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 attract provincial 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 attract provincial 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 attract provincial 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.
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Great post Rick, was exactly what I was looking for, thanks
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Great post. Can you explain what 'purchase price' is? Is that the deal you negotiate + freight/PDI + dealer admin fees? Or maybe MSRP + Freight/PDI + admin? Thanks!
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Thanks Brian! Yes, the "purchase price" is the deal you negotiate + anything else that attracts PST. In BC everything attracts PST except for Extended Warranties. Therefore if you negotiate a purchase price of $55,000 and then the Freight & PDI is $1000 and the dealer has $500 in fees then you would be looking at a total purchase price of $56,500 and a PST rate of 9%. Hope this helps.
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Great Post, that is good info to know!
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So for example #3 would they still pay PST on the extended warranty at 7%? I noticed it's not in the total but not sure if that $900 is only being charged GST and no PST or how it works.
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Hi Angela - that's correct, there is no PST applied to extended warranties in BC. You would only have to pay the GST on the extended warranty.
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what about factoring in a trade in? Purchase price $60,000 less trade in value $10,000 Net $50,000 Do you pay the extra tax then??
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Yes, the determination of the rate of PST is not effected by the trade-in. That said, you would only pay the 10% on the net difference. In your example the PST would be $5000. Hope this helps.
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Thanks for the more detailed insight to BC PST. Would make sense from this reading to not have dealer's add any accessories to vehicle at time of purchase as could end up paying a higher tax. Would be better to buy accessories wanted after the purchase of vehicles, correct? Does anyone know the PST applicable on a Motorhome or RV (trailer unit) owned & registered in AB then brought into BC when moving to BC? Doesn't seem to fall under the passenger vehicle rules.
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Hey Patrick - yeah I would agree with your statement that if you're purchasing a vehicle that is close in value to one of the Luxury Tax ceilings, that you would want to avoid adding accessories at the time of purchase. I think the law may actually differ between Motorhomes and Trailers, but I'm not 100% certain. There's very little on the subject in the governments bulletin
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what do you do with a dealers rebate is that subtracted from the purchase price?
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Hey Jay - they should be used to reduce the "Total Purchase Price" (e.g. $59,000 vehicle with a $10,000 manufacturer rebate = $49,000 "Total Purchase Price" - 7% PST) Here's what bulletin PST 116 say about it..."Unlike other amounts paid by third parties (e.g. third-party discounts), the value of a manufacturer’s rebate or manufacturer’s coupon is not included in the purchase price of a motor vehicle if the manufacturer of that motor vehicle provides the rebate or coupon as consideration for the purchase of a motor vehicle. For example, if you sell your customer a ¾-ton truck for $60,000, and the manufacturer of that motor vehicle provides a $10,000 manufacturer’s rebate as partial consideration, the purchase price of the truck is $50,000. However, if the amount paid by the third party is not a manufacturer’s rebate, the value of the rebate is included in the purchase price of the motor vehicle. For example, if your customer is eligible for a third-party $2,000 cash-back incentive on a vehicle with a purchase price of $30,000, the purchase price of that vehicle is $30,000."
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Hi Thanks for the info! So useful For hybrid vehicles you receive a rebate. When it deducts off the price and comes under 55k will it avoid luxury tax? If not are dealers flexible on working numbers less trade in value lower msrp etc? Thanks!
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Hey Mitch, thanks for the positive feedback. You had a couple of questions, so I'll do my best to answer below: 1. Unfortunately no, as of December 1st, 2017 BC made a change to the CEV rebate so that it no longer reduces the PST base. This means that your PST rate will be calculated before the CEV rebate is applied. Here's a link to the bulletin that describes this change: http://files.constantcontact.com/d7b2adf0101/b57825ea-2ae2-4078-bd52-fb646c821996.pdf (there's a good example of your question at the very top) 2. Dealers can certainly reduce the selling price of the vehicle, which will reduce the "Vehicle Purchase Price" however, trade-in vehicles do not effect the rate of PST. The only other way to try and get below the luxury tax threshold is to make sure any accessories or other "add-ons" that you purchase get bought through the service department on a completely separate transaction.
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thanks for the great information. Makes a lot of sense now.espceially with the CEV rebate. sorry last question if the vehicle was preordered with deposit in august but doesn't arrive until now the rebate would apply to the new rules?
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No problem! Sadly, the new rules would apply to a vehicle being delivered in January.
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Hey Rick. If selling price is 56,000, is the higher sales tax applied to the full amount or just to the amount over the 55,000 threshold?
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Joe - sorry for the late reply. The answer to your question is the entire $56,000 is subject to the additional tax, not just the $1,000 that's over the threshold.
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What if there is a trade involved
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Thanks for the question Todd. As far as I understand, the additional tax is calculated on the "Purchase Price", and it looks like the government classifies the "Purchase Price" as the price before deducting trade-in amounts. I linked some sources below: Snippet on Trade-Ins from PST Bulletin Full PST Bulletin
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Great post Rick. It was quiet helpful.
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