Provincial Sales Tax Exemption & Refund Regulation, Part 5.1 - Specified Major Projects

Division 1 – Definitions

Section 120.3 - Definitions And Interpretation

PSTERR - Sec.120.3/Int.

References:

PSTERR: Part 5; Schedule 6

Bulletin PST 212

Interpretation (Issued: 2023/10)

Effective October 2, 2018, B.C. Reg. 196/2018 provides three definitions under PSTERR section 120.3.

The cut-off date definition sets the end point for the project and provides an end point for the time period within which the equipment must be used in a qualifying manner. The cut-off date for the project is specified in PSTERR schedule 6.

Primarily is defined as more than 50% and applied in a similar manner as primarily is for the production machinery and equipment exemption in Part 5.

Project means a project specified in Schedule 6. At this time there is only one project specified in Schedule 6, but the structure of the exemption allows for additional projects to be added in the future if the government chooses to do so.

Division 2 – Exemptions

Section 120.4 - Tangible Personal Property For Use In Project

PSTERR - Sec.120.4/Int.-R.13

References:

Act: Section 1 “director”, “lessee”; “tangible personal property”; Section 37; Section 49

PSTERR: Section 1 “obtain”; Section 120.3 “cut-off date”, “primarily”, “project”; Schedule 6

Bulletin PST 212

Interpretation (Issued: 2023/10)

Effective October 2, 2018, B.C. Reg. 196/2018 provides under PSTERR section 120.4 that tangible personal property is exempt from provincial sales tax if the tangible personal property is obtained for the purposes of the LNG Canada project during the relevant period. The structure of the exemption allows the government to add projects in the future by adding a new schedule that will update the definitions of cut-off date and project.

The relevant period begins on the date the goods are obtained for that purpose and ends on the earliest of:

• The cut-off date
• Two years after the date the tangible personal property was obtained
• The date the tangible personal property is sold or disposed of
• The date the lessee ceases to lease the tangible personal property

R.1 Newly acquired tangible personal property for LNG Canada project (Issued: 2023/10)

Tangible personal property when obtained by the cut-off date primarily for the purpose of the LNG project during the relevant period is exempt from provincial sales tax.

The cut-off date for the LNG project is the earlier of October 2, 2025, or the date the first two liquefaction trains of the LNG facility have been operated for the purpose of producing liquefied natural gas, or the date on which the first two liquefaction trains of the LNG facility are, in the opinion of the director, capable of producing liquefied natural gas.

The relevant period starts on the date the tangible personal property is obtained for the purposes of the project and ends on the earliest of the cut-off date, two years after the tangible personal property was obtained for the project, or the date the tangible personal property is sold (or, if the tangible personal property was leased, when the lease ends).

As such, the purchase or lease of new tangible personal property for the LNG project is exempt from provincial sales tax provided the tangible personal property was obtained by the cut-off date primarily for the purpose of the LNG project during the relevant period.

R.2 Tangible personal property that was acquired in B.C. prior to the effective date of the exemption and is now used for LNG project (Issued: 2023/10)

Tangible personal property that was previously acquired prior to the effective date (October 2, 2018) of the exemption provided by section 120.4 of the PSTERR is subject to provincial sales tax unless another specific exemption applied. There is no refund provision for tangible personal property that was purchased prior to the effective date of the exemption even if the tangible personal property is now being used for the LNG project.

For example, an excavator was purchased September 1, 2018 in B.C. and provincial sales tax was paid at the time of purchase. The excavator is now being used for the LNG project. There is no refund of the provincial sales tax paid on the excavator at the time of purchase because it was purchased prior to the effective date of the exemption provided by section 120.4 of PSTERR.

R.3 Tangible personal property that was acquired outside B.C. prior to the effective date of the exemption and being brought into B.C. for use on LNG project (Issued: 2023/10)

Tangible personal property obtained by the cut-off date primarily for the purpose of the LNG project during the relevant period is exempt from provincial sales tax.

Under section 1 of the PSTERR, “obtain” means to purchase, lease and bring or send into B.C. tangible personal property.

The cut-off date for the LNG project is the earlier of October 2, 2025 or the date the first two liquefaction trains of the LNG facility have been operated for the purpose of producing liquefied natural gas, or the date on which the first two liquefaction trains of the LNG facility are, in the opinion of the director, capable of producing liquefied natural gas.

