This past Tuesday, April 1, 2014, marked the one-year anniversary of the new PST and the kick-off of audit season under BC’s Provincial Sales Tax Act (PSTA). Businesses have reason for concern: despite significant confusion surrounding the implementation of the new PST, a larger tax base than the old PST and repeated legislative amendments, the province intends to put to use the very harsh penalty provisions in the PSTA for a failure to collect PST, which are more onerous than those that applied to the old PST.
The Ministry of Finance confirmed recently that, if a seller fails to charge PST on a taxable sale, the Minister may assess a penalty on the seller equal to 110% of the tax: a mandatory penalty of 100% for not charging the tax, and a discretionary penalty of 10% for not remitting the tax to the province. BC’s budget bill, which was made into law two weeks ago, includes an amendment to the PSTA that gives the province the discretion to reduce the failure to levy penalty down from 100% if the seller can prove the customer remitted the tax directly, but – even still – a 10% failure to remit penalty would remain.
For example, in a business-to-business relationship, a seller may mistakenly believe that an exemption certificate provided by the customer for goods valued at $100,000 qualified for an exemption. Following best practices the customer remits the $7,000 owed on the purchase on its next return.
In this setting, the PSTA provides that the Minister could assess the collector $7,000, despite the remittance from the customer. Alternatively, the Minister could assess $700 but only if the customer is willing to provide proof of its remittance to the seller. In that case, the province would gain $700 even though it received all the tax on time.
Additionally, the province also has the power to hit the seller with an extra 25% penalty if the seller wrongly concluded there was no need to register for PST.
Given how the new PST was rolled out and the differences from the old PST, the use of a strict penalty policy would be unreasonably harsh, and businesses need to be given a clear and fair picture of when and why penalties will be imposed.
Rosemary J. Anderson.