News and Insights

British Columbia Rejects the HST

Tax Development Aug 29, 2011

In what has been widely described as a landmark referendum result, voters in British Columbia decided to extinguish the HST and return to a separately administered provincial sales tax (“PST”) system.  The results of the referendum, which were announced on August 26, 2011, revealed that over 54% of the 1,610,125 mail-in ballots returned were cast in favour of reinstating the PST in conjunction with the GST in British Columbia.         

This referendum result raises several important questions for taxpayers and organizations conducting business in British Columbia, one of which was addressed immediately by Finance Minister Kevin Falcon, who noted that “British Columbians have made their choice and we will honour that decision”, thus dispelling any rumours that the provincial government might challenge or ignore the results of the vote.   

The Ministry of Finance also released an “Action Plan” for returning to a 12% PST/GST, the key components of which may be summarized as follows: 

  • The PST will be reinstated at a rate of 7%, as evidenced by reference to a combined 12% PST/GST rate;
  • The transition is expected to take at least 18 months, implying a tentative PST re-implementation date of March 31, 2013;
  • During the transitional period, the provincial component of the HST will remain in place at a rate of 7%, as will the HST credit available to lower-income persons;
  • The province will work with the federal government to develop a set of HST transitional rules and negotiate the return of the $1.6 billion in transitional funding received for adopting the HST;
  • All legislation and regulations required to fully re-implement the PST in British Columbia, including transitional rules and related taxes, will be developed by the provincial government;
  • Administrative changes to streamline and improve the PST will also be introduced as part of the re-implementation process;
  • The province will allocate appropriate resources, including personnel, facilities and equipment, to ensure that it has the capacity to resume administration of the PST and related taxes; and
  • Prior to re-implementation, the province will provide detailed information and training on all aspects of the PST to taxpayers and businesses. 

The provincial government has also committed to consult with key stakeholders once the PST transitional rules have been developed and has undertaken to provide quarterly updates on its progress in relation to the transition.   

From the province’s perspective, returning to the PST will be a monumental challenge with numerous concerns to manage, ranging from the enactment of legislation to staffing and training to the provision of facilities and equipment.  For example, the province expects to register approximately 100,000 businesses as tax collectors prior to PST re-implementation.   

However, the challenge for organizations with activities in British Columbia will be to plan, implement and execute any required accounting and reporting systems modifications in order to comply with this latest change in the Canadian sales tax landscape.  Those organizations that carefully documented their transition to the HST just over one year ago will undoubtedly reap the benefits of that work in the near future.  

Further details regarding the re-implementation date, transitional rules, and the province’s progress in returning to the PST are expected to be announced in the months to come, and Ryan will provide its clients with updates on any significant developments.