BC has announced a PST rebate for most incorporated businesses on select machinery and equipment purchased or leased between September 17, 2020 and September 30, 2021. This is a temporary program intended to help incorporated businesses recover from the financial impacts of COVID-19.
Most incorporated entities will qualify for the rebate. The rebate will not be available to select entities, including Crown and government corporations, charities and non-profit corporations, schools, hospitals, regional health boards, and agents of the foregoing.
Although the government publication is silent in respect of partnerships, we expect the rebate program to apply to partnerships with incorporated partners given that the PST rules generally do not treat a partnership as a separate person but rather look through to the partners (or possibly the general partner alone in the case of a limited partnership).
To qualify for the rebate, the machinery and equipment must be:
- included in CCA classes 8, 10, 12, 16, 43, 43.1, 43.2, 46, 50, 53, 54, and 55 (as they read on September 1, 2020) for income tax purposes; and
- obtained substantially (more than 90%) for the purpose of gaining or producing income.
The following do not qualify for the rebate:
- goods purchased to be installed as “improvements to real property”;
- software and goods, other than goods obtained by lease, that are not capital assets;
- vehicles, other than zero-emission vehicles (which do qualify);
- goods purchased for resale by a small seller; and
- exclusive products purchased by independent sales contractors.
There is uncertainty whether “affixed machinery” is excluded from the rebate. That uncertainty comes from BC’s use of the term “improvement to real property” in the announcement. Under general legal principles, the term refers to all goods that have become fixtures through installation in realty. In explaining the term, BC’s technical backgrounder offers as an interpretive guide Bulletin PST 502 which discussed how to distinguish between fixtures and chattels and implies that a broad exclusion from the rebate was contemplated for goods that cease to be chattels on installation. The problem is that improvement to realty is defined in the Provincial Sales Tax Act and applying the statutory definition leads to a broader entitlement to the rebate. Specifically, the term excludes “affixed machinery” (which covers broad classes of machinery and equipment attached to a building or land). If we follow the definition under the legislation, goods purchased to be installed as affixed machinery would still qualify for the rebate. If we follow common law, those goods would not qualify for the rebate. The release of draft legislation or regulation will hopefully clarify this point.
As noted above, the rebate is available for PST paid between September 17, 2020 and September 30, 2021, subject to transitional rules yet to be announced.
Applying for the Rebate
Incorporated businesses will be able to submit up to two rebate applications. The first application can be made between April 1, 2021 and September 30, 2021. The second application can be made between October 1, 2021 and March 31, 2022.
BC will release detailed information on the rebate application process prior to April 1, 2021.
Incorporated businesses should pay close attention to the income tax classification of their capital assets acquired between September 17, 2020 and September 30, 2021. If a business is currently unincorporated, it should consider incorporation before purchasing or leasing significant qualifying capital assets in this time period. Implications of incorporation for other taxes should, of course, be considered prior to doing so. If a business applies for this rebate, it must retain all relevant receipts or invoices showing proof of PST payment and the date that PST was paid.