Provincial Sales Tax Act, Part 4 - Taxes in Relation to Software

Section 104 – Application Of This Part

PST - SEC.104/Int.

References:

Act: Section 1 "software"

Bulletin PST 105

Interpretation (Issued: 2013/11)

Effective April 1, 2013, Bill 54, Provincial Sales Tax Act, 2012 provides under section 104 that Part 4 [Taxes in Relation to Software] does not apply in relation to software that is subject to tax or is exempt from tax under Part 3 [Taxes in Relation to Tangible Personal Property].

Software that is purchased in a tangible format (e.g., software sold on a CD or DVD or with computer hardware) is subject to tax under Part 3. Software that is purchased in an intangible format (e.g., downloaded over the Internet, or used through remote access) is subject to tax under Part 4 (referred to in the Tax Interpretation Manual and in PSTERR Section 1 "Part 4 software" as "Part 4 software"). Section 104 ensures that, depending on the manner in which software is purchased, only Part 3 or Part 4 of the Act will apply and double taxation will not occur.

Section 105 – Tax On Software

PST - SEC.105/Int.

References:

Act: Section 1 "collector", "electronic device", "software"; Section 28; Section 106; Section 107; Section 109; Section 111; Section 112; Section 147; Section 153; Section 203

PSTERR: Section 153; Section 154; Section 155

PSTR: Section 88

Bulletin PST 105

Interpretation (Issued: 2013/11)

Effective April 1, 2013, Bill 54, Provincial Sales Tax Act, 2012 as amended by Bill 2, Provincial Sales Tax Transitional Provisions and Amendments Act, 2013 provides under section 105 the taxing provision that applies when Part 4 software is purchased in British Columbia for use on or with an electronic device ordinarily situated in British Columbia.

Subsection 105(1) provides that a purchaser in British Columbia who purchases Part 4 software for use on or with an electronic device ordinarily situated in British Columbia must pay to the government tax at the rate of 7% of the purchase price of the Part 4 software.

Subsection 105(2) provides that subsection 105(1) does not apply to a purchaser who must pay tax imposed under section 107 [tax on business use of software on devices in and outside British Columbia] or section 112 [tax on purchase of software by small seller] in respect of the Part 4 software.

Subsection 105(3) provides that if a collector sells Part 4 software at a sale in British Columbia to a person who alleges that the person must pay tax under section 107 in relation to the Part 4 software in accordance with subparagraph 107(1)(b)(i), the collector must nevertheless levy and collect the tax under subsection 105(1) unless the collector obtains from that person, at or before the time the tax is payable, a declaration in a form acceptable to the director (Certificate of Exemption – Self-Assessment on Software (form FIN 443)).

Section 28 [when tax is payable in respect of a purchase or lease] provides for when tax is payable under section 105.

Section 106 – Tax On Use Of Software On Device In British Columbia

PST - SEC.106/Int.

References:

Act: Section 1 "BC resident", "collector", "electronic device", "non-resident", "registrant", "software"; Section 105; Section 107; Section 109; Section 111; Section 112; Section 192

PSTERR: Section 153; Section 154; Section 155

PSTR: Section 56; Section 79

Bulletin PST 105

Interpretation (Issued: 2013/11)

Effective April 1, 2013, Bill 54, Provincial Sales Tax Act, 2012 as amended by Bill 2, Provincial Sales Tax Transitional Provisions and Amendments Act, 2013 provides under section 106 the taxing provision that applies when Part 4 software is purchased by a BC resident or a non-resident for use on or with an electronic device ordinarily situated in British Columbia.

Please note: section 105 [tax on software] is the taxing provision that applies to purchases of Part 4 software in British Columbia. Section 106 is the taxing provision that applies when section 105 does not apply, and a BC resident or non-resident purchases Part 4 software for use on or with an electronic device ordinarily situated in British Columbia. Because section 105 already imposes tax on purchases of Part 4 software in British Columbia, section 106 will apply only where the purchase of software occurs outside British Columbia and the Part 4 software is for use on or with an electronic device ordinarily situated in British Columbia.

Subsection 106(1) provides that, subject to subsection 106(2), section 106 applies to a purchaser of Part 4 software if:

(a) the purchaser is a BC resident and the Part 4 software is used, on or with an electronic device ordinarily situated in British Columbia,

(i) by the BC resident,

(ii) by another person at the BC resident’s expense,

(iii) by a principal for whom the BC resident acts as agent, or

(iv) by another person at the expense of a principal for whom the BC resident acts as agent, or

(b) the purchaser is a non-resident and the Part 4 software is used, on or with an electronic device ordinarily situated in British Columbia,

(i) by the non-resident,

(ii) by another person at the non-resident’s expense,

(iii) by a principal for whom the non-resident acts as agent, or

(iv) by another person at the expense of a principal for whom the non-resident acts as agent.

