As provincial tax authorities seek new revenue streams to fund specific projects and help municipalities raise funds, consumers and businesses may feel more of a tax bite as new taxes and tax rate hikes may result in the provincial taxes becoming part of the GST base.

Under section 154 of the Excise Tax Act (Canada), provincial taxes, duty and fees payable by a recipient of a supply of property or service generally form part of the GST/HST base. However, there is a carve out for provincial levies that are prescribed under the Taxes, Duties and Fees (GST/HST) Regulations. A provincial levy is prescribed if the total rates of all provincial taxes imposed on property or services that are calculated as a percentage of the value or price of the property or service and payable by the recipient of the supply of the property or service does not exceed the specified tax rate of the province. The specified tax rate is the greater of (i) 12% and (ii) the general sales tax rate in the province plus 4%.

Short-term accommodation in most major cities in British Columbia (“BC”) is subject to 8% provincial sales tax (“PST”) and a 3% municipal and regional district tax (“MRDT”). As the general sales tax rate in BC is 7%[1], the specified tax rate for BC is 12%. Accordingly, prior to February 1, 2023, since the combined BC PST and MDRT rate was 11%, the PST and MDRT were not part of the base upon which GST was calculated.

However, effective February 1, 2023, BC introduced a temporary Major Events MRDT that applies to accommodation in the City of Vancouver at a rate of 2.5% for a period of seven years. The Major Events MRDT is intended to help pay for the cost of planning, staging and hosting FIFA 2026 matches. This additional 2.5% tax raises the combined provincial tax rate to 13.5%, which exceeds the 12% specified tax rate. As a result, since February 1, 2023, the GST payable on accommodation in the City of Vancouver is calculated on a base that includes the 13.5% of provincial taxes.

In addition to raising more revenues for the City of Vancouver, the Major Events MRDT will generate additional revenues for the Federal Government as GST is now calculated on the higher base. For consumers, the combined federal/provincial tax rate on accommodation in the City of Vancouver will exceed 19%. It will be interesting to see whether other provinces are willing to follow in BC’s footsteps.