The relevant period starts on the date the tangible personal property is obtained for the purposes of the project and ends on the earliest of the cut-off date, two years after the tangible personal property was obtained for the project, or the date the tangible personal property is sold (or, if the tangible personal property was leased, when the lease ends).

Therefore, tangible personal property acquired outside B.C. and brought into B.C. for use in the LNG project can be brought into B.C. exempt from provincial sales tax as of the effective date (October 2, 2018), provided the tangible personal property was obtained by the cut-off date primarily for the purpose of the LNG project during the relevant period.

For example, an excavator was purchased November 5, 2014 in Alberta. The excavator was brought into B.C. on October 25, 2019 for use primarily in the LNG project. The excavator is exempt from provincial sales tax on goods brought into B.C. as it was obtained prior to the cut-off date and is primarily for the purpose of the LNG project during the relevant period.

R.4 What type of tangible personal property qualifies for the exemption provided by section 120.4 of the PSTERR? (Issued: 2023/10)

Any tangible personal property that is obtained by the cut-off date primarily for the purpose of the LNG project during the relevant period is exempt from provincial sales tax.

Section 2 of Schedule 6 of the PSTERR sets out that, among other things, constructing the LNG facility constitutes the project for the purposes of section 120.4 of the PSTERR. It is important to note that there is no “directly” element in section 120.4 of the PSTERR. Whether or not the tangible personal property qualifies for the exemption will depend on the context of each situation and judgement as to the nature and use of the tangible personal property.

Some factors that can be considered to aid in determining if the tangible personal property was acquired primarily for the purpose of the LNG project are:

1. How close is the connection to the LNG project?
   The more steps away from the project, the less likely the tangible personal property is going to be for the purposes of the project.
2. What is the nature of the tangible personal property?
   Because the LNG project is industrial in nature, consideration should be given to whether tangible personal property is industrial or domestic/non-industrial in nature. While non-industrial tangible personal property is less likely to be for the purposes of the project, there are some other factors that may provide specific context where non-industrial tangible personal property is for the purposes of the LNG project.
   Another factor to consider about the nature of the tangible personal property is whether the tangible personal property will physically become part of the LNG facility.
3. Is there a contractual obligation to purchase or lease the tangible personal property and is that contractual obligation related to the LNG project?
   If the tangible personal property is required to be purchased pursuant to a contractual obligation and the contract is connected to the LNG project, then this weighs in favour of the tangible personal property being for the purposes of the project.
4. Is the tangible personal property purchased or leased for a commercial purpose related to the LNG project?
   If there is a commercial reason for obtaining the tangible personal property and that reason is related to the LNG project, then that weighs in favour of concluding the tangible personal property is for the purposes of the project. For example, a commercial reason could be to house workers.
5. Does LNG Canada ultimately bear the cost of the tangible personal property?
   If LNG Canada ultimately bears the burden of the tangible personal property, it is generally reasonable to consider the tangible personal property is “for the purposes” of the project (subject to other factors).

R.5 Change in use of tangible personal property (Issued: 2023/10)

The exemption provided under section 120.4 of the PSTERR from provincial sales tax on the purchase of tangible personal property operates based on a “primarily” test (more than 50%). As a result, tangible personal property can be used for something other than the described uses so long as they do not fall under the primarily threshold. However, if you obtain goods exempt and they are not used primarily for the purposes of the project during the relevant period for those goods, PST applies as of the date the goods are no longer used primarily, or able to be used primarily, for the purposes of the project.

R.6 Tangible personal property purchased to construct work camps for the LNG project (Issued: 2023/10)

Tangible personal property obtained by the cut-off date primarily for the purpose of the LNG project during the relevant period is exempt from provincial sales tax under section 120.4 of the PSTERR.

Tangible personal property obtained to build the work camps is considered to be obtained for the purposes of constructing the LNG facility. We consider the building of a work camp to be for purposes of constructing the LNG facility as there is an identifiable contractual relationship between LNG Canada and the contract to build the camp (either directly or through its subcontractors). Additionally, LNG Canada will presumably bear the cost of the camps as part of the construction costs of the LNG facility. Finally, the tangible personal property is purchased for a commercial purpose related to the LNG project (i.e. housing workers). Therefore, tangible personal property obtained to build the camps is obtained for the purposes of the project and is exempt from PST, provided it meets the “primarily” test for the relevant period (which it likely will).

