“B.C. Voters Reject HST — Transition Back to PST Begins” KPMG

Aug 26, 2011 | Corporate Member News

British Columbians recently voted in a tax referendum to return to the goods and sales tax (GST) and the provincial sales tax (PST), thus rejecting the harmonized sales tax (HST). In an announcement on August 26, 2011, Elections B.C. announced that almost 55% of voters elected to abolish the HST.

B.C. Finance Minister Kevin Falcon has announced that the PST will be reinstated at 7%. The transition period is expected to take a minimum of 18 months, during which the provincial portion of the HST will remain in place at 7%. The B.C. government noted that it may make some “common sense” administrative improvements to streamline the PST. During the transition period, British Columbia will provide quarterly updates on the progress of returning to the PST.

The return to the GST and PST will have a significant impact on many businesses. While no specific details have been released on the expected transition rules, businesses should start to think about the system changes that will be required to their systems in the course of the government reinstating the PST. Businesses will need to assess the overall financial effect of the reintroduction of the PST as well as the impact of the change on their budgeted expenditures.

Background
British Columbians voted in a mail-in HST referendum that ended on August 5, 2011. They had to decide whether they were in favour of removing the HST and reinstating the PST in conjunction with the GST.

Return of the PST
The return of the B.C. PST will significantly impact many businesses operating in British Columbia or with customers in British Columbia. While specific details have not yet been released, businesses should consider the following:

  • What modifications will be made to the reinstated PST?
  • Should assets be purchased or leased before the PST returns?
  • What accounting systems will need to be changed? Are the resources available to implement such changes?
  • How will consumers react in light of the return of the PST? Will they delay or accelerate certain purchases?

Today’s purchasing decision
Businesses engaged exclusively in commercial activities in British Columbia that are currently contemplating purchasing an asset that would be subject to PST may benefit by purchasing that asset before the PST is reinstated. These businesses may also consider purchasing the assets rather than leasing them as this may avoid having to pay unrecoverable PST on the lease payment after the PST is reinstated.

On the other hand, businesses engaged in exempt activities such as financial institutions and residential landlords may want to defer acquiring property (such as real property or some intangible personal property) or services that are currently subject to unrecoverable HST but should not be subject to PST, based on the old PST rules.

For many public sector organizations, including municipalities, universities, schools and hospitals, a return to a PST regime should mean no PST on lease payments of real property and many services. However, many of these organizations qualifying for GST/HST partial rebates will also have to consider the lost of partial HST rebate and the return of GST rebates

KPMG observation
The exact nature of the expected transitional rules, the timing of their introduction and their effective dates are not known at this point. Depending on the nature of the transitional rules, the benefit of the tax planning outlined above may be reduced or eliminated. However, other opportunities may also become available.

We can help
Your KPMG adviser can keep you up to date on developments and help you assess possible opportunities that may be available to your business during this transitional period. For details, contact your KPMG adviser. 

Information is current to August 26, 2011. The information contained in this TaxNewsFlash-Canada is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG’s National Tax Centre at 416.777.8500.

KPMG LLP, a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm affiliated with KPMG International, a global network of professional firms providing Audit, Tax, and Advisory services. Member firms operate in 145 countries and have more than 123,000 professionals working around the world.

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KPMG’s Canadian Web site is located at http://www.kpmg.ca/ 

© 2011 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

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