British Columbia (“BC”) has recently issued a new bulletin explaining the application of PST to promotional materials and certain special offers.
Promotional materials are generally goods, software or telecommunication services either used, given away, or sold below cost to describe, promote or encourage sales, use or consumption. Examples include samples, gifts, and advertising flyers. Excluded from this category are vehicles, boats and aircraft given away or sold below cost.
The liability for tax falls on the purchaser of the promotional materials, not the customer. Where the goods are sold at an amount below cost, tax applies to the selling price and must be self-assessed by the vendor on the difference between the selling price and the cost of the product. Self-assessment is also required where goods originally purchased to be incorporated into goods for resale or lease are removed from inventory for use as promotional material. However, if goods are not being sold for promotional purposes (e.g., sale of obsolete items), no self-assessment is required.
Care must also be taken to self-assess PST on goods purchased from out-of-province suppliers. Conversely, if goods are shipped out of BC, they may be exempt (under specific conditions) or eligible for a refund (subject to certain criteria). Businesses that often claim refunds for PST on the purchase of promotional materials may opt (if they qualify) to apply for a voluntary tax payment agreement (TPA) to allow them to purchase certain items exempt of PST and to self-assess and remit the tax on any items later used for a taxable purpose.
Special offers, (for example, providing bonus items with the purchase of a minimum dollar value of goods) are generally not taxable. PST is charged on the purchase price of the goods. Bonus items can be purchased exempt from PST as goods for resale. Gift cards and gift certificates are also not subject to tax; PST will apply on the subsequent purchase of taxable goods or leases. Exceptions apply to certain cards as purchases of software or telecommunication services, including time cards, points cards, and cards that provide the purchaser with a right to download, view or access audio books, music, ringtones, audio programs, TV programs, movies and other videos via a telecommunication system.
Lastly, this bulletin discusses coupons and rebate offers. When issued by a retailer or service provider, these usually reduce the purchase price subject to PST. However, where these coupons or offers are issued by third parties, PST may apply depending on whether these are reimbursable (full purchase price is taxable) or non-reimbursable (reduces taxable purchase price).