PROVINCIAL SALES & USE TAXES

Who has Them ?

Prior to the implementation of the Hamonized Sales Tax (as described further below, the "HST"), nine out of the ten Canadian provinces levied provincial sales and use taxes, which we will refer to alternately as either "PST" (i.e., provincial sales tax) or "RST" (i.e., provincial retail sales tax).

With the implementation of the HST, only five Canadian provinces now levy a stand-alone PST, these being each of British Columbia (enacting a Social Services Tax Act), Saskatchewan, Manitoba, Ontario and Prince Edward Island (all employing enactments entitled the Retail Sales Tax Act).

Quebec now employs the "Quebec Sales Tax" (the "QST"), which is almost fully harmonized with the federal Goods and Services Tax ("GST"), but does contain some important differences.

The remaining three Atlantic Provinces of New Brunswick, Nova Scotia, and Newfoundland & Labrador all employed the HST, which is fully harmonized with the GST.

The last Canadian province, Alberta, does not levy a PST, and neither do Canada's three territories of Yukon, Nunavut or Northwest Territories.

Currently there are no Canadian cities or municipalities imposing sales taxes.

How to Sales Taxes Work ?

Sales taxes (like those employed in the various Canadian provincial PST systems) is generally levied on the sale, or importation into a province, of tangible personal property, and a limited range of services for final consumption or use within a particular province.  

Purchasers are generally required to pay PST at the time of purchase, unless the goods are purchased for resale or a specific exemption applies (e.g., basic groceries, books, and production equipment in some provinces).  

Although PST is imposed on the purchaser, provincial vendors are generally required to register to collect and remit the PST to the applicable provincial government.  Persons bringing taxable goods into a province for their own use are generally required to self-assess and remit the applicable tax directly to the province.  

Where the goods are shipped from outside of Canada, clearing Canadian Customs, all PST provinces (except PEI) have entered into collection agreements with the federal government.  Under the PST collection agreements the federal government will collect PST on non-commercial taxable importations where the imported goods are also subject to GST.  Persons not covered by the PST collection agreements (i.e., most businesses) should ensure that they properly self-assess PST where applicable.

Definitions and Tax Bases

British Columbia, Saskatchewan, Manitoba, and Ontario each levy PST on “tangible personal property” (TPP), with Prince Edward Island levying its sales tax on the close-counterpart “goods”.  

While the generally stated tax base in each of the five PST provinces is therefore fairly consistent, the differences lie in the details of the particular systems.  Accordingly, one sees that some items will generally do not qualify as “tangible personal property” or as “goods” (including intangibles such as accounts receivables, goodwill, trademarks, licenses, and shares), with each particular province treating these exceptional situations, in some degree of another, differently.

For example, fixtures are generally considered to be real property and thus are not subject to PST;  British Columbia taxes some fixtures by including them in the definition of TPP, whereas other provinces leave fixtures untaxed (instead insisting that the real property contractor either account for PST on its inputs, or comply with more complicated rules for manufacturing contractors).

Similarly, the manner in which "services" are taxed in these various provincial systems varies.  Some provinces, like Ontario and Manitoba limit taxable services to things like telecommunication services, repair and maintenance labour and accommodations.  Other provinces like Saskatchewan, and PEI levy tax on a much broader range of services. British Columbia taxes, expressly, legal services.  

Computer software is also generally taxed across all jurisdictions, but the rules vary by those jurisdictions.

Related Party Transfers

All provinces that impose PST have special relieving provisions which deal with transfers between related parties and in special circumstances, transfers between unrelated parties.  Transfers between unrelated parties, however, are generally only exempt when the purchaser is a corporation and, as consideration for the purchase, it issues shares to the vendor.  Generally, the vendor must also hold onto the shares for a minimum of 6 to 8 months.

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