British Columbia has recently issued a new bulletin PST 316, “Bundled Sales and Leases” clarifying how Provincial Sales Tax (“PST”) applies to taxable and non-taxable goods, software, services or property sold or leased together for a single price. On the other hand, incidental sales (that meet specific criteria) are not considered bundled sales.
The general rule for PST on a bundled sale or lease is to charge tax on the fair market value (“FMV”) of the taxable portion of the sale or lease. If using an estimate of the FMV, documentation should be retained for audit purposes.
Certain exceptions to the general rule apply. Tax on the entire single price will apply where:
- the FMV of the taxable portion is greater than 90% of the single price, and the single price is less than $500; or
- the non-taxable portion is not typically available separately for sale.
An exemption exists where all of the following conditions are met:
- the taxable portion and the non-taxable portion are sold for a single price;
- the FMV of the taxable portion is $50 or less, and is 10% or less of the FMV of all the items and services sold for the single price;
- both portions are pre-packaged together, or not normally sold separately;
- the taxable portion is not part of a promotional distribution; and
- the taxable portion does not include liquor, telecommunications or legal services.
Delivery charges are taxable for PST purposes if it relates to both taxable and non-taxable goods and if the customer gains title to the goods after delivery. However, delivery charges are not subject to PST if the bundled sale is exempt or the customer takes title before delivery.
Classes and workshops are generally not subject to PST; however PST would apply to taxable materials or equipment sold to the students. If the materials or equipment are not sold to the participants (e.g., leased), the supplier must pay PST as the user of these goods.
Liquor is taxable at a PST rate of 10%; the bundled sales exemption does not apply when liquor is included in the bundled sale.
Where software services form part of a bundled sale, PST does not apply if it is part of an educational program provided by a qualifying school, part of a trade, occupational or professional training or instruction, only provided to participants of a specific qualifying program and the software is the only taxable portion of the bundled sale.