British Columbia Proposes Transitional Rules for Elimination of Harmonized Sales Tax
(Sunnyvale, CA) - Canada's Department of Finance has proposed transitional rules to remove the 12% Harmonized
Sales Tax (HST) in British Columbia (BC) and re-introduce Provincial Sales Tax (PST) and Goods and Services Tax
In August 2011, the BC government had announced its decision to eliminate the HST (which combines a 5 per cent
federal component with a 7 per cent provincial component) by March 31, 2013 and revert to an older tax policy of
Provincial Sales Tax (PST) and Goods and Services Tax (GST).
The removal of the controversial HST would directly benefit small businesses and consumers.
According to the Finance Department, the proposed transitional rules specify how and when the BC component of
the HST would cease to apply to transactions.
Transitional Rules for Supplies of Property and Services
The general transitional rules will apply when supply tax becomes payable as per ETA.
HST would apply if tax becomes payable, or is paid without being payable, before April 1, 2013.
HST would not apply if the tax becomes payable after March 31, 2013, without having been paid before
April 1, 2013. Only GST would be applicable in this scenario.
Non-commercial goods that are imported by a resident of BC after March 31, 2013 will not attract the provincial
component (7%) of HST. The same holds good for non-commercial goods imported by a BC resident before that
date which is accounted for under the relevant provisions of the Customs Act after March 31, 2013. Certain motor
vehicles or commercial goods brought into BC from a place outside Canada after March 31, 2013 will also not
attract the provincial component (7%) of HST.
Imported Taxable Supplies
As per the ETA GST/HST is imposed on imported taxable supplies, which generally constitutes intangible personal
property supplies and services made outside Canada. The recipient of an imported taxable supply is generally
required to do a self-assessment of the value of the consideration for the supply and pay the tax.
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.
Taxable Benefits, passenger Vehicles and Aircraft and Employee/Partner Rebates
In certain circumstances, GST/HST related tax, credit or a rebate is calculated out of amounts based on a person's
income tax and the respective taxation year. This is typically how GST/HST is determined for certain taxable
benefits for employees and shareholders, certain input tax credits (ITCs) related to non-commercial passenger
vehicles and aircrafts and GST/HST rebates of employee or partner expenses.
With regards to such cases, tax, credits or rebates are calculated by multiplying the income tax amount by a factor
specified in the ETA or its related regulations and will reflect the removal of HST.
Streamlined Accounting Methods
Small businesses, as well as eligible PSBs could simplify compliance by using the Quick or Special Quick Method of
Accounting. With these methods, taxpayers multiply eligible GST/HST-included sales by a reduced percentage and
remit that amount to the government instead of tracking and claiming ITCs for the majority of the tax paid.
With the removal of HST from BC, the remittance rates for supplies made through permanent establishments in BC
and for supplies made in BC would generally no longer apply. Instead, the remittance rates for such supplies would
be same as the ones which currently apply to the supplies made through permanent establishments in non-
participating provinces and to supplies made in non-participating provinces.
The revised remittance rates would apply for reporting periods 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.
Refunds and Rebates
Generally, eligibility for refunds and rebates of the BC component of the HST would remain the same until
expiration of the specified time limits for making claims under a particular transaction.
However, new limitations would apply in certain scenarios in order to reflect BC's exit from the HST system,
especially when a particular event leading to the relief occurs after March 31, 2013.
Returns and Exchanges
When a person purchases goods before April 1, 2013, that is subject to the HST, but returns or exchanges it after
March 31, 2013, the below rules would apply:
The HST can be refunded if the returned or exchanged product is eligible for a refund and a credit or debit
note is issued.
In case an exchange is made without refund or issue of credit or debit note, then there would be no
refund of HST.
A performance bond is a three-party agreement between a surety who issues a bond, an obligee who enters into a
contract with a contractor, and a contractor who undertakes a particular construction. In certain cases, a surety
may replace a defaulting contractor and carry on the particular construction.
The Surety is deemed to be engaged in the construction if he agrees to carry out that construction and as a direct
consequence of that is eligible to receive contract payments from the oblige. The Input Tax Credits (ITCs) the
surety can claim with regard to above mentioned contract cannot exceed the tax calculated on the total contract
payment which the surety is eligible to receive by discharging his duties under the bond.
The ITC cap can be adjusted with a special transitional rule to recognize that contract payments occur throughout
the construction process. The removal of the HST in BC with regard to contract payments that become due or are
paid without having become due before April 1, 2013 will be taken into account for the ITC cap. HST elimination
will also be accounted for contract payments that would be due without having been paid or those that were paid
before they were due, after March 31, 2013.
Assessments, Objections, Appeals and Enforcement
ETA would generally continue to apply to past transactions related to assessment, objection, appeal and
enforcement provisions where the applicable limitation periods have not expired.
*The information provided hereunder provides details of the transitional rules that will be proposed to be enacted
in the Excise Tax Act and made in its related regulations. The above information hereunder should therefore be
read in conjunction with any transitional rules for the reinstatement of the PST released by BC.
Please call/email if you have any queries related to Canada's HST regulation
About Nair & Co.
Nair & Co. provides you with your one touch outsourced finance, internal audit compliance, HR and legal
department for your international operations. If you are expanding abroad for the first time, our turnkey solution
will help you do so with minimal risk, stress and cost. We currently support more than 1000+ client operations in
over 50 countries and have core offices in U.K., India, China, U.S., Japan and Singapore. Nair & Co. was named
among the top 100 outsourcing services providers in the world by the International Association of Outsourcing
Professionals (IAOP). Learn more at http://www.nair-co.com/