On August 26, 2011, the Government of British Columbia (BC) announced that it would be reinstating its provincial sales tax (PST) following the referendum on the elimination of the Harmonized Sales Tax (HST) in the province.
The 12 per cent HST in BC—combining a 5 per cent federal component and a 7 per cent provincial component—will be replaced, effective April 1, 2013, by the Goods and Services Tax (GST) and BC’s PST.
This document provides general descriptions of transitional rules that will be proposed to be enacted in the Excise Tax Act (ETA), or made under its related regulations, to bring about the elimination of the HST in BC.1 Transitional rules describe how and when the HST would cease to apply to transactions that straddle the BC HST end-date.
This document does not provide descriptions of any provincial measures that may be proposed to be enacted by BC in relation to the reinstatement of the PST. This document should therefore be read in conjunction with any transitional rules for the reinstatement of the PST released by BC.
This section describes the general transitional rules for supplies2 of property and services.
The general transitional rules will operate on the basis of the time at which tax in respect of the supply becomes payable under the ETA.
Under the ETA, tax in respect of a supply of property (other than a sale of 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.
Example 1: On April 22, 2013, a person receives an invoice for seasonal yard maintenance services performed in March and April 2013 on a property in Victoria. The invoice is dated April 14, 2013 and is issued that same day.
HST would not apply because tax becomes payable after March 31, 2013. Tax becomes payable on April 14, 2013 because the consideration becomes due on that day.
Example 2: On March 21, 2013, a person orders custom-made blinds over the Internet. The blinds are expected to be delivered to a residence in Kamloops on April 25, 2013. Payment is made immediately at the time of ordering.
HST would apply because tax becomes payable before April 1, 2013. Tax becomes payable on March 21, 2013 because the consideration is paid on that day.
Example 3: In September 2012, a person signs a 36-month lease for a new truck at a dealership in Nanaimo. Under the lease agreement, payments become due on the 15th day of each month.
HST would apply to lease payments that become due before April 1, 2013. GST only would apply to lease payments that become due after March 31, 2013.
In the case of a sale of real property, tax generally becomes payable on the earlier of the day on which ownership is transferred to the recipient and the day on which possession of the property is transferred to the recipient under the agreement of purchase and sale. However, where the property supplied is a residential condominium unit in a condominium complex which has not, at the time possession is transferred, been registered as a condominium, tax is not payable until ownership of the unit is transferred or, if earlier, 60 days following the date of registration.
Example 4: On December 15, 2011, a builder entered into a written agreement of purchase and sale for a newly constructed single detached house. Possession and ownership will be transferred to the purchaser on April 15, 2013.
The purchaser would not be required to pay HST on the purchase of the house. However, the purchaser would be required to pay GST.
Example 5: On January 15, 2012, a builder entered into a written agreement of purchase and sale for a residential condominium unit. The purchaser will take possession of the condominium unit on March 15, 2013. Registration of the condominium complex will not occur until after December 2013 at which time the ownership of the unit will be transferred to the purchaser.
The purchaser would not be required to pay HST on the purchase of the condominium unit. However, the purchaser would be required to pay GST.
In certain situations, a builder may be deemed to have made and received a taxable supply by way of sale of real property. For example, where a builder constructs or substantially renovates a residential complex and subsequently rents it out to others or occupies it as a place of residence, the builder is generally deemed to have sold and re-purchased the complex and, as a result, would be required to account for GST/HST on the fair market value of the self-supply.
The transitional rules for deemed self-supplies of real property are as follows:
Example 6: On January 1, 2012, a purchaser entered into a written agreement for the purchase and sale of a newly constructed single-detached house together with a lease of land under the same agreement with a builder. The construction of the house will be substantially completed by the builder on March 1, 2013. Possession and ownership of the house will be transferred on March 15, 2013.
The builder would be required to self-assess HST on the fair market value of the new house (including the land portion) on March 15, 2013.
This section describes other transitional rules that would apply in relation to the elimination of the HST in BC.
The BC component of the HST would not apply to tangible personal property, mobile homes that are not affixed to land, and floating homes that are brought into BC after March 31, 2013, and to such property that is brought into BC before April 2013 by a carrier where the property is delivered in BC to a consignee after March 31, 2013.
The BC component of the HST would also not apply in respect of consideration that becomes due, or is paid without having become due, after March 31, 2013, for a service or intangible personal property supplied in a non-participating province to a resident of BC who acquires the service or intangible personal property for consumption, use or supply in BC.
The BC component of the HST would not apply to non-commercial goods that are imported by a resident of BC after March 31, 2013, nor to non-commercial goods imported by a resident of BC before that date that are accounted for under the relevant provisions of the Customs Act after March 31, 2013.
The BC component of the HST would also not apply to a specified motor vehicle or commercial goods brought into BC from a place outside Canada after March 31, 2013.
The ETA imposes GST/HST on imported taxable supplies, which are generally supplies of intangible personal property and services made outside Canada. The recipient of an imported taxable supply is generally required to self-assess and remit the tax on the value of the consideration for the supply.
