already registered for Saskatchewan PST, prior to these rules for remote sellers being introduced. The amendments do not address what happens to sellers who were already registered for, and collecting Saskatchewan PST on sales made via online accommodation platforms and marketplace facilitators. Unfortunately, Saskatchewan Finance has not yet released administrative guidance on this issue.
Additionally, unlike Quebec and BC, which have small supplier/trader thresholds of $30,000 and $10,000, respectively, the rules in Saskatchewan do not seem to have a minimum threshold for sales in Saskatchewan before a person is considered to have a requirement to register for PST under these new rules. Accordingly, it creates an undue burden on businesses who may have an immaterial amount of sales in the province.
What does this mean for your business?
The legislation enacted by BC and SK is part of a global trend. Tax jurisdictions are increasingly focused on capturing sales taxes from remote sellers; primarily, to assist local companies by leveling the playing field and preventing the leakage of tax revenues. A prominent example of this is Airbnb's registration as a collector of PST and Municipal and Regional District Tax in BC. This registration resulted in an additional $43 million in PST over a twelve month period being remitted to the province of BC.
Going forward, Canadian companies operating remotely in BC and SK need to ensure that they are registered with the appropriate tax authorities to prevent tax liabilities in these jurisdictions. Companies should establish systems for the timely and accurate collection, reporting, and remittance of the appropriate sales tax.
People utilizing platforms such as Amazon also need to be cognitive of the tax collection, and remittance terms set out by these organizations. In many instances, these organizations will collect the sales tax but will not remit these amounts, leaving it to the marketplace seller to do so. Your company needs to ensure that these amounts are being remitted, as well as collected on a timely basis, as a result of joint and several liability provisions for the marketplace platform and the marketplace sellers.
Temporary BC PST rebate on select machinery and equipment
As part of the COVID-19 economic recovery effort, the Government of BC announced a rebate equal to the amount of PST paid between September 17, 2020 and September 30, 2021 on select machinery and equipment purchased for use or consumption in BC by corporations. This rebate is available to most incorporated businesses, except for: provincial and federal crown corporations, charities and non-profit corporations, schools, local government corporations, hospitals, health boards, and government agents.
The Government of BC is utilizing the capital cost allowance definitions in the federal Income Tax Act to establish the capital assets that are eligible for this temporary rebate. Assets included in the following CCA classes qualify for a PST rebate: 8, 10, 12, 16, 43, 43.1, 43.2, 50, 53, 54, and 55, unless an existing exemption already exists. These classes include items such as zero-emission vehicles, office equipment, computer software, and other equipment that does not qualify for the production machinery and equipment exemption.
Several limitations that have been put in place, including:
- only zero-emission vehicles are eligible for the rebate and not other vehicles in class 1
- goods purchased to be installed as an improvement to real property are not eligible for the rebate, unless they are exempt as qualifying production machinery and equipment; and
- goods purchased for resale by small sellers are not eligible.
Persons eligible for the rebate can only file two rebate applications. For this reason, applicants should be careful when submitting these claims to prevent PST rebates being missed. The first application can be made from April 1, 2021 to September 31, 2021, and the second application can be made from October 1, 2021, to March 31, 2022.The mechanism for claiming the rebate has not been announced yet. Additional details will be released by the province in advance of April 1, 2021.
Next steps for businesses operating in BC and Saskatchewan
These various important and recent amendments have significant impacts on Canadian and non-residents of Canada that sell to BC and Saskatchewan customers, and for most businesses who pay BC PST on certain capital assets that may be eligible for the temporary rebate.
All businesses who sell goods, software, or telecommunication services to consumers in BC should review their obligations in light of these new rules, and should also review if they are required to register for BC PST on April 1, 2021.
Businesses who operate online platforms and make sales to customers in Saskatchewan should consider if they are required to register for Saskatchewan PST, despite only facilitating sales to customers in the province. Businesses who sells to customers in Saskatchewan should consider if they are still required to register for, and collect Saskatchewan PST, or if that obligation has fallen on the platform used to make their sales.
Businesses who acquire capital assets in BC should consider if the assets they purchase are eligible for the new temporary PST rebate. Additionally, businesses with plans to acquire capital assets after September 30, 2021 should consider accelerating their purchases in order to ensure that the purchase is made during a period when the rebate is in effect.