British Columbia now taxes most digital remote sellers

As part of British Columbia’s (“BC”) 2024 budget announcement, one of the most recent enlargements of the provincial sales tax (“PST”) occurred in plain sight. Over the last several years, provincial governments have been slowly expanding the PST-base to capture more and more digital products and services. In 2021, BC took its first step in capturing certain digital products that go beyond traditional software and with the 2024 budget, PST will now apply to most (if not all) digital products and services.

In 2023, BC announced further changes to PST registration requirements to capture even more remote sellers in and outside of Canada, requiring many suppliers of digital products and services to register for PST. You can check out our in-depth article here. Along with the latest changes and the introduction of new and very punitive late filing penalties, remote sellers of anything digital to BC customers must be keenly aware when selling remotely into BC.

How does the 2024 BC budget impact digital remote sellers?

BC recently lost a court case whereby PST did not apply to an application programming interface (“API”) that was supplied to BC customers as the court determined that an API is not software. To address this, BC passed legislation to retroactively address this issue and greatly expand the definition of “software” to catch API’s, software as a service (“SaaS”) and infrastructure as a service (“IaaS”) and certain computer code that causes an electronic device to perform a task. Arguably SaaS and IaaS were already subject to PST before this change due to BC’s expansionist ambitions in widening the PST base in prior budgets.

What is important is that the new legislation is retroactive to April 1 of 2013…yes 11+ years ago. It is not clear yet, how or if BC will seek out remote sellers (or even in-province sellers or business purchasers that may not be required to self-assess PST) to try and apply PST retroactively to such suppliers of these digital products and services. One saving grace for most remote sellers, is that the expanded registration requirements introduced in the last few years, only applied to sales of software and telecommunications (effectively anything digital that isn’t software) to BC customers on or after April 1, 2021.

How should remote sellers of all things digital, apply the new BC PST rules?

Given that the threshold to register noted above, was only effective after March 2021, remote sellers of “software” (under the new and retroactive definition) that met the other requirements to be registered, could be impacted by these changes, but generally only as far back as April 1, 2021. However, remote sellers of most digital products or services that could be considered software (or telecommunications) and who are located in or outside of Canada, should assess:

(a) their requirement to register,

(b) whether their digital products and services supplied to BC customers are now subject to PST, and

(c) whether they’re affected by the retroactive definition change to software.

For years prior to the normal statute of limitations of four years, it is unlikely that BC is going to spend the time and effort to (a) chase remote suppliers, especially those outside of Canada and (b) nauseate BC businesses with retroactive legislation and audit assessments. However, this change may not stop BC PST auditors from looking into this issue with the four-year statute of limitations when a BC or “BC-connected” business acquires “software” for use in the province, especially if they’re currently under audit or will be in the next few years.

The other big surprise in BC’s 2024 budget was the introduction of quite significant late-filing penalties which can accumulate up to 34% (for repeat offenders) of the understated PST on any return filed , where PST was not collected, reported or remitted as and when required, and the required return was never filed or was filed late. This applies to all persons (not just remote sellers), so it is a prescient warning that BC “means business” when it comes to compliance with its various indirect tax (not just PST) laws.

Our takeaways

In addition to announcements by other provinces (e.g., Saskatchewan) as well as the federal government to (a) step up enforcement and invest in people and “surveillance tools” of various indirect tax laws and (b) introduce much stiffer penalties (in addition to ones already on the books), it is clear that the tax authorities and their governments are hungry for cash and do not appear to be as lenient as they have in the past.

Simple stuff right? At Achen Henderson, we have a team of Canadian and US indirect tax specialists as well as customs and trade professionals to help your business navigate these issues and the sea-change of other indirect tax changes and challenges wherever you do business in Canada or the US.