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More On The PST



Currently, three of Canada's provinces levy a stand-alone provincial sales tax (PST). These provinces are Saskatchewan, Manitoba, and British Columbia. Among the other provinces, Quebec has a provincial sales tax system (the QST) that is partially harmonized with the GST.  Ontario, Prince Edward Island, Nova Scotia, New Brunswick and Newfoundland & Labrador all have joined the fully harmonized HST system, although the HST rates vary between provinces.

Alberta and Canada's three territories do not presently employ retail sales taxing systems.

Contrasting the GST with the PST Systems

In many respects, the federal and provincial systems are like night and day. If generalizations can be drawn between the two, there are two fundamental differences.

Differing Tax Bases

The most obvious is the differing tax bases. While the GST is an all-encompassing tax, the provincial sales tax systems are generally aimed at comparatively narrow tax bases. For example, the GST is levied on virtually all tangible personal property (TPP, or goods), intangible personal property (IPP), real property, and services.

On the other hand, the various PST systems are usually aimed at levying tax on transactions involving only goods, and certain specially defined taxable services. Having said that, these provinces generally employ an all encompassing definition of TPP[i] which is capable of capturing virtually all goods, as well as what might otherwise be considered as IPP and/or services. For example, all provinces now attempt to tax computer software see infra.

In terms of the specially defined taxable services, most provinces attempt to tax services related to goods (e.g., like services to install, assemble, dismantle, repair, adjust, restore, recondition, refinish, or maintain TPP), as well as certain other special-nature services.[ii] More recently, some provinces have been adding to their definition of taxable services, so as to parallel the broad tax base now in place under the GST/HST.[iii]

Focus of the Tax & Treatment of Inputs

A second fundamental difference between the GST and the various PST systems lies in the overall focus of the tax, and the consequent treatment of business inputs. While the GST is a multi-stage value-added tax, with a comprehensive system for taxing the value-added at each stage of the production process, and crediting tax paid at the earlier stages of that process (e.g., through ITCs), the PST systems are aimed at (theoretically) imposing the PST only on the ultimate consumer or user of the taxable good or service. In other words, these systems attempt to create a single incidence tax.

This poses a problem for business inputs, since situations arise where a business may be paying the PST on its business inputs, and then charging and collecting the PST again on the value of its production or output. Absent rules to remove this cascading of tax, the final manufactured product may well bear double and triple layers of tax. While each PST system has some rudimentary rules providing for some limited exemptions (e.g., an exemption where goods are purchased for resale), these rules are nothing like the universal ITC system available for commercial businesses paying the GST. Thus while the GST system ensures that every good, service or intangible consumed in Canada bears, at the most, a 5% GST component, the effective rate of PST imposed on fully manufactured Canadian goods may be much higher than the stated provincial rate.

Even more troubling, to the extent there is PST imbedded in manufactured goods, those goods will carry that PST even when they are exported from Canada.


[i] Under section 1 of the Ontario Retail Sales Tax Act, for example, TPP is defined to be personal property that can be seen, weighed, measured, felt or touched or that is in any way perceptible to the senses and includes computer programs, natural gas and manufactured gas.

[ii] For example, Ontario previously defined the following services to be taxable services:

(a) telecommunication services of all kinds, including without restricting the generality of the foregoing, telephone and telegraph services, community antenna television and cable television, transmissions by microwave relay stations or by satellite, and pay television, but not including public broadcasting services that are broadcast through the air for direct reception by the public without charge,

(b) transient accommodation,

(c) labour provided to install, assemble, dismantle, adjust, repair or maintain tangible personal property,

(d) any contract for the service, maintenance or warranty of tangible personal property; or

(e) the provision of the right to park a motor vehicle or to have a motor vehicle parked in a commercial parking space.

Bill 198 also proposes to include the service, maintenance or warranty of a computer program, as those expressions are defined by the Minister in taxable service definition. With the exception of transient accommodation, which is taxed at a special rate of 5%, each of the taxable services above is taxed at the normal Ontario PST rate of 8%.

[iii] A good example of that can be seen in Saskatchewans 2000 budget which served notice that a variety of services will soon be fully taxable in Saskatchewan, including virtually all professional services (e.g., legal, accounting, architectural, consulting, and engineering), placement services, and computer services. See for example, the Saskatchewan Information Bulletin entitled Summary Of Changes To E&H Announced In March 29, 2000 Budget (March 29, 2000). As indicated above, Ontario is currently in the process of enacting legislation so as to specifically include computer related services in the definition of taxable service.

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