On February 22, 2022, Minister of Finance Selina Robinson presented British Columbia’s 2022 budget. Titled “Stronger Together,” this year’s budget recognizes the recent and ongoing challenges posed by healthcare crises and climate change events and seeks to improve the province’s society, environment, and economy through significant investments in healthcare, childcare, housing, indigenous reconciliation, clean energy initiatives, climate-related disaster response, and sustainable innovation and economic development. A deficit of $5.5 billion is projected.
To help achieve the second-term government’s goals, the budget also includes several interesting tax changes, as summarized below.
Provincial Sales Tax (PST) Measures
New Obligations for Marketplace Facilitators
Businesses facilitating the sale or lease of certain goods, services, or software in British Columbia for third parties through online platforms will be impacted by new obligations that will take effect on July 1, 2022. These online platforms (referred to as “marketplace facilitators”) will be required to collect and remit PST on all sales of taxable goods shipped from within Canada for delivery in British Columbia. Similarly, the new requirements will also apply to leases of goods and supplies of taxable services (excluding legal services), including short-term rentals or other taxable accommodations, and software.
In addition, effective the same date, marketplace facilitators will be required to charge PST on facilitation services provided to sellers.
A positive development from the perspective of sellers is that, as of July 1, 2022, they will no longer be required to collect or remit PST on sales or leases made through marketplace facilitators.
The province also noted that it is looking to expand the marketplace facilitator tax collection obligations soon to include sales of goods shipped from outside Canada to consumers in British Columbia.
Note that these new obligations will not introduce any new taxes on supplies made through online distribution channels. The changes are intended to create a more efficient PST collection system for sales via online platforms by imposing collection and remittance requirements on the marketplace facilitators, rather than relying on consumers to self-assess PST on purchases when sellers or facilitators fail to collect the applicable tax. The province is projecting that the implementation of these measures will generate more than $100 million annually in additional revenue.
Relief for Zero-Emission Vehicles
The sale of all used zero-emission vehicles is exempt from PST starting on February 23, 2022. This exemption applies to sales of used zero-emission vehicles made by automobile dealers, as well as private sales of eligible vehicles that have been driven for 6,000 kilometres or more. The new exemption will be in place for five years and expire on February 22, 2027.
In addition, the passenger vehicle surtax threshold used to calculate PST on zero-emission vehicles has been increased to $75,000 from $55,000, effective February 23, 2022. This increased passenger vehicle surtax threshold will also be in place for the next five years, ending on February 22, 2027. As a result of this change, zero-emission vehicles priced below $75,000 will be subject to 7% PST, with the PST rate increasing at various price thresholds up to an amount that equals or exceeds $150,000, at which point the applicable PST rate will be 20%. This change is being made to recognize the fact that the purchase price of zero-emission vehicles tends to be significantly higher than that of vehicles powered by internal combustion engines.
Exemption for Heat Pumps and Increase for Fossil Fuel Heating Equipment
To help reduce greenhouse gas emissions by encouraging taxpayers to reduce the use of fossil fuel heating systems in buildings, starting on April 1, 2022, heat pumps will be exempt from PST. Additionally, any parts or components included in the initial purchase of a heat pump system will be exempt. As a transitional measure, where a heat pump is purchased before April 1, 2022, as part of a contract under which the heat pump is installed into real property on or after April 1, 2022, the person who paid the PST (i.e., contractor or customer) will be eligible to apply for a refund.
As a further incentive for taxpayers to switch to heat pumps, the PST rate on fossil fuel combustion systems (e.g., forced central air furnaces and air conditioners) that heat or cool buildings or water will be increased from 7% to 12%, effective April 1, 2022. For transitional purposes, fossil fuel combustion systems will be subject to 7% PST when acquired in relation to contracts entered before February 23, 2022, even when installed into real property on or after April 1, 2022. However, the 12% PST rate will apply to fossil fuel combustion systems installed into real property on or after April 1, 2022, where the contract is entered into on or after February 23, 2022.
For more information on this change, see British Columbia Notice 2022-003, Provincial Sales Tax on Fossil Fuel Combustion Systems and Heat Pumps.
Adjustment for Private Vehicle Sales
To address tax avoidance issues stemming from the underreporting of prices on private motor vehicle sales, effective October 1, 2022, the calculation of PST on sales of these vehicles will be based on the greater of the reported purchase price and the average wholesale value of the vehicle. This change will not apply to trade-ins. The government also noted that this measure will align its tax policy with that of many other provinces.
Elimination of Tobacco Exemption
The existing PST exemption for tobacco will be eliminated, effective July 1, 2022. By making tobacco subject to PST (in addition to tobacco tax), the province hopes to provide a further incentive to reduce tobacco consumption, while generating additional tax revenue that can be used to help offset the healthcare costs resulting from tobacco use. Again, the province noted that this change is consistent with the approach taken by most other Canadian jurisdictions.
The government noted that various other technical amendments will be made to the Provincial Sales Tax Act, including an important change that will impact the application of PST to certain real property contracts.
In response to a 2021 British Columbia Court of Appeal decision involving real property contracts where the contractor and customer agree that the customer will be liable for the PST, the province will introduce an amendment, retroactive to April 1, 2013, to require the supporting documentation for such arrangements to contain a clear statement that the customer is liable for paying PST and the tax is payable under section 80, 80.3, or 80.6 of the Provincial Sales Tax Act.
Other technical amendments to be made include:
- Effective February 23, 2022, a clarification to ensure that gift cards and certificates are not subject to PST when acquired;
- Minor modifications to the tax payment agreement provisions (to become effective as specified by regulation); and
- As part of various amendments to several provincial tax statutes, effective October 1, 2022, changes to ensure clarity and standardize the rules for filing appeals to the Ministry of Finance.
Carbon and Motor Fuel Tax Measure
Expansion of Hydrogen Exemption
The Category 1 alternative motor fuel classification is expanded to include hydrogen fuel, effective February 23, 2022. This change creates a motor fuel tax exemption for hydrogen if it is:
- purchased for use in an internal combustion engine vehicle; and
- not produced by electrolysis using coal-generated electricity, unless the carbon dioxide emitted in the process is captured and stored or isolated.
This change to the categorization of hydrogen fuel is consistent with the province’s goal of encouraging the use of lower-emission fuels since hydrogen does not produce carbon when combusted. However, the designation of any fuel as alternative motor fuel is subject to periodic review.
Income Tax Measure
Scientific Research and Experimental Development Tax Credit Extended
Consistent with the province’s desire to encourage and promote innovation, the Scientific Research and Experimental Development (SR&ED) tax credit will be extended for five years to August 31, 2027.
For information on new and extended government funding initiatives included in this year’s provincial budget, please navigate to Mentor Works News.
Further details on British Columbia’s 2022 budget may be found on the province’s website at: https://www.bcbudget.gov.bc.ca/2022/default.htm.
If you have any questions about how these proposed changes might impact your organization, please do not hesitate to call the Ryan TaxDirectTM line at 1.800.667.1600.