In today’s economy, every dollar counts, a sentiment echoed by the Federal government.  It appears that BC Finance also dances to this tune, as the province’s 2024 Budget includes an amendment to the definition of “software” in the BC Provincial Sales Tax Act(“PSTA”), retroactive to April 1, 2013! 

While the amendment is described as “clarifying” the definition, it is difficult not to see it as BC Finance’s response to a recent tax appeal decision from the Supreme Court of British Columbia.

The New Definition

The previous definition of “software” in the PSTA included a software program, the right to use a software program, and a contractual right to receive new versions of software programs. 

Bill 3 Budget Measures Implementation Act proposes to retroactively expand this definition to include:

• Coded instructions or the right to use coded instructions (whether exercised or not) designed to prompt an electronic device to perform a task.
• Infrastructure as a service.
• Software as a service.
• Application programming interfaces (APIs).

Judicial Context

The proposed amendments appear to be a response to the March 2023 Supreme Court of British Columbia decision in Hootsuite Inc. v. British Columbia (Finance).  In Hootsuite, the Court considered whether certain services acquired by Hootsuite from Amazon Web Services ("AWS") were subject to PST, specifically:

• Amazon elastic cloud compute cloud
• Amazon simple storage services
• AWS direct connect; and
• AWS support

The court scrutinized the definition of software under the PSTA and distinguished between "software" and a "software program", determining that not all software falls under the latter category.  The court held, in paragraph 28 of the judgement, that:

“[…] a key distinction between different types of software are applications in which a user can interact directly with and create an output based in part on those interactions, and software that is opaque, in the sense that the user cannot interact with the software and create an output.”  

Consequently, the court concluded that the various AWS, being opaque to users, were not “software”, and were not taxable.

Commentary

The updated definition of "software" appears designed to capture a broader range of supplies, likely including AWS and cloud services.  Notably, cloud services have emerged as the primary profit drivers for technology companies, making the amendment even more significant.  The explicit inclusion of software and infrastructure “as a service” indicates BC Finance's intention to apply PST to these services – potentially contributing to the projected 4.3% annual growth in provincial sales tax outlined in the budget!

Takeaways

Participants in the cloud computing sector should be aware of this change, especially considering its retroactive application from April 1, 2013!  A comprehensive analysis of the amendment's impact is advised.

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