The Return to GST/PST – Implications for CRE in BC

Coin StackThis week's Industry Leaders Blog entry comes from  Pav Sikham, NAIOP Vancouver Treasurer and Senior Manager in the Canadian Corporate Tax Group at KPMG LLP, as well as Mark Worrall, Partner in the Indirect Tax Group at KPMG LLP.

On February 17, 2012 the B.C. government announced that the date on which B.C. would transition from the Harmonized Sales Tax (HST) back to the Goods and Services Tax (GST) / Provincial Sales Tax (PST) would be April 1, 2013 and the basic transition rules that will apply.

Transition Rules

The federal and B.C. governments have adopted a relatively simple approach to the transition back to GST/PST.  The general rule will be that where tax becomes payable before April 2013 HST will apply.  Conversely, where tax becomes payable after March 2013, GST and where applicable PST, will apply.  Generally tax becomes payable on the earliest of the date due per agreement, the date invoiced and the date paid.  However, the B.C. government has indicated that there will be special rules with regards to the application of PST to goods used in the improvement of real property: to date these rules have not been announced.

Based on the general rules, HST will apply to commercial rental payments that are due per the lease agreement prior to April 1, 2013 or that are invoiced or paid prior to that date.  Conversely GST will apply to any rental payments that are due after March 2013 per the lease agreement unless such rentals have been invoiced or paid prior to April 2013.

It is not clear at this point whether the general rule noted above will apply to construction services.  If it does then generally HST should apply to progress billings rendered before April 2013 while GST should apply where progress billings are rendered after March 2013.  If the general rule does not apply then it is likely that the same rules that were applied going into the HST will apply on transitioning out of the HST, that is HST will apply to the extent the work being billed was completed before April, 2013 while GST will apply to the extent the work was done after March, 2013.

Where taxable real property is sold, the general rule will be that HST applies where ownership or possession of the property is transferred to the buyer prior to April 2013.  Where both ownership and possession are transferred after March 2013 GST will apply.

Return to PST - Impact on Commercial Real Estate

While the "new" PST rules have not been announced, it is likely that the PST will apply in substantially the same manner as it did prior to July 2010.  Thus PST will generally apply to the materials used in construction, repair and maintenance of commercial property as well as to the tools and equipment used in course of such activities. 

Where projects currently underway are anticipated to go past March 2013 contractors will likely review their cost estimates in light of the fact PST will generally apply to materials acquired after March 2013 (subject to any specific transitional rules that may be announced) and seeking to adjusting contract prices accordingly.  On bidding new projects that are expected to go past March 2013 contractors will be factoring PST into their cost estimates.  Thus, all other things being equal, one can expect higher overall construction costs with the reinstatement of PST in B.C.


The information contained in this article is current to April 1, 2012. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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