British Columbia (BC) has recently published an update to Bulletin PST 105, “Software”, which contains more extensive details on the application of PST to software than the original version.
In the previous version, it was noted that PST applies to software on devices “ordinarily situated” in BC. In this version, specifics are provided on how PST applies to software on stationary and mobile electronic devices. For example, PST on the latter is based on the area code assigned to the device (e.g. a mobile phone), or if no area code is associated with the device (e.g. a tablet), then the billing address, IP address or address where the software is provided may be used.
Clarifications, with examples, have been added, including:
- A self-assessment of the PST must be made on the purchase of software on which PST was not charged.
- Software purchased for use in multiple jurisdictions is subject to PST on a proportional basis (a two-step PST calculation process is detailed in the document).
- Services to software are not subject to PST; however, services to hardware, even when purchased as a bundled service with software, will be subject to PST. Two exceptions to this general rule are provided.
- The application of PST to hardware and software maintenance agreements is dependent on the type of agreement (mandatory vs. optional) and is often complicated by the fact that these agreements typically result in a bundle of separate supplies with differing tax statuses. Guidance on the tax status of these agreements can be found on page 7 of this bulletin.
- While software maintenance agreements may include software updates and/or services, only the portion related to the software update is taxable. The portion related to services to software is not taxable. Generally, where a maintenance agreement includes both taxable and non-taxable components, PST will apply on the FMV of the taxable components.
In addition, software sellers and developers will find specific guidance on applying PST to their businesses, including scenarios where the PST must be charged and collected.
To differentiate between a purchase of software and access to a web page, some indicators have been listed that consider: functionality, use and wording of the website usage agreement. However, purchases that do not qualify as software may still be taxable as a telecommunication service.
The bulletin notes that consulting services and data access fees are not subject to PST. However, PST would apply to the right to access application software, such as a database management system.
Provided documentation to support the non-taxable status of a software purchase is obtained, the following exemptions are allowed:
- purchase for resale;
- incorporated into goods, other software, or prototypes;
- re-licensing copies for retail sale (only if certain criteria are met);
- purchased as a teaching aid for students by a qualifying school, school board or similar authority;
- purchased by new residents (subject to specific conditions);
- purchased by commercial fishers specially designed for use in electronic monitoring equipment and used solely for commercial fishing purposes;
- custom software and custom modified software;
- used to operate, control or monitor production machinery and equipment;
- source code in non-executable form;
- purchased as part of a business sold as a going concern;
- purchased from a small seller;
- related party asset transfers; and
- purchased by diplomats, consular corps, First Nations, and the Government of Canada.