Return to BC PST

1. Return to BC PST PST Sabina Diaconescu Norma Orellana March 2013

2. Agenda • Introduction and overview • General rules • Transitional rules • Exemptions relevant to SFU • Other impacts on SFU • PST and real property contracts • PST impacts on cost Return to BC PST - March 2013

3. Introduction and overview Return to BC PST - March 2013

4. BC sales tax de-harmonization: What is it? • On April 1, 2013, BC replaces the 12% HST with the 5% GST and 7% PST • Replacement of one tax system for two tax systems • HST = All federal • GST + PST = Federal + Provincial • SFU is registered for HST purposes and is considered to be registered for GST purposes. SFU’s GST number is 11852 0725 RT0001 • SFU is already registered for PST. SFU’s PST number is PST-1000-6004 Return to BC PST - March 2013

5. Transition from HST to GST Return to BC PST - March 2013

6. Overview of Canadian sales taxes after April 1, 2013 YukonTerritory GST 5% Newfoundland & Labrador HST 13% NorthwestTerritories GST 5% Nunavut GST 5% BritishColumbia GST 5% PST 7%(1) Manitoba GST 5% PST 7% (1) Alberta GST 5% Québec GST 5% QST 9.975% (2) Saskatch- ewan GST 5% PST 5% (1) Prince Edward Island HST 14% Ontario HST 13% Nova Scotia(3) HST 15% New Brunswick HST 13% • PST applicable on the consideration before GST • QST applicable on the consideration before GST • Nova Scotia announced in its 2012 Budget that it will reduce the HST by 1% on July 1, 2014 and by another 1% on July 1, 2015 Return to BC PST - March 2013

7. General rules Return to BC PST - March 2013

8. BC PST: Basics • On April 1, 2013, vendors will start to charge BC PST on their supplies of taxable goods and services • The BC PST is governed under the PSTA and the regulations • PST is a "use tax", designed to be paid by the end-user of the product or service • There is no input credit or rebate mechanisms like the GST • PST is an absolute cost to an organization • Tax base is province-specific, not national Return to BC PST - March 2013

9. BC PST: Recap on PST tax rates Return to BC PST - March 2013

10. Tangible personal property (TPP) • Applies to most TPP, subject to some exemptions PST • Services • Applies to some services, mainly those related to TPP • Real property • Does not apply to Real Property but, rather, to embedded materials BC PST: Key concepts Return to BC PST - March 2013

11. BC PST: Key concepts TPP • Goods that you can see, feel, weigh, measure, and touch • Includes natural or manufactured gas, heat, electricity, and affixed machinery • Taxable, unless specifically exempt Real property • Land and items permanently attached to the land (building and structures) • Includes improvements to real property • Generally not taxable Services • Generally not taxable • Taxable services: telecommunication, legal, short-term accommodation, and related services Return to BC PST - March 2013

12. BC PST: Summary of how tax applies Return to BC PST - March 2013

13. Consumer goods and services Return to BC PST - March 2013

14. BC PST: Self-assessment rules When does SFU have to self-assess PST? • If TPP is purchased from outside BC from vendors who are not registered to collect PST, there is a requirement to self-assess PST when the TPP is used in BC • The self-assessment has to be done on the landed cost of the TPP What is the landed cost? • Costs and expenses for materials, labour, and other manufacturing and processing costs and expenses • Costs and expenses for services, customs, excise, and transportation Payment services self-assesses PST on imports of taxable goods and services including “landed costs” and a charge will be reflected in your accounts with respect to this Return to BC PST - March 2013

15. BC PST: Self-assessment rules On what do we self-assess PST? • Purchases for own use • Promotional distribution (e.g. gifts, marketing materials) • TPP brought into the province • Out of province purchases – PST on landed cost • Goods brought in from another country • Goods transferred between provinces • Note: A refund of PST may be available from the originating jurisdiction, if goods were not used and, subsequently, were moved out of the province • Taxable services • Used personal goods are exempted Return to BC PST - March 2013