The BC component of the HST would not apply to any imported taxable supply made after March 31, 2013, nor to an imported taxable supply made before April 1, 2013 to the extent the consideration for that supply becomes due, or is paid without having become due, after March 31, 2013.
If a taxation year or reporting period of a financial institution begins before April 1, 2013 and ends on or after that date, the financial institution would generally be required to determine its liability for the BC component of the HST for the taxation year or reporting period on an apportionment basis. The apportionment would be based upon the ratio of the number of days in the taxation year or reporting period that are before April 1, 2013 to the total number of days in the taxation year or reporting period.
This apportionment would apply, for example, for the purposes of determining the net tax of a financial institution that is a selected listed financial institution, as well as the amount of tax a financial institution is required to self-assess for certain cross-border transactions (e.g., internal charges, external charges and qualifying consideration).
Special rules would also apply to participating employers and pension entities of pension plans for periods that begin before April 1, 2013 and end after March 31, 2013.
If a participating employer of a pension plan is deemed under the ETA to have made a taxable supply to a pension entity on the last day of its fiscal year that includes March 31, 2013, as a consequence of having acquired or imported property or a service for the purpose of supplying it to the pension entity, the BC component of the HST would generally apply to the deemed supply if the property or service was acquired or imported for the purpose of making a supply to the pension entity of any part of the property or service before April 1, 2013. In addition, for its fiscal year that includes March 31, 2013, a participating employer of a pension plan would determine its liability for the BC component of the HST for deemed supplies of “employer resources”, as defined under the ETA, on an apportionment basis using the ratio of the number of days in the employer’s fiscal year that are before April 1, 2013 to the total number of days in the fiscal year.
A similar apportionment rule would apply to determine the BC portion of a pension entity’s provincial pension rebate amount for its claim period that includes March 31, 2013. The apportionment would be based on the ratio of the number of days in the claim period of the pension entity that are before April 1, 2013 to the total number of days in the claim period.
In certain circumstances, an amount of tax, or a credit or a rebate in respect of GST/HST, is calculated based on amounts determined for income tax purposes and in reference to a person’s taxation year. Specifically, this is the case in the determination of the GST/HST on certain taxable benefits for employees and shareholders, certain input tax credits (ITCs) in respect of passenger vehicles and aircraft not being used exclusively in commercial activities, and rebates of GST/HST to employees or partners with respect to certain expenses.
In these cases, the amount of tax, the credit or the rebate is calculated by multiplying the amount determined for income tax purposes by a factor specified in the ETA or its related regulations. These factors and rates would be adjusted to reflect BC’s exit from the HST. In particular:
The current rebate percentages attributable to charities, qualifying non-profit organizations and selected public service bodies (PSBs) resident in BC used to calculate rebates of their otherwise unrecoverable provincial component of the HST would generally not apply for the purpose of determining a rebate for a claim period ending after March 31, 2013. However, for the claim period of a person that includes March 31, 2013, a PSB rebate using a PSB rebate rate attributable to a PSB resident in BC could be claimed with respect to the provincial component of the HST if that tax became payable by the PSB, was deemed to have been paid or collected by the PSB, or was required to be added to net tax of the PSB, before April 1, 2013.
Small businesses, as well as eligible PSBs, may use the Quick or Special Quick Method of Accounting to simplify compliance. Under these methods, taxpayers multiply eligible GST/HST-included sales by a reduced percentage and remit that amount to the government in lieu of tracking and claiming ITCs for most of the tax they pay. The remittance rates are set out in the Streamlined Accounting (GST/HST) Regulations.
As a result of the elimination of the HST in BC, the remittance rates for supplies made through permanent establishments in BC and for supplies made in BC would generally no longer apply after BC’s exit from the HST. Instead, the remittance rates applicable to such supplies would be those that currently apply to supplies made through permanent establishments in non-participating provinces and to supplies made in non-participating provinces.
These revised remittance rates would apply for reporting periods of taxpayers using the methods that begin after March 31, 2013. For reporting periods that begin before April 1, 2013 and end after March 31, 2013, the current remittance rates for BC would apply to consideration that becomes due, or is paid without having become due, before April 1, 2013, and the revised remittance rates would apply to the remaining consideration.
Generally, eligibility for refunds and rebates of the BC component of the HST would remain in place until the existing time limits for claiming them have expired for the transactions to which they relate.
New limitations would, however, apply in certain circumstances to reflect BC’s exit from the HST system, particularly where the event giving rise to the relief occurs after March 31, 2013. For example, no rebate in respect of the BC component of the HST would be available in respect of tangible personal property (i.e., goods) removed from BC after March 31, 2013.
The following rules in respect of returns and exchanges of goods would apply where a person purchases a good before April 1, 2013, that is subject to the HST, but returns or exchanges it after March 31, 2013:
Special rules apply to determine the amount of GST/HST applicable to certain government-subsidized housing designed to be occupied by individuals having special needs or limited incomes.