Subsection 106(2) provides that section 106 does not apply to a purchaser in relation to software if the purchasr must pay tax imposed under section 105 [tax on software], section 107 [tax on business use of software on devices in and outside British Columbia] or section 112 [tax on purchase of software by small seller] in respect of the software.

Subsection 106(3) provides that a purchaser to whom section 106 applies must pay to the government tax at the rate of 7% of the purchase price of the Part 4 software.

Subsection 106(4) provides that tax payable under subsection 106(3) must be paid on or before the last day of the month after the month in which the Part 4 software is first used as referred to in paragraphs 106(1)(a) or 106(1)(b).

Subsection 106(5) provides that despite subsection 106(4), tax payable under subsection 106(3) by a registrant must be paid

• on or before the prescribed date (as provided under PSTR section 56 [section 106 of Act – tax on use of software on device in British Columbia]; see PSTR/Sec. 56/Int.), and

• in the prescribed manner (as provided under PSTR subsection 79(2) [manner for payment of tax]; see PSTR/Sec.79/Int.).

Section 107 – Tax On Business Use Of Software On Devices In And Outside British Columbia

PST - SEC.107/Int.

References:

Act: Section 1 "electronic device", "registrant", "software", "use"; Section 105; Section 106; Section 108; Section 109; Section 111; Section 112; Section 192; Section 239

PSTERR: Section 153; Section 154; Section 155

PSTR: Section 29; Section 57; Section 79

Bulletin PST 105

Interpretation (Issued: 2013/11)

Effective April 1, 2013, Bill 54, Provincial Sales Tax Act, 2012 as amended by Bill 2, Provincial Sales Tax Transitional Provisions and Amendments Act, 2013 provides under section 107 the taxing provision that applies when Part 4 software is purchased by a purchaser who carries on business in British Columbia, or enters British Columbia with the intention of carrying on business in British Columbia, and the Part 4 software is for use on both an electronic device ordinarily situated in British Columbia and an electronic device ordinarily situated outside British Columbia.

Section 107 imposes a proportional tax based on the estimated percentage of BC usage to total usage of the Part 4 software during the prescribed period (see below). At the end of the prescribed period, unless the estimated BC usage was equal to the actual BC usage, the purchaser must make an adjustment of the tax payable to the actual BC usage under section 108 [adjustment of tax under section 107].

Subsection 107(1) provides that, subject to subsection 107(1.1), section 107 applies to a purchaser of Part 4 software if:

(a) the purchaser

(i) carries on business in British Columbia, or

(ii) enters British Columbia with the intention of carrying on business in British Columbia, and

(b) the purchaser

(i) is in British Columbia when the purchaser purchases the Part 4 software and purchases the software for use, in the course of the purchaser’s business, on or with an electronic device ordinarily situated in British Columbia and on or with an electronic device ordinarily situated outside British Columbia, or

(ii) in the course of the purchaser’s business, uses the Part 4 software or allows the Part 4 software to be used on or with an electronic device ordinarily situated in British Columbia and on or with an electronic device ordinarily situated outside British Columbia.

Subsection 107(1.1) provides that section 107 does not apply to a purchaser who must pay tax imposed under section 112 [tax on purchase of software by small seller] in respect of the Part 4 software.

Subsection 107(2) provides that a purchaser to whom section 107 applies must pay to the government tax on the Part 4 software in the amount determined by the following formula:

amount = 7% X purchase price X (BC usage /total usage)

where:

purchase price = the purchase price of the Part 4 software

BC usage = the estimated use of the Part 4 software in British Columbia during the prescribed period (as provided under PSTR section 29 [prescribed period for section 107 of Act]; see PSTR/Sec. 29/Int.)

total usage = the estimated total use of the Part 4 software during the prescribed period (as provided under PSTR section 29)

Subsection 107(2.1) provides that for the purposes of subsection 107(2), the estimated use of the Part 4 software in British Columbia must be determined by a method the director considers reasonable.

Subsection 107(3) provides that tax payable under subsection 107(2) must be paid

(a) if subparagraph 107(1)(b)(i) applies to the purchase in relation to the Part 4 software, on or before the last day of the month after the month in which the Part 4 software is purchased, and

(b) if subparagraph 107(1)(b)(ii) applies to the purchase in relation to the Part 4 software, on or before the last day of the month after the month in which the purchaser first uses that Part 4 software or allows that Part 4 software to be used as referred to in subparagraph 107(1)(b)(ii).

