I recently did a little digging to learn more about exactly how the BC government expected dealers, and their software providers, to establish the base for Luxury Tax. In this post I will share what I learned during this exercise.
A little background for those reading this that aren’t overly familiar with British Columbia’s Luxury tax: it was originally introduced back in 1997 with a threshold of $32,000 (the purchase price at which the rate of PST began to increase on passenger vehicles). This threshold saw 3 increases between 1997 and 2006, bringing the base amount up to $55,000. In 2010 with the introduction of the HST, the Luxury Tax was no longer, as the PST had been eliminated. On to April 2013, the HST is out and the PST, along with its luxury counterpart is back!
Taken from Bulletin PST 308, here is the basis for determining what rate of PST should be applied to a passenger vehicle sale:
So this all seams easy enough, right? Nope. Where the lines were blurred for me was exactly what was considered to be the Purchase Price. So, I sent the BC government an email and asked them to clarify. Below is an excerpt of my email. My questions are in GREY, their response is in BLUE.
Below I will outline a couple of potential purchase scenarios in which a consumer is buying a passenger vehicle from a BC automotive dealership after April 1st, 2013. Please clearly state what rate of Provincial Sales Tax should be used in the calculation for each of these scenarios.
Example #1
In this example we see that the dealer is adding optional equipment at the time of sale (e.g. running boards, window tint, etc.). It is understood that this optional equipment would attractprovincial sales tax if sold on their own, therefore, we see this amount included in PST Taxable Amount. The question here is what rate of tax should be applied to the PST Taxable Amount of $55,600? 7% or 8%?
Upgrade/equipment fees are part of the original purchase price of a vehicle, and will affect the price for determining the applicable tax rate. The purchase price for the purposes of the PST is $55,600 in this case and tax is due at 8%.
Example #2
In this example we see that the dealer is charging the customer an administration or documentation fee. It is understood that this administration fee would attractprovincial sales tax if sold on its own, therefore, we see this amount included in PST Taxable Amount. The question here is what rate of tax should be applied to the PST Taxable Amount of $55,600? 7% or 8%?
Administration/documentation fees are part of the original purchase price of a vehicle, and will affect the price for determining the applicable tax rate. The purchase price for the purposes of the PST is $55,600 in this case and tax is due at 8%.
Example #3
In this example we see that the dealer is selling the customer an extended service contract (extended warranty). It is understood that an extended service contract does not attractprovincial sales tax on its own, therefore, we do not see this amount included in the PST Taxable Amount. The question here is what rate of tax should be applied to the provincially taxable amount of $54,700? 7% or 8%?
Optional warranties and insurance are not part of the original purchase price of a vehicle, and will not affect the price for determining the applicable tax rate, provided they are separately itemized. Only mandatory warranties will be included in determining the original purchase price of a vehicle for tax rate purposes. The purchase price for the purposes of the PST is $54,700 in this case and tax is due at 7%.
It was this last example that stood out to me, as I had suspected that my example was correct. The problem was, that no matter where I looked, nothing specifically spoke to exactly what the Purchase Price was made up of.
I hope you found this post useful. Feel free to ask questions or share you comments below.
UPDATE 2/14: The BC government has recently published Bulletin PST 116 which does a much better job of explaining this in detail.
