Charging Customers PST in British Columbia
With the abolishment of the HST (Harmonized Sales Tax) back in 2013, businesses now have to navigate the rules of both the GST (Goods and Services Tax) and the PST (Provincial Sales Tax) sales tax systems when selling goods and services to customers. GST is relatively straight-forward in that it contains much fewer exceptions/variations and special rules than PST does. As such, I’ve outlined some general guidelines a business can use to make sure that they are following the rules when it comes to PST in BC.
The first requirement to look into is if you are in fact required to charge PST on taxable items. You are not required to charge and collect PST if your gross annual sales in the most recent finished year or your anticipated gross annual sales for the current year are less than $10,000. If your gross sales are below $10,000 per year then you qualify as a small supplier and you do not have to charge and collect PST. If your business sells more than $10,000 of taxable goods per year then you have to register for PST.
Charging Customers PST in British Columbia
Generally, tangible goods are subject to PST. If your business sells a tangible good such as a physical product then likely you have to charge PST on it. Some examples of tangible items that are exempt from PST include:
- Food for human consumption (this includes basic groceries and restaurant meals)
- Books, newspapers and magazines
- Children’s clothing
- Prescription medication
- Specific medical equipment and products
- Specific School supplies
- Specific farming products
Most services are exempt from PST (including accounting fees) but some services must charge PST. Examples of services that must charge PST include:
- Auto repairs
- Furniture repairs
- Services to setup taxable tangible goods such as install cabinets or appliances
- Legal services
- Telecommunication services
The list of items and services that are either taxable or have a specific exemption is long and cannot be listed in a brief list. It is a good idea to perform research or ask your accountant if a product or service you sell is subject to PST.
Most products subject to PST are taxed at a rate of 7% but certain items will be subject to the PST at a different rate. Examples include:
- Accommodations are at 8%
- Vehicles range from 7% – 10% or 12% depending on the type of vehicle
- Boats are at 7% or 12%
- Liquor is at 10%
These exemptions and rules may apply to your business in a combination. For example, as a landscaper, you would have to charge PST on tangible products that you sell, but any work that you perform to anything that is attached to a real property, such as a house, is exempt from PST. Another example is a photographer. Any photography sessions with the pictures e-mailed are PST exempt but once tangible media is introduced, then PST must be charged on the tangible media such as printed pictures or CDs.
There are also various programs that are unique to the PST regime and target specific goods or services with an additional tax. Examples include:
- Passenger vehicle rental tax of $1.50 per day
- ICE Fund tax (Innovative Clean Energy) charges 0.4% in addition to the basic PST on utility energy products such as natural gas and heating fuel.
The list of specific exemptions and variability of tax rates to specific items is relatively long so it is a good idea to confirm the tax status of the specific item that you sell as there is a chance that it may be subject to a specific rule.
Once the tax applicability for your sales has been established, you have to charge PST on the sale and remit the PST for the sale in the respective filing period for that date. Similar to GST, this tax must be remitted or paid to the government regardless if the sale has been collected or not. If at a later time you determine that the sale is uncollectible then you can write off the account receivable for that sale and claim back the PST on the sale on your next PST return. So in essence, you do not have to pay PST on any sales that you do not collect, even though there is a cash flow timing difference in that you must originally pay the PST when the sale is made and then claim it back in a subsequent PST return.
The main focus of the above descriptions is to highlight the variability and complexity of the PST rules. To be certain of the PST rules applicable to your business, you should speak with your accountant to help ensure that you are compliant with the PST responsibilities of your business.