Less central features of the work camps (e.g. movie theatre at the camp) and secondary tangible personal property that may be obtained for the camps (e.g. televisions, pool table or exercise equipment), are also considered to be obtained for the purposes of constructing the LNG facility. We consider these obtained for the purposes of constructing the LNG facility as the contract is to build the camp and have it be turn-key ready, which includes everything in the camp. As such, there is a clear contractual relationship between the tangible personal property purchased and the LNG project. Additionally, this type of tangible personal property is purchased with a clear commercial purpose related to the project. The tangible personal property is purchased to be resold to LNG Canada (or one of its contractors or subcontractors) to be used by its workers who are constructing the LNG facility. Finally, similar to the central camp buildings, LNG Canada will ultimately bear the cost of this tangible personal property. The contract price for the camp includes the secondary tangible personal property and LNG Canada, either directly or indirectly through its subcontractors, will pay this amount. Given these features, the secondary tangible personal property and tangible personal property used to construct less central features of the camp (such as the movie theatre) are obtained for the purposes of the project.

R.7 Tangible personal property purchased for hotels in relation to the LNG Project (Issued: 2023/10)

If the hotel enters into contracts to sell blocks of accommodation to companies employed to work on the LNG project, then the tangible personal property used to construct the hotel and tangible personal property used to equip the hotel could be exempt under section 120.4 of the PSTERR provided the “primarily” test is met during the relevant period. In this context, the hotel is essentially the same as the work camp.

If the hotel is used as a traditional hotel by providing accommodation in an ad hoc manner for LNG workers (i.e. the workers book the accommodation on an induvial basis as needed) the hotel is not for the purposes of the project. In this context there is an absence of a contract linking the hotel to the project and therefore limited support that the hotel is used for the purposes of the project. Even if the hotel was being used for the project in this context, the hotel would be unlikely to provide sufficient evidence to support this claim. The hotel would need to acquire information about guests and their reason for being in Kitimat. Therefore, in all likelihood, the hotel and its real property contractor would be unable to provide sufficient information to verify that tangible personal property used to build the hotel is obtain “for the purpose” of constructing the LNG facility.  

R.8 Tangible personal property purchased for restaurants in relation to the LNG project (Issued: 2023/10)

If a restaurant expands their existing location (i.e. purchases additional tables, chairs, plates, cutlery and kitchen appliances) in anticipation of more customers due to the construction of the LNG facility it is not considered for the purpose of the project. The restaurant has no existing or enduring contract with any party (e.g. the restaurant has not contracted with LNG Canada or its contractor/subcontractors to supply a set number of meals).

While these purchases are commercial in nature, they are not purchased due to any contractual obligation related to the LNG project. In addition, LNG Canada will not ultimately bear the burden of these costs because whether the restaurant expands or not does not impact LNG Canada’s cost to build the LNG facility. Therefore, the tangible personal property purchased in this context is not for the purposes of the project and as such is not exempt under section 120.4 of the PSTERR.

However, if a restaurant enters into a contract with a sub-contractor pouring concrete foundations for the LNG facility whereby the restaurant will cater lunch for the workers every day for a three-year period, the restaurant could purchase tangible personal property that will be used primarily for such a catering contract exempt from PST under section 120.4 of the PSTERR. In this context, the purchases are pursuant to a contract related to the LNG project, the purchases are for a commercial purpose related to the LNG project, and LNG Canada will ultimately bear the burden of the costs (at least partially) as the catering costs will be built into the cost of the concrete.