In circumstances where a builder of government-subsidized housing is deemed to have made and received a supply of such housing, these special rules generally ensure that the builder accounts for an amount of tax that is the greater of the tax calculated on the fair market value of the housing and the total of all tax that was payable by the builder in respect of the real property forming part of the housing or an improvement thereto.
If, under the general transitional rule for deemed self-supplies of real property, the HST would not apply in respect of a self-supply of subsidized housing, for the purpose of applying the special rules in respect of government-subsidized housing the BC component of the HST would not be included in the total of all tax that was payable by the builder in respect of the real property forming part of the housing or an improvement thereto.
The basic tax content of a person’s property is generally the amount of tax under Part IX of the ETA that the person was required to pay on the property and improvements thereto, after deducting any amounts (other than ITCs) that the person was entitled to recover by rebate, remission or otherwise and after taking into account any depreciation in the value of the property.
As of Announcement Date, the BC component of HST would not be included in calculating the basic tax content of real property situated in BC or tangible personal property ordinarily situated in BC.
A performance bond is a three-party agreement between a surety that issues a bond, an obligee that enters into a contract with a contractor, and a contractor that carries on particular construction. A surety may, in certain cases, step into the shoes of a defaulting contractor and carry on the particular construction.
If a surety is entitled to receive contract payments from an obligee by reason of the surety's agreeing to carry on particular construction, the surety is deemed to be engaged in that construction. The ITCs the surety may claim with respect to direct inputs that are consumed, used, or supplied exclusively and directly in the course of carrying on the construction is capped at an amount equal to tax calculated on the total contract payments to which the surety becomes entitled from the obligee in respect of the construction carried on by the surety in satisfaction of the surety's obligations under the bond.
A special transitional rule would adjust the ITC cap to recognize that contract payments occur throughout the construction process. The cap would therefore take into account the elimination of the HST in BC in respect of contract payments that become due or are paid without having become due before April 1, 2013, and in respect of contract payments that become due without having been paid, or are paid without having become due, after March 31, 2013.
The transitional rules for new housing transactions that straddle the July 1, 2010 BC HST implementation date would generally continue to apply, subject to certain exceptions.
Sales of certain newly constructed or substantially renovated homes for which both ownership and possession transfer after June 30, 2010 are not subject to the HST if the written agreement of purchase and sale was entered into on or before November 18, 2009. For such homes, the builder is generally required to pay a transitional tax adjustment if the home was completed in whole or part after June 2010.
This transitional tax adjustment would continue to apply only where tax becomes payable on the home before April 1, 2013.
For newly constructed or substantially renovated homes that are residential condominiums, traditional apartment buildings, seniors’ residences or long-term care facilities, a transitional housing rebate may be available to the builder if 10 per cent or more of the construction was completed before July 1, 2010.
The transitional housing rebate provides relief in respect of PST embedded in the home for construction carried out prior to July 1, 2010 in situations where the HST or the transitional tax adjustment would apply. This rebate could currently be calculated using the “floor space method” or the “selling price method”.
As intended, the transitional housing rebate would continue to be available in respect of homes only where the HST or the transitional tax adjustment applies, as the case may be. Therefore, as of Announcement Date, builders would not be eligible to claim the rebate before the earlier of the day the HST or the day the transitional tax becomes payable in respect of the home.
Example 7: A builder of a new residential condominium complex completed 30 per cent of the construction of the complex as of July 1, 2010. All of the agreements of purchase and sale for residential condominium units in the complex were entered into after November 18, 2009. The builder intends to claim the transitional housing rebates using the “selling price method” once the HST becomes payable for each residential condominium unit. However, ownership and possession for all sales of the condominium units will be transferred after March 31, 2013 such that HST would not apply to the sales of the condominium units. As a result the builder will not be permitted to claim transitional housing rebates using the “selling price method” or the “floor space method”.
Assessment, objection, appeal and enforcement provisions under the ETA would generally continue to apply to past transactions where the applicable limitation periods have not expired.
Anti-avoidance rules would apply to transactions to which the transitional rules described in this document apply in order to maintain the integrity of the GST/HST system during the period of transition from the HST to PST in BC.
For more information on the transitional rules for the elimination of the HST in BC, please contact the Canada Revenue Agency general business enquiries line at 1-800-959-5525 (English service) or 1-800-959-7775 (French service).
1 Unless otherwise stated, or the circumstances otherwise require, the definitions and concepts in the ETA would apply to the transitional rules described in this document.
2 References to supplies in this document are generally references to those that, for purposes of the ETA, would be considered to be taxable supplies made in BC.
3 Under the ETA, GST/HST in respect of a supply may, in certain circumstances, become payable before the consideration for the supply becomes due or is paid. For instance, this would be the case where all or any part of the consideration for a supply has neither been paid nor become due on or before the last day of the calendar month following the month in which the supply is considered to have been completed under subsection 168(3) of the ETA.