16. Freight charges: Within and outside of BC Within BC • PST does not apply to transportation services not related to a sale or lease of good (e.g., skytrain and bus fares, moving furniture, etc.) • If the transportation service is related to a sale or lease of goods, PST may apply. The PST treatment is based on where the title to the goods passes to the customer and the tax status of the product • Title to product passes at the purchaser’s location or at another location other than vendor’s premises. The freight charge will be included in the purchase price of the good. If the product itself is taxable, then PST must be charged on the entire transaction, including the freight charge. If the product is not taxable, no PST applies to the entire transaction • Title passes at the vendor’s location. The transportation charge will not form part of the purchase price and will be non-taxable, as long as it is shown as a separate charge Outside BC • You do not charge PST, if you ship goods outside of BC Return to BC PST - March 2013

17. Related services • Related services are services provided to TPP • Generally, if a good is taxable, services provided to that good are taxable, unless a specific exemption applies What is taxable? • Services provided to TPP, such as repair, maintenance, installation, restoration, reconditioning, set-up, dismantling, and protective treatment services Return to BC PST - March 2013

18. BC PST: Rules on software • The purchase of software by a business will be subject to PST, provided that the software is used in BC • When the software is used both inside and outside of BC, the amount of PST will be calculated based on the BC-usage What is exempt? • Exemptions regarding the purchase of software from the previous PST legislation will be re-implemented, such as: • Software purchased by SFU for use more than 90% of the time as a teaching aid for students • Software purchased for resale • Custom and custom-modified software • Services provided to software: installation, modification, etc. Return to BC PST - March 2013

19. Transitional rules Return to BC PST - March 2013

20. Transitional rules: Goods and services purchased in Canada Return to BC PST - March 2013

21. Transitional rules: Goods brought into BC from outside Canada By foreign vendors (i.e., outside of Canada) • PST applies if: • Goods brought, sent, or delivered into BC from outside Canada on or after April 1, 2013 • Delivery date is key By BC resident • PST applies if: • Goods brought or sent into BC on or after April 1, 2013 • Entry date is key Return to BC PST - March 2013

22. Transitional rules: Software • PST applies to: • Software used on or with electronic devices ordinarily situated in BC • When the consideration becomes due on or after April 1, 2013, and • Is not paid before April 1, 2013 • Consideration is generally due at the earlier of when an invoice is issued or dated. When there is an agreement in place, consideration is due on the day the recipient of the supply is required to pay the consideration, pursuant to the written agreement Return to BC PST - March 2013

23. PST and real property contracts Return to BC PST - March 2013

24. Real property • Real property is land and buildings • Goods that become permanently attached to the land, buildings, or structures on installation are called improvements to real property • The following integral components of building and land are considered improvements to real property: • Windows • Doors • Plumbing • Electrical and heating systems • Structures permanently affixed to land, including concrete driveways and sidewalks Return to BC PST - March 2013

25. Real property • Contracts to construct buildings and supply and install or affix goods that become improvements to real property are categorized as real property contracts for PST purposes. • Real property contracts are generally not subject to BC PST, unless the agreement states that the liability of PST will be passed to the purchaser • Real property contractors pay PST on the purchase goods for the purposes of fulfilling a contract for the supply and installation of improvements to real property, unless there is a specific agreement transferring liability for the PST on those goods to the customer, stating: • The value of the materials, machinery, and equipment • That the customer is responsible for paying PST on this amount • The contractor is registered as a vendor for BC PST Return to BC PST - March 2013

26. Real property What does not constitute an improvement to real property, even though it ceases to be TPP at common law? • Affixed machinery is not considered an improvement to real property, and it is generally taxable for PST purposes as TPP • Definition of affixed machinery: • “Machinery, equipment, or apparatus that is used directly in the manufacture, production, processing, storage, handling, packaging, display, transportation, transmission, or distribution of goods, or in the provision of software or a service, and is affixed to, or installed in, a building, a structure, or land, so that it ceases to be personal property at common law” Return to BC PST - March 2013