R.9 Tangible personal property purchased in relation to a worker’s home who is working on the LNG project (Issued: 2023/10)

If a real property contractor purchases tangible personal property to build a house for a worker or the worker purchases tangible personal property (e.g. a television, furniture, etc.) for a house they own or rent, those purchases are not obtained primarily “for the purposes” of the project. While the tangible personal property is similar or even identical to the tangible personal property found at the hotel or the work camp, the context in which the tangible personal property is obtained is different. Unlike the work camp, the television/furniture is not obtained for a commercial purpose related to the project but is obtained for personal purposes. It would be unusual to say the television/furniture purchased by the worker is for the purposes of the LNG project. Additionally, the tangible personal property, including the tangible personal property a real property contractor purchases to build a worker’s house, is not obtained pursuant to any contractual obligation related to the project (unlike the televisions at the work camp). Finally, the cost of the project is not impacted by the worker’s decision to purchase the television/furniture or acquire a house (also unlike the work camp scenario). LNG Canada pays the worker a wage or contract price and that payment is unaffected by the purchasing decisions of the worker. All these factors, taken together, mean that the tangible personal property is too remote to be “obtained for the purposes of the project.”

R.10 Tangible personal property purchased for educational programs to train employees to work on the LNG project (Issued: 2023/10)

If there is a program designed to recruit individuals and train them and some of those who complete the program would then be employed to work on the LNG project as apprentices, the program may be for the purpose of the project, but this would depend on several factors.

For example, a specific training program that was developed to recruit and train individuals to work on the LNG project provided by Kitimat Valley Institute (KVI). In this scenario LNG Canada contracted with KVI to train new individuals that would work on the LNG project. The purchases by KVI are commercial in nature and they relate to the LNG project (namely, the tangible personal property used to train people who will work at the LNG facility). There is a close connection to the project and the purchases are made pursuant to a contractual obligation related to the LNG project. Therefore, KVI’s purchases for the training program are for the purposes of the project.

However, other generic training would not be for the purposes of the project. For example, the existing pipefitting program at British Columbia Institute of Technology (BCIT) would not qualify because there is no close connection to the project (even though some graduates may work on the project) and any purchase by BCIT would not be pursuant to a contract relevant to the LNG project. In any event, less than 50% of the program is likely to be dedicated to future pipefitters for the LNG project.

R.11 Storage of tangible personal property for the LNG project and whether it is included in the calculation of “primarily” (Issued: 2023/10)

Any storage time of tangible personal property is considered “use” when calculating the “primarily” test. It is important to note that the storage still needs to be for the purpose of the project. There are two reasons for this.

First, if storage were not part of the “primarily” calculation, tangible personal property that government intends to be included would not be exempt. For example, a real property contract purchases 100,000 floor tiles in January of 2020. The tiles will be installed in the LNG facility, but not until November of 2021. In the interim, the real property contractor stores the tile on site in a supply warehouse. If storage were not part of the “primarily” test, then the tile would not qualify because over the two-year period they are stored for 22 months and otherwise used for two months (only 8% non-storage use). However, since storage is included as “use” in the “primarily” test, the tile can qualify as they were stored until such time they could be installed for the purposes of the project.

Second, storage is not excluded from the “primarily” test to prevent tax avoidance. Although unlikely, if storage were not included in the test, a person could use the tangible personal property for a week on the project and then store it for the remaining two-year period and the tangible personal property would be tax exempt for the remainder of its ownership. Since storage is included in the “primarily” test, in such a situation the storage likely would not be primarily for the purposes of the project (as there is no intention to use this again for the purpose of the project) and therefore the tangible personal property would be taxable.

R.12 Purchase of office supplies to equip the LNG facility for initial use (Issued: 2023/10)

The tangible personal property is exempt when purchased for the purposes of the project.

In the case of the Kitimat LNG Facility the activity of equipping the LNG facility for initial operations is for the purpose of the project.

Tangible personal property is exempt if obtained primarily for the project, i.e. the construction of the LNG facility. Therefore, equipping the facility for use would include purchase of office supplies and furniture as those items are required for the facility for their initial operations.

However, the purchase of office supplies or tangible personal property to store for use beyond the initial operations does not qualify. For example, purchase of office printer paper in bulk for the next five years after initial operations would not qualify. But the purchase of office printer paper that is required for initial operations to take place would qualify for a PST exemption.

R.13 Verification of “primarily” (Issued: 2023/10)

Primarily is defined as more than 50% and applied in a similar manner as primarily is for the production machinery and equipment exemption. How the ministry can verify the “primarily” test and purpose test will depend on the situation. In the case of larger transactions (such as construction of the work camps), there will be clear contracts setting out what the tangible personal property is for and how long it will be used for that purpose. In the case of smaller scale transactions, work logs, inventory lists, or billing codes may possibly provide evidence about how the tangible personal property was used and for how long.

