On October 14, 2009, the British Columbia (“BC”) Ministry of Finance released its HST Notice #1 outlining the general transitional rules for BC’s Harmonized Sales Tax (“HST”), which is to come into effect July 1, 2010.
For transactions that are completed and paid for prior to July 1, 2010, the HST will generally not apply and for transactions that are completed and paid for after July 1, 2010, the HST will generally apply.
However, for transactions that begin or are paid for prior to the July 1, 2010 implementation date and completed after this date (“Straddle Transactions”), these transitional rules will be required to determine whether BC’s existing Social Service Tax (“SST”) or the new 7% BC component of the HST will apply.
In determining whether HST will apply to such a Straddle Transaction, there are a number of general rules to be kept in mind:
- The HST will generally not apply to any consideration that becomes due, or that is paid without having become due, on or before October 14, 2009, even if the supply is not completed until after July 1, 2010.
- In circumstances where consideration is due or paid after October 14, 2009 and before May 10, 2010, the HST will not generally apply in circumstances where the supply is not completed until after July 1, 2010. However, there will be certain notable exceptions to this general rule for certain specific businesses and public service bodies. These entities, which will include financial institutions, charities, public service bodies, large businesses and certain small businesses, will be required to selfassess the BC component of the HST on the consideration due or paid in this period where the supply is not completed until July 1, 2010 or later.
- From May 1, 2010 until July 1, 2010, the HST will generally apply to any consideration that becomes due or that is paid without having become due for supplies (or the portion thereof) that will be completed (i.e. delivered, rendered) on or after July 1, 2010.
There will be many specific rules that will impact certain types of supplies and certain types of transactions. Among others, there will be special transitional rules for supplies of:
- Prepaid funeral and cemetery arrangements
- Passenger transportation services
- Freight transportation services
- Commercial parking passes
- Transportation passes
- Real property
Similarly, there will be special transitional rules in place for:
- Sales made by direct sellers
- Continuous supplies of property (e.g. by pipeline)
- Budget payment arrangements
- Combined supplies of property and/or services
- Progress payments and holdbacks
- Property or services brought into BC
- Imported goods
This Information Notice also describes the general transitional rules that will determine when SST ceases to apply to taxable goods and services supplied in BC. Generally, where the consideration for any of the following types of supply becomes due or is paid after May 1, 2010, the SST will not apply to transactions that occur in the following circumstances:
- a sale of goods where the goods are delivered, and ownership of the goods is transferred, to the purchaser on or after July 1, 2010;
- a sale of services to the extent the services are performed on or after July 1, 2010 (however, the SST would apply where all or substantially all of the service is provided before July 2010);
- a supply of property by way of lease, licence or similar arrangement for the part of the lease or licence interval that is on or after July 1, 2010 (however, the SST would apply if the lease interval begins before July 2010 and ends before July 31, 2010);
- a sale of property or a service delivered or performed on a continuous basis by means of a wire, pipeline or similar conduit or satellite or other telecommunications facility to the extent the property or service is delivered, performed or made available on or after July 1, 2010;
- goods brought into BC or imported by a resident of BC on or after July 1, 2010; and
However, where the consideration for such supplies of property or services is due or paid at a point in time prior to May 1, 2010, there will be specific rules in place to determine whether the SST will apply. Specifically:
- SST will apply in all circumstances where consideration for a sale of goods or services becomes due or is paid before October 14, 2009.
- SST will apply in all circumstances where consideration for a sale of goods or services becomes due or is paid between October 14, 2009 and May 10, 2010, except where such property or services are acquired for use exclusively in the course of commercial (GSTtaxable) activities or where the self-assessment rules described above are applicable.
In these circumstances, if the SST is paid in circumstances where it was not necessary to pay it, the purchaser should be eligible to claim a refund of this amount.
- the disclosure requirements for tax-included pricing during the transitional period;
- the filing of final SST returns;
- a new transitional SST Inventory Rebate for residential real property contracts; and
- returns and exchanges of property purchased before July 1, 2010 but returned after this date.
Finally, the Ministry noted that there may be additional anti-avoidance rules developed and implemented for use during the transitional period. In addition, there will be special rules relating to: