Effective 1 April 2013, the 5 percent federal Goods and Services Tax ("GST") and the 7 percent Provincial Sales Tax (PST) will replace the 12 percent Harmonized Sales Tax ("HST"). This was announced in February by the Federal and the British Columbia ("BC") Governments. In addition, the Federal Government released the proposed transitional rules to address the elimination of HST from a GST/HST perspective. However, other than transitional rules relating to the purchase and sale of new homes, the BC Government has not released transitional rules for the reinstatement of the PST.  Once the provincial transitional rules are issued, they must be read together with the federal transitional rules set out below in order to determine the correct application of tax.  The analysis herein does not address the application of PST.

In our November 2011issue of the Global VAT/GST Newsletter, an article was published in relation to the announcement of the BC Govenrment's replacement of the HST and the return of the GST and PST regime that existed in the province prior to 1 July 2010. At the time of the announcement, the BC Government did not specify an effective date for the changes.

This article meanwhile discusses the changes which apply to supplies made in the province of BC. The HST regime remains intact in the provinces of Ontario, Nova Scotia, New Brunswick and Newfoundland.

General transitional rules for supplies of property and services

The key determinant under the general transitional rules is the time at which tax in respect of the supply becomes payable under the Excise Tax Act (the "ETA").  The proposed general transitional rules provide as follows:

  • If tax becomes payable, or is paid without becoming payable before 1 April 2013, HST will apply.
  • If tax becomes payable after 31 March 2013, without having been paid prior to April 1, 2013, 5% GST will apply.
  1. Property and Services Other than Sales of Real Property

Under the ETA, tax in respect of a supply of property (other than real property) or services generally becomes payable at the earlier of the time when consideration for the supply becomes due or is paid without having become due.  For GST/HST purposes, consideration for a supply generally becomes due on the earliest of (i) the day the supplier first issues an invoice in respect of the supply; (ii) the date of the invoice; (iii) the day the supplier would have, but for an undue delay, issued an invoice in respect of the supply; and, (iv) the day the recipient of the supply is required to pay the consideration pursuant to a written agreement.

For property supplied by way of lease, licence or similar arrangement under a written agreement, consideration becomes due on the earlier of the date of payment and the date payment becomes due under the agreement.

  1. Sales of Real Property

For sales of real property, tax generally becomes payable on the earlier of the day on which (i) ownership is transferred to the recipient and (ii) possession is transferred to the recipient under the agreement of purchase and sale.  Therefore, if ownership or possession of the property transfers to the recipient prior to 1 April 2013, HST will apply.  However, if ownership and possession transfer to the recipient on or after 1 April 2013, 5 percent GST will apply.

Where the real property is a residential condominium unit in a condominium complex that has not been registered as a condominium at the time possession is transferred, tax is not payable until the earlier of (i) ownership of the unit is transferred and (ii) 60 days following the date of registration.

  1. Deemed Self-Supplies of Real Property by Builders

Builders, in certain situations, may be deemed to have made and received a taxable supply by way of sale of real property.  For example, a builder may construct or substantially renovate a residential complex and subsequently rent it out.  Where a builder does so, the builder is generally considered to have sold and re-purchased the complex.  As a result, the builder is required to account for GST/HST on the fair market value of the self-supply.

Under the transitional rules, where the self-supply of real property is deemed to have been made prior to 1 April 2013, HST will apply.  Where the self-supply is deemed to have been made after 31 March 2013, GST will apply.

Property and services brought into BC

The 7 percent BC component of the HST will not apply to the following:

  • Tangible personal property brought into BC after 31 March 2013;
  • Tangible personal property brought into BC before April 2013 by a carrier where the property is delivered in BC to a consignee after 31 March 2013; and,
  • Services or intangible personal property supplied in a non-HST province to a resident of BC who acquires the service or intangible personal property for consumption, use or supply in BC, where the consideration in respect of the supply becomes due, or is paid without having become due, after 31 March 2013.

Imported goods

The 7 percent BC component of the HST will not apply to the following:

  • non-commercial goods imported by a BC resident after 31 March 2013;
  • non-commercial goods imported by a BC resident before that date that are accounted for under the relevant provisions of the Customs Act after 31 March 2013; and,
  • specified motor vehicles or commercial goods brought into BC from a place outside Canada after 31 March 2013.

Imported taxable supplies

In general, imported taxable supplies are supplies of intangible personal property and services made outside Canada to a person who is not a GST/HST registrant acquiring the property or service for use in commercial activities.  The recipient of an imported taxable supply is generally required to self-assess and remit GST/HST on the value of the consideration for the supply.

The 7 percent BC component of the HST will not apply to the following:

  • imported taxable supplies made after 31 March 2013; and,
  • imported taxable supplies made before 1 April 2013 to the extent the consideration for that supply become due, or is paid without having become due, after 31 March 2013.

Refunds and rebates

Generally, the eligibility for rebates and refunds of the 7 percent BC component of the HST will remain in place until the existing statutory limitation periods for claiming them expire.  However, new limitations reflecting BC's exit from the HST system will apply, particularly where the event triggering relief occurs after 31 March 2013.  For example, no rebate in respect of the BC component of the HST will be available in respect of goods removed from BC after 31 March 2013.

Returns and exchanges

The rules governing returns and exchanges of goods purchased before 1 April 2013 and returned or exchanged after 31 March 2013 are as follows:

  • If the good is returned or exchanged and a refund is given, HST will apply on the refunded amount if a credit or debit note is issued.
  • If an exchange is made and no refund is given (or where a refund is given but no credit or debit note is issued), no HST refund is available.

Additional transitional rules

In addition, specific transitional rules were announced for:

  • Financial Institutions;
  • Pension plans;
  • Public service bodies;
  • Subsidised housing;
  • Taxable benefits, passenger vehicles and aircraft and employee/partner rebates;
  • Performance bonds;
  • Streamlined accounting methods;
  • Basic tax content calculation; and
  • New housing.

Anti-avoidance rules

The Federal Government also announced that anti-avoidance rules would apply to transactions subject to the transitional rules, in order to maintain the integrity of the GST/HST system during the transition period from HST to GST.

Comments

Given the narrower PST base, certain businesses and other persons who cannot claim full input tax credits may benefit under the transitional rules by delaying purchases of certain items until 1 April 2013.  Conversely businesses that are able to claim input tax credits may seek to accelerate certain purchases so that they will not have to pay unrecoverable PST.   It is not known whether the yet to be released anti-avoidance rules and BC transitional rules for the reinstatement of the PST will have an impact on these considerations.