The responsibility to establish that the tangible personal property was exempt is up to the taxpayer. If they do not have some method to show that the tangible personal property was used primarily for the purposes of the project, then the ministry should not accept that the tangible personal property is exempt.

Section 120.41 - Software

PSTERR - Sec.120.41/Int.-R.2

References:

Act: Section 1 “director”, “software”; Part 3; Part 4; Section 109

PSTERR: Section 1 “obtain”; Section 120.3 “cut-off date”, “primarily”, “project”; Section 120.4

Bulletin PST 212

Interpretation (Issued: 2023/10)

Effective October 2, 2018, B.C. Reg. 196/2018 provides under PSTERR section 120.41 that software may be obtained for the LNG Canada project exempt from provincial sales tax if the software is used primarily to operate, control or monitor the LNG plant or to operate particular machinery or equipment used primarily to operate, control or monitor the LNG plant.

R.1 Software for LNG project (Issued: 2023/10)

Software is exempt under section 120.41 of the PSTERR if the software is obtained before the cut-off date and for use primarily to operate, control or monitor qualifying infrastructure for the project or to operate particular machinery or equipment for use primarily to operate, control or monitor qualifying infrastructure for the project.

The cut-off date for the LNG project is the earlier of October 2, 2025 or the date the first two liquefaction trains of the LNG facility have been operated for the purpose of producing liquefied natural gas, or the date on which the first two liquefaction trains of the LNG facility are, in the opinion of the director, capable of producing liquefied natural gas.

Primarily means more than 50%. Software can be used for something other than the described uses if it is primarily used for the described purposes.

However, it is important to note, unlike PSTERR section 120.4 there is no required period in which the software must be primarily used. Once the software is at a point it stops being used primarily for described use, the change in use tax is triggered.

R.2 Change in use for software (Issued: 2023/10)

The exemption provided under section 120.41 of the PSTERR from provincial sales tax on the purchase of software operates based on a “primarily” test (more than 50%). As a result, the software can be used for something other than the described uses so long as they do not fall under the primarily threshold. The exemption for software is different than the exemption provided under section 120.4 as there is no required period in which the software must be primarily used. As such, if you obtain software exempt from PST and later use it for a taxable purpose, PST applies as of the date you use it for a taxable purpose.

Section 120.42 - Services

PSTERR - Sec.120.42/Int.

References:

Act: Section 1 “related service”, “tangible personal property”; Section 119

PSTERR: Section 120.3; Section 120.4

Bulletin PST 212

Interpretation (Issued: 2023/10)

Effective October 2, 2018, B.C. Reg. 196/2018 provides under PSTERR section 120.42 that a related service provided, before the cut-off for a project, to tangible personal property that is exempt under PSTERR Section 120.4, is exempt from provincial sales tax.

Section 120.43 - Electricity

PSTERR - Sec.120.43/Qualifying Worksite/Int.

References:

Act: Part 3; Section 140.1

PSTERR: Section 120.3 “cut-off date”, “project”; Schedule 6

Bulletin PST 212

Interpretation (Issued: 2023/10)

Effective October 2, 2018, B.C. Reg. 196/2018 provides under PSTERR subsection 120.43(1) that “qualifying worksite,” in relation to a project, means a qualifying worksite specified in Schedule 6 of the project.

PSTERR subsection 120.43(2) provides that electricity is exempt from provincial sales tax if the seller provides, before the cut-off date for a project, the electricity through a meter that services only a qualifying work site.

This exemption will have limited utility since the introduction of the general exemption to electricity under PSTA section 140.1, effective April 1, 2019.

Division 3 – Exclusions from Exemptions

Section 120.5 - Tangible Personal Property Excluded From Exemptions Under Division 2

PSTERR - Sec.120.5/Int.

References:

Act: Section 1 “tangible personal property”, “software”

PSTERR: Part 5.1 - Division 2; Section 120.4; Section 120.41; Section 120.42; Section 120.43

Bulletin PST 212

Interpretation (Issued: 2023/10)

Effective October 2, 2018, B.C. Reg. 196/2018 provides under PSTERR section 120.5 that despite the exemptions provided under PSTERR Part 5.1 - Division 2 [Specified Major Projects], the following are not exempt under that Division:

1. vehicles designed to be ordinarily used on a public highway, other than bulldozers, backhoes and excavators that are exempt under PSTERR section 120.4;
2. railway rolling stock, locomotive engines and non-turbine aircraft;
3. software, other than software that is exempt under PSTERR section 120.41;
4. electricity, other than electricity that is exempt under PSTERR section 120.43.