27. Real property • The following are considered improvements to real property for PST purposes and are not affixed machinery: • Machinery, equipment or apparatus that is affixed to, or installed in, a building, structure, or land for the purpose of heating, air conditioning, or lighting a building or structure, sewage disposal for a building or structure, or lifting persons or freight within a building or structure by elevator or escalator • Machinery, equipment, or apparatus that: • Is constructed on the site where it is to be used, due to its size • Would generally be expected to remain on the site where it was built for its useful life • Does not move from the site at which it is constructed; does not run on rails or tracks • Cannot be moved from the site at which it is constructed, without • Dismantling the machinery, equipment, or apparatus • Dismantling or causing substantial damage to the building or structure to which it is affixed or in which it is installed Return to BC PST - March 2013

28. Real property • For the purposes of the PST, supplying and installing goods under a contract to improve real property is not a sale of those goods to the customer; therefore, the exemption for goods acquired for resale is not applicable • PST must be paid by the real property contractor, regardless of whether the contract is a time and materials contract or a lump sum contract, unless a specific exemption applies If the contract is for Supply & Install of Exempt Production Machinery, use PST code ‘E’ (PME) on the PO. This will print the Exemption Certificate on the PO, which the vendor needs to purchase the equipment PST-exempt Return to BC PST - March 2013

29. Exemptions relevant to SFU Return to BC PST - March 2013

30. Exemptions: School supplies purchased by SFU Examples of goods that are exempt of PST if purchasedby SFU for use by students or for use in instructing students: • Cellulose tape • Chalk • Charts, diagrams, and maps • Lesson notes, précis, examinations, test papers, answer keys, work sheets, and other similar materials and materials to manufacture those materials • Pens and markers for use on whiteboards • Software for use on a computer, as a teaching aid for students • Supplies and materials obtained for consumption in a science course SFU intranet: complete list included in the PST section of the finance website Return to BC PST - March 2013

31. Exemptions: School supplies purchased by students Exempt goods when purchased for use by students (exhaustive list): • Bags designed to carry books and supplies (excluding backpacks, bags with wheels, briefcases, knapsacks, sport bags, tote bags, or attaché cases) • Drawing instruments • Erasers, glue, ink, rulers • Lined, unlined, drawing, graph, and music manuscript paper • Paints and paint brushes • Pencils and wax crayons • Pens, other than fountain pens and nibs • Ring binders • School art portfolios • Work books Return to BC PST - March 2013

32. Exemptions: Publications The following publications are exempt of PST: • Booksthat contain no advertising and that are published solely for educational, technical, cultural, or literary purposes • An employee newsletter • Student yearbooks • Sheet music • Magazinesor periodicals containing at least 10% technical, literary, editorial, and pictorial content • Newspapers, if at least 20% of the content includes editorials, news, and articles of local or common interest Return to BC PST - March 2013

33. Exemptions: General The following are examples of goods/services not subject to PST: • Courses • Administration fees and application fees • Admissions (e.g., seminars, conferences, and athletic events) • Memberships • Transportation services (e.g., travel by plane or by bus, courier, and freight) • Examination fees • Fines (e.g., library and parking) • License fees • Tutoring • Inter-library loan services SFU intranet: a detailed list of taxable and non-taxable goods and services will be posted Return to BC PST - March 2013

34. Exemptions: Safety equipment • Certain work-related safety equipment and protective clothing designed to be worn by, or attached to, a worker is exempt of PST (e.g., safety glasses, respirators, hearing protectors, certain gloves, and helmets) • Must be purchased: • By an employer for use by their employees in the course of employment • By the university • Supporting documentation is required • SFU must provide its PST number at the moment of purchase • There is also some safety equipment that is exempt of PST, independent of whether or not it is for a worker (e.g., first aid kits, life jackets, portable fire extinguishers, etc.) Return to BC PST - March 2013

35. Exemptions: Prototypes Qualifying prototypes • The first full-scale functional form of a new product, and • The result of research and development activities aimed at developing a new or improved product or a new or improved process Purchases • What is not taxable? • Materials attached to, processed, fabricated, manufactured, or incorporated into a prototype • Prototypes used in demonstration or display or for testing in R&D • Software that is specifically designed for a prototype Return to BC PST - March 2013

