- The PST will function in the same manner as it did previous to the implementation of the HST, pairing itself with GST on many items.
- The HST rate in BC was 12%, whereas the GST and PST will generally be 5% and 7% respectively. Keep in mind that there are many PST exemptions, many of which are subject to conditions.
Registration:
Registration for the PST started on January 2, 2013. Many small businesses are required to register in order to collect and pay PST to the provincial government. You need to register if your business, for example, regularly sells taxable goods, leases taxable goods, provides legal services, or provides software.
Early registration allows for small business owners to become familiar with the system that is being used for reporting PST, before it is actually implemented. By understanding this system, you will be able to reduce the time spent on the actual date of remittance, as you will be able to identify the problematic areas, and create a streamlined process for your business.
Reporting:
The same methods of reporting currently used will apply to PST and GST, but beginning on April 1, there will be a new online system that allows for a streamlined process intended to benefit small businesses. All that is required is to register for eTaxBC, which allows for you to manage, file, and pay any PST associated with your account.
Sales Tax Credit:
To accompany the PST, the Sales Tax Credit will be re-introduced. This is a refundable personal tax credit that can be claimed when filing a T1 Income Tax Return. The reintroduction of this credit means that the BC HST credit will be paid for the last time in January 2013.
Small business owners can take advantage of this if they do not have high personal earnings. You are able to claim $75 for a single individual, but the credit is reduced by 2% of Net Income over $15,000.
Exempt Goods/Services:
There are many goods and services that are exempt from the Provincial Sales Tax, including basic groceries and prepared food, books, newspapers, children’s clothing, and bicycles. Keep in mind that there are many conditional exemptions that do not apply unless there is supporting documentation, many of which are in regards to the resale of items. For more information on exemptions, you can visit the BC Governments list of Tax Exemptions.
When to Charge:
As a small business owner, knowing when to charge PST can reduce time spent reviewing sales and purchases before the remittance date of April 1. Making the correct charge at the time of sale or purchase will allow the business to continue on smoothly and help avoid correcting transactions.
PST is to be charged on the total selling price before GST is calculated, which includes all charges paid in order to obtain ownership. This applies to the price at the time of sale, as well as sales made on credit. Generally speaking PST should also be charged to sales made to out-of-province customers, as well as the BC Provincial Government, but should not be charged to the Federal Government.
What Records to Keep:
It is important for small business owners to keep adequate records in case of an audit, or to settle any disputes that may arise in the regular course of business. Detailed records should be kept for all leases and sales, amounts of tax collected and remitted, and purchases made by the business.
These records are required to be kept for five (5) years, although in some cases it might be a good idea to keep them for longer. If you are unsure on which records to keep, you should speak with your accountant.
Penalties:
Incorrectly filing your tax return, due to a miscalculation of PST or simply not remitting can result in a penalty having to be paid by the small business owner. The Provincial Government typically sends a warning letter on the first assessment that explains the possible penalties as well as the proper application of the tax. If no remittance is filed, you will then be assessed a penalty based on the information that the CRA has acquired. Penalties can range from 10-100% based on the severity of the situation. A simple miscalculation would result in a penalty at the bottom of the range, whereas wilfully avoiding tax through fraud or other means can land a penalty at the top of the range.
PST is returning to BC, and as a small business owner one of the best things you can do is to stay up to date with all of the information that is being released by the Provincial Government as well as other bodies associated with the switch back. Understanding the situation and being prepared will give you an edge over other businesses. For additional information regarding the re-implementation of PST, take a look at the PSTinBC website.
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