Division 4 – Prescribed Provisions

Section 120.6 - Definition

PSTERR - Sec.120.6/Def/Int.

References:

PSTERR: Part 5.1 - Division 2; Section 120.4; Section 120.41; Section 120.42; Section 120.43; Section 120.61; Section 120.62; Section 120.63

Bulletin PST 212

Interpretation (Issued: 2023/10)

Effective October 2, 2018, B.C. Reg. 196/2018 defines “tangible personal property exemption provisions” as the exemption provisions found in PSTERR sections 120.4 [tangible personal property for use in project], 120.41 [software] and 120.43 [electricity].

PSTERR sections 120.61, 120.62 and 120.63 prescribe those provisions for the purposes of various sections of the Act, to:

1. Ensure the specified major project exemptions work harmoniously with the legislation (e.g. by excluding small sellers from the exemptions), and
2. Establish requirements for claiming, providing and documenting those exemptions.

Section 120.61 - Provisions Prescribed For Purposes Of Sections 89 (2), 90 (4), 99 (6) And 112 (2) Of Act

PSTERR - Sec.120.61/Int.

References:

Act: Section 1 “independent sales contractor”, “small seller”, “software”, “tangible personal property”; Section 89; Section 90; Section 99; Section 112

PSTERR: Section 117; Section 120.41; Section 120.6 “tangible personal property exemption provisions”

Bulletin PST 212

Interpretation (Issued: 2023/10)

Effective October 2, 2018, B.C. Reg. 196/2018 provides under PSTERR section 120.61 that small sellers and independent sales contractors are excluded from obtaining the tangible personal property, software and electricity exemptions related to specified major projects. These exclusions maintain the integrity of the existing small seller and independent sales contractor schemes.

Section 120.62 - Provisions Prescribed For Purposes Of Section 145 Of Act

PSTERR - Sec.120.62/Int.

References:

Act: Section 1 “collector”, “lessee”, “purchaser”, “software”, “tangible personal property”; Section 145

PSTERR: Section 120.41; Section 120.42; Section 120.6 “tangible personal property exemption provisions”

Bulletin PST 212

Interpretation (Issued: 2023/10)

Effective October 2, 2018, B.C. Reg. 196/2018 provides under PSTERR section 120.62 that collectors must levy and collect tax if the purchaser or lessee of the tangible personal property, software, or services fails to provide the necessary declaration and information to claim an exemption related to specified major projects at or before the time the tax is payable.

Section 120.63 - Declarations Required Under Section 145 Of Act

PSTERR - Sec.120.63/Int.

References:

Act: Section 1 “collector”, “director”, “tangible personal property”, “software”; Part 4; Section 145

PSTERR: Section 120.41; Section 120.42; Section 120.6 “tangible personal property exemption provisions”; Section 120.62

Bulletin PST 212

Interpretation (Issued: 2023/10)

Effective October 2, 2018, B.C. Reg. 196/2018 provides under PSTERR section 120.63 that a collector is required to obtain a declaration in a form acceptable to the director in relation to a person claiming an exemption related to tangible personal property, software, or services for specified major projects. This provision enhances the tax collection requirement in PSTERR section 120.62 by creating an obligation to obtain a declaration from a person seeking an exemption.

Section 120.64 - Declaration Required Under Section 30 (7) (a) Of Act

PSTERR - Sec.120.64/Int.

References:

Act: Section 1 “director”, “tangible personal property”, “vehicle”; Section 30

PSTERR: Section 120.4

Bulletin PST 212

Interpretation (Issued: 2023/10)

Effective October 2, 2018, B.C. Reg. 196/2018 provides under PSTERR section 120.64 that for the purposes of paragraph 30(7)(a) [when tax is payable in respect of vehicles] of the Act, when a person alleges that a vehicle is exempt under the specified major projects tangible personal property exemption, the Insurance Corporation of British Columbia must obtain a declaration in a form acceptable to the director.