Subsection 107(4) provides that despite subsection 107(3), tax payable under subsection 107(2) by a registrant must be paid

• on or before the prescribed date (as provided under PSTR section 57 [section 107 of Act – tax on business use of software on devices in and outside British Columbia]; see PSTR/Sec. 57/Int.), and

• in the prescribed manner (as provided under PSTR subsection 79(2) [manner for payment of tax]; see PSTR/Sec.79/Int.).

Section 108 – Adjustment Of Tax Under Section 107

PST - SEC.108/Int.

References:

Act: Section 1 "registrant", "software"; Section 107; Section 112; Section 192

PSTERR: Section 153; Section 154; Section 155

PSTR: Section 29; Section 58; Section 79

Bulletin PST 105

Interpretation (Issued: 2013/11)

Effective April 1, 2013, Bill 54, Provincial Sales Tax Act, 2012 as amended by Bill 2, Provincial Sales Tax Transitional Provisions and Amendments Act, 2013 provides under section 108 the taxing provision, and refund provision, that apply when the amount of tax payable under section 107 [tax on business use of software on devices in and outside British Columbia] on the estimated BC usage of Part 4 software is different than the amount of tax payable on the actual BC usage during the BC usage period.

Subsection 108(1) provides the following definitions for the purposes of section 108:

"BC usage period" means the period prescribed (as provided under PSTR section 29 [prescribed period for section 107 of Act]; see PSTR/Sec. 29/Int.) for the purposes of the description of "BC usage" in subsection 107(2);

"total usage period" means the period prescribed (as provided under PSTR section 29) for the purposes of the description of "total usage" in subsection 107(2).

Subsection 108(2) provides that at the end of the BC usage period, a purchaser to whom section 107 applies must determine the following:

(a) the estimated use of the Part 4 software in British Columbia during the BC usage period;

(b) the (actual) total use of the Part 4 software during the total usage period;

(c) the amount determined by the formula in subsection 107(2) using the (actual) use and (actual) total use determined under paragraphs (a) and (b) above instead of the estimated use under section 107.

Subsection 108(2.1) provides that for the purposes of subsection 108(2), the estimated use of the Part 4 software in British Columbia must be determined by a method the director considers reasonable.

Subsection 108(3) provides that if the amount determined under paragraph 108(2)(c) exceeds the amount determined under subsection 107(2), the purchaser who is required to pay tax imposed under section 107 in respect of the Part 4 software for the BC usage period must pay to the government tax equal to the amount of the excess.

Subsection 108(4) provides that tax payable under subsection 108(3) must be paid on or before the last day of the month after the month in which the BC usage ends.

Subsection 108(4.1) provides that despite subsection 108(4), tax payable under subsection 108(3) by a registrant must be paid

• on or before the prescribed date (as provided under PSTR section 58 [section 108 of Act – adjustment of tax under section 107 of Act]; see PSTR/Sec. 58/Int.), and

• in the prescribed manner (as provided under PSTR subsection 79(2) [manner for payment of tax]; see PSTR/Sec.79/Int.).

Subsection 108(5) provides that if the director is satisfied that the amount determined under subsection 107(2) based on an estimate exceeds the amount determined under paragraph 108(2)(c), the director must refund to the purchaser who paid tax under section 107 the amount of the excess.

Section 109 – Tax If Use Of Software Changes

PST - SEC.109/Int.

References:

Act: Section 1 "registrant", "software"; Section 105; Section 106; Section 107; Section 192

PSTERR: Section 64; Section 65; Section 66; Section 68; Section 112

PSTR: Section 59; Section 79

Bulletin PST 105

Interpretation (Issued: 2013/11)

Effective April 1, 2013, Bill 2, Provincial Sales Tax Transitional Provisions and Amendments Act, 2013 repealed and replaced section 109.

Section 109 provides the change of use taxing provision that applies when a person received an exemption under the Act in respect of Part 4 software because the Part 4 software was to be used for a particular purpose but subsequently the person uses the Part 4 software for a non-exempt purpose.

Subsection 109(1) provides that if a person

(a) purchased, in or outside British Columbia, Part 4 software that is exempt from tax under the Act because the Part 4 software was to be used for a particular purpose, and

(b) subsequently uses that Part 4 software, or allows that Part 4 software to be used, for a purpose other than

(i) the particular purpose, or

(ii) another purpose for which that Part 4 software would be exempt from tax under the Act if the Part 4 software were used for that purpose,

the person must pay to the government tax in accordance with whichever of section 105 [tax on software], section 106 [tax on use of software on device in British Columbia] or section 107 [tax on business use of software on devices in and outside British Columbia] under which the person would have had to pay tax but for the exemption.