36. Other impacts on SFU Return to BC PST - March 2013

37. Changes to systems • The return to PST requires changes to the following systems and processes: • Modify point of sale system to account for PST, effective April 1 • Invoices have to include breakdown of PST and GST • Ensure that the PST is charged on taxable goods and services • Ensure that, at the moment of returning or exchanging goods, the correct tax is credited • Include SFU’s PST number on purchase orders for goods that will be purchased for re-sale. The PST number for SFU is PST-1000-6004 It is each departments’ responsibility to ensure that the correct taxes are collected at the point of sale Return to BC PST - March 2013

38. Goods purchased for resale or lease (or goods to be incorporated into goods for resale) • No PST should be paid to vendors when SFU purchases goods that are going to be sold or leased to external parties Supporting documentation is required • SFU must provide the PST number to the vendor when ordering the goods • The vendor will record the PST number on the invoice • In the case of written agreement, the vendor has the alternative of recording SFU’s PST number on the contract Return to BC PST - March 2013

39. Parking • The BC PST will not apply on parking • The 21% parking tax that is currently in place will continue to apply on or after April 1, 2013 • The GST applies on top of the base cost and the 21% parking tax Return to BC PST - March 2013

40. Internal charges • The PST and GST may apply to some internal charges, depending on the supplies and the department making the supplies • Additional information on this will be posted in the finance website Return to BC PST - March 2013

41. General Ledger accounts for sales • The following are the GL accounts that you need to use to record the GST/HST and PST collected on your sales. Return to BC PST - March 2013

42. System changes • The following changes have to be made to the systems and processes: • Changes in PeopleSoft to formulas that calculate the GST rebates • Changes to SIMS • Activate PST general ledger account • Update template used for P-cards Return to BC PST - March 2013

43. Employee expense claims and P-Cards • Impact on expense reports is as follows: • Users have to make sure that the correct codes are selected for expense type and the jurisdiction where the expense was incurred • All of the work related to the re-implementation of PST has been done behind the scenes by SFU’s IT analysts • PCard transactions • Please remember to reconcile all your tax applicable receipts and to fill out the BMO details online description field with a meaningful purchase description to ensure correct tax rebate application • Interprovincial purchases: please separate HST/GST or PST rates on all your reconciliation purchases • Out-of-country purchases: Payment Services is GST/PST self-assessing all related transactions,  based on purchase description Return to BC PST - March 2013

44. PST impacts on costs Return to BC PST - March 2013

45. Example: Purchase of PST taxable goods • Increased cost due to PST: $5.25 (108.65-103.40) Return to BC PST - March 2013

46. Example: Purchase of PST taxable services • Increased cost due to PST: $5.25 (108.65-103.40) Return to BC PST - March 2013

47. Example: Purchase of PST exempt services • Decreased in cost due to PST: $1.75 (103.40 – 101.65) Return to BC PST - March 2013

48. Top 5 things to remember on PST • Payment Services will do the PST self-assessment on imports of taxable goods and services • Each department is responsible for collecting the correct amount of GST and PST on sales and using the correct GL accounts to record the GST and PST collected • Present SFU’s PST number when claiming exemptions on purchases for resale or exemptions on goods purchased for educational purposes • More information on PST and GST is available in SFU’s finance website • The following will be the net costs due to GST and PST on a $100 purchase: Return to BC PST - March 2013

49. Useful websites Bulletins and publications: • http://www2.gov.bc.ca/gov/topic.page?id=0CE539AD86F44033A1C531B9B597EA86 Frequently asked questions: • http://www2.gov.bc.ca/gov/topic.page?id=CE70BF6CB8424CA9A38F1F6C33EE7E1D&title=Frequently%20Asked%20Questions File path of SFU intranet: • http://www.sfu.ca/finance.html Return to BC PST - March 2013

50. Contacts Sabina Diaconescu Senior Manager, Payment Services 778-782-7255 Sdiacone@sfu.ca Larry Guthrie Director, Financial Services 778-782-4708 Larry_guthrie@sfu.ca Return to BC PST - March 2013