British Columbia has issued a bulletin to clarify how PST applies to warranties and agreements and to parts and services provided under these warranties and agreements.
This complex issue depends on several conditions, including:
- the type of goods or property the warranty or agreement relates to (taxable or exempt goods, or improvements to real property); and
- the nature of the warranty or agreement (mandatory, optional with scheduled services, or optional with on-demand services).
Mandatory warranties and agreements for taxable goods, and those sold as an option with scheduled (or a limited number of) services or maintenance, are taxable. However, parts, services and replacement goods are non-taxable to the customer. In addition, any parts, services and replacement goods purchased by the provider of the warranty are exempt.
Optional warranties and agreements which provide parts and services only when needed are non-taxable when purchased. As above, parts, services and replacement goods are non-taxable to the customer and exempt when purchased by the provider. In all three types of warranties and agreements for taxable goods, any additional fees charged are taxable, unless a specific exemption applies. For on-demand warranty/agreements, services acquired by the provider are taxable unless specifically resold to the customer.
Warranties and agreements relating to exempt goods, including goods exempt to qualifying farmers, commercial fishers or aquaculturists are non-taxable. While fees charged for services, replacement goods and specifically designed parts are exempt, fees for generic parts are taxable. Similar to the warranties for taxable goods, parts, services and replacement goods are exempt when purchased by the provider. Services used to carry out optional warranties or agreements, if services are provided only when needed, are taxable unless specifically resold to a customer.
The purchase of a warranty or agreement for multijurisdictional vehicles is non-taxable. Any parts, services or additional fees charged to the customer are also exempt. Also, the provider is exempt from tax on any parts or services acquired to fulfil the warranty or agreement.
Warranties and agreements for exempt production machinery and equipment (PM&E) are also exempt from PST.
As contractors are liable for paying PST on the goods they purchase to fulfil a contract, they must also pay PST on the goods purchased for carrying out a warranty or agreement for real property, unless the contractual agreement specifies that the customer will pay the PST.
Whenever an exemption is required, a purchaser’s PST number or Certificate of Exemption – General (FIN 490) must be provided to the supplier in order to obtain the exemption.
This bulletin also provides information on bundled sales (PST on fair market value of taxable portion), manufacturer warranties and recalls (taxable for PST) and limited coverage and deductibles (PST applies to the deductible and to parts, services and replacement goods that exceed the limit on coverage).
British Columbia has summarized the above information into convenient tables included in the appendix to this bulletin.