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Not All Exemptions Are Created Equal


For a business that operates in British Columbia, you have likely dealt with B.C. PST in one way or another. You likely already know that if you are registered for B.C. PST, you can provide the PST number to a supplier and purchase taxable goods on an exempt basis if the goods are purchased for resale. But many business owners don't realize that sometimes giving the PST number alone doesn't actually support a PST exemption properly.

Consider this scenario. A business is a large drywall contractor for both commercial and residential jobs. The business is registered for PST because sometimes it sells drywall sheets to smaller contractors and charges PST. The business wins a job with a First Nation band to supply and install real property. The First Nation band is eligible for an exemption of PST. The business goes out to buy a large quantity of drywall from its supplier and wants to buy them on a PST exempt basis. The business gives its PST number to its supplier and makes an exempt purchase. 

Everything looks fine. Until it's not.

By providing the PST number, the business is essentially declaring that it is purchasing materials for resale purposes.  It takes away the collection obligation from the supplier. However, supply-and-install in B.C. is considered to be a supply of real property, not resale. All the materials used in a supply-and-install contract are considered to be used by the contractor to provide the service to the real property. Therefore, unless the contractor has received the proper exemption certificate from the First Nation, PST is applicable on the materials. Upon a PST audit, the contractor will be assessed for failure to self-assess 7% PST on all the materials purchased.

In the scenario above, the contractor cannot use its PST number to receive the exemption. The contractor needed FIN491—Certificate of Exemption, Contractor to make the exempt purchase.   Subcontractors would use FIN493 – Certificate of Exemption, Subcontractor. The supplier is not responsible for the PST it did not collect from the contractor, because the supplier received the contractor's PST number. The same issue applies to contractors working on supply-and-install jobs for qualifying farmers with certain types of work such as fencing, gates, etc.

The same is true for a manufacturer making a purchase of manufacturing equipment or parts. A FIN492—Certificate of Exemption, Production Machinery and Equipment must be used, rather than providing a PST number. The ultimate implication to the purchaser is likely less severe in this case because the equipment or parts would be exempt in any event, but the purchaser would be at the mercy of the auditor to explain that the wrong PST exemption was relied on to make an exempt purchase.

Even though providing a PST number will allow one to make an exempt purchase, it isn't necessarily the right exemption for your purchase. It is always worth the exercise of thinking through the reason for a purchase before relying on the PST number.