Subsection 109(2) provides that tax payable under subsection 109(1) must be paid on or before the last day of the month after the month in which the person first uses the software, or allows the software to be used, as referred to in paragraph 109(1)(b).

Subsection 109(3) provides that despite subsection 109(2), tax payable under subsection 109(1) by a registrant must be paid

• on or before the prescribed date (as provided under PSTR section 59 [section 109 of Act – tax if use of software changes]; see PSTR/Sec. 59/Int.), and

• in the prescribed manner (as provided under PSTR subsection 79(2) [manner for payment of tax]; see PSTR/Sec.79/Int.).

Section 109.1 – Tax If Conditions Of Exemption For Software Not Maintained For Specified Period

PST - SEC.109.1/Int.

References:

Act: Section 1 "registrant", "software"; Section 192

PSTERR: Section 153; Section 154; Section 155

PSTR: Section 30; Section 60; Section 79

Bulletin PST 210

Interpretation (Issued: 2013/11)

Effective April 1, 2013, Bill 2, Provincial Sales Tax Transitional Provisions and Amendments Act, 2013 added section 109.1.

Section 109.1 provides the taxing provision that applies when a person who received an exemption under a prescribed provision of the regulations was unable to maintain the required specified conditions of the exemption for the specified period.

Currently, section 109.1 only applies when a person transfers software exempt of tax under the related party provisions provided by section 153, section 154 and section 155, and within 8 months of that transfer, the relationship requirements provided by those provisions are no longer met.

Subsection 109.1(1) provides that section 109.1 applies to a person in relation to Part 4 software if

(a) the person used Part 4 software that was exempt under a prescribed provision of the regulations from tax under the Act,

(a) the prescribed provision of the regulations requires specified conditions to be maintained for a specified period, and

(b) those conditions are not maintained for that period.

Currently, under PSTR section 30 [prescribed provisions for section 109.1 of Act], the following provisions are prescribed for the purposes of paragraph 109.1(1)(a):

(a) PSTERR section 153 [software transferred between related corporations];

(a) PSTERR section 154 [software transferred to new corporation – wholly owned and controlled];

(b) PSTERR section 155 [software transferred to new corporation – not wholly owned and controlled].

Subsection 109.1(2) provides that the person to whom section 109.1 applies must pay to the government tax at the rate of 7% of the purchase price of the Part 4 software.

Subsection 109.1(3) provides that tax payable under subsection 109.1(2) must be paid on or before the last day of the month after the month in which the conditions referred to in subsection 109.1(1) are not maintained.

Subsection 109.1(4) provides that despite subsection 109.1(3), tax payable under subsection 109.1(2) by a registrant must be paid

• on or before the prescribed date (as provided under PSTR section 60 [section 109.1 of Act – tax if conditions of exemption for software not maintained for specified period]; see PSTR/Sec. 60/Int.), and

• in the prescribed manner (as provided under PSTR subsection 79(2) [manner for payment of tax]; see PSTR/Sec.79/Int.).

Section 110 – Tax If Change In Use Of Resulting Software, Telecommunication Service Or Tangible Personal Property

PST - SEC.110/Int.

References:

Act: Section 1 "registrant", "retail sale", "software"; Section 113; Section 192

PSTR: Section 61; Section 79

Bulletin PST 105; Bulletin PST 107

Interpretation (Issued: 2013/11; Revised: 2014/09)

Effective April 1, 2013, Bill 8, Budget Measures Implementation Act, 2014 amended section 110 to add references to telecommunication services. Section 110 was made to apply to telecommunication services as a consequence of amendments to section 113 [exemptions in relation to software].

Effective April 1, 2013, Bill 54, Provincial Sales Tax Act, 2012 as amended by Bill 2, Provincial Sales Tax Transitional Provisions and Amendments Act, 2013 provides under section 110 the change of use taxing provision that applies when a person purchased Part 4 software for the purpose of being processed, fabricated or manufactured into, attached to or incorporated into other Part 4 software or TPP for the purpose of retail sale or TPP for the purpose of retail sale or lease, and the person subsequently becomes a user of the resulting Part 4 software or tangible personal property.

Section 111 – Tax If Change In Use Of Software For Which Refund Received Under Taxation Agreement

PST - SEC.111/Int.

References:

Act: Section 1 "software"; Section 105; Section 106; Section 107; Section 155; Section 156; Section 192

Interpretation (Issued: 2013/11)

Effective April 1, 2013, Bill 54, Provincial Sales Tax Act, 2012 as amended by Bill 2, Provincial Sales Tax Transitional Provisions and Amendments Act, 2013 provides under section 111 the taxing provision that applies when a person who has received a refund of tax paid on Part 4 software under section 155 [refund in accordance with Nisga’a Nation Taxation Agreement] or section 156 [refund in accordance with treaty first nation tax treatment agreement] subsequently uses that Part 4 software, or allows that Part 4 software to be used, for a non-exempt purpose.

Subsection 111(1) provides that if a person:

(a) received a refund of tax under section 155 or section 156 in relation to Part 4 software, and

(b) subsequently uses that Part 4 software, or allows that Part 4 software to be used, for a purpose other than

(i) a purpose that would entitle the person to receive a refund of tax under section 155 or section 156, or

(ii) another purpose for which that Part 4 software would be exempt from tax under the Act if that Part 4 software were to be used for that purpose,

the person must pay to the government tax on the purchase price of that Part 4 software in accordance with whichever of section 105 [tax on software], section 106 [tax on use of software on device in British Columbia] or section 107 [tax on business use of software on devices in and outside British Columbia] under which the person would have had to pay tax but for the exemption.

Subsection 111(2) provides that the tax payable under subsection 111(1) must be paid on or before the last day of the month after the month in which the person first uses the Part 4 software, or allows the Part 4 software to be used, as referred to in paragraph 111(1)(b).

Section 112 – Tax On Purchase Of Software By Small Seller

PST - SEC.112/Int.

References:

Act: Section 1 "small seller", "software"; Section 28; Section 105; Section 106; Section 107; Section 113; Section 161

PSTERR: Section 68; Section 112; Section 117

Bulletin PST 003

Interpretation (Issued: 2013/11)

Effective April 1, 2013, Bill 54, Provincial Sales Tax Act, 2012 as amended by Bill 2, Provincial Sales Tax Transitional Provisions and Amendments Act, 2013 provides under section 112 the taxing provision that requires a small seller to pay tax on Part 4 software they acquire for resale as if the small seller were a purchaser of that Part 4 software.

Section 112 also sets out exclusions from exemptions for Part 4 software when purchased by a small seller.

Subsection 112(1) provides that a small seller who purchases Part 4 software for resale must pay to the government tax at the rate of 7% of the purchase price of the Part 4 software.

Subsection 112(2) provides that Part 4 software referred to in paragraphs 113(1)(a) and 113(1)(c) [exemptions in relation to software] and in prescribed provisions of the regulations is not exempt from tax imposed under Part 4 [Taxes in Relation to Software] when purchased by a small seller who must pay tax in accordance with subsection 112(1).

Under the PSTERR, the following provisions are prescribed for the purposes of subsection 112(2):

• PSTERR subsections 68(3) and 68(4) [custom software, custom modified software and other software], as provided by PSTERR subsection 68(6);

• PSTERR section 112 [software related to qualifying machinery or equipment], as provided by PSTERR subsection 117(2) [provisions prescribed for purposes of sections 89 (2), 90 (4), 99 (6) and 112 (2) of Act];

Subsection 112(3) provides that the exemption set out in subsection 113(2) does not apply to a small seller who must pay tax in accordance with subsection 112(1).

Section 28 [when tax is payable in respect of a purchase or lease] provides for when tax is payable under section 112.

Section 113 – Exemptions In Relation To Software

PST - SEC.113/Int.

References:

Act: Section 1 "prototype", "retail sale", "software", "substantially", "telecommunication service"; Section 110; Section 112; Section 145

PSTERR: Section 69; Section 70; Section 153; Section 154

Bulletin PST 105

Interpretation (Issued: 2013/11; Revised: 2014/09)

Effective April 1, 2013, Bill 8, Budget Measures Implementation Act, 2014 amended section 113 to account for the fact that software can be incorporated into a telecommunication service.

Effective April 1, 2013, Bill 54, Provincial Sales Tax Act, 2012 as amended by Bill 2, Provincial Sales Tax Transitional Provisions and Amendments Act, 2013 provides under section 113 exemptions from tax on Part 4 software.

Section 114 – Exemption In Relation To Software Purchased From Small Seller

PST - SEC.114/Int.

References:

Act: Section 1 "small seller", "software"

Bulletin PST 003

Interpretation (Issued: 2013/11)

Effective April 1, 2013, Bill 54, Provincial Sales Tax Act, 2012 as amended by Bill 2, Provincial Sales Tax Transitional Provisions and Amendments Act, 2013 provides under section 114 that if a purchaser purchases Part 4 software from a small seller, the purchaser is exempt from paying tax imposed under Part 4 [Taxes in Relation to Software] on that purchase.