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December brought an early Christmas gift for some, or you could look at this as a really late arrival that got lost in the mail.
Saskatchewan Finance released amendments to the Provincial Sales Tax (PST) regulations that reinstates a long-standing exemption on permanently mounted equipment (PME) used in the oil and gas industry. This is retroactive to April 1, 2017 – the day the exemption was removed.
In the 2017 provincial budget, the remission Order in Council 1436-67 was repealed. The order provided an exemption from PST on PME used in the exploration and development of oil, gas and potash resources. As of April 1, 2017, PST was now applied to this equipment and on the related repairs. This did not matter if you acquired the equipment or leased it; the PST was to be paid on the purchase or lease as well as on related repairs.
While this resulted in more PST being paid, it did not trigger tax on the PME already permanently in Saskatchewan when the rules came into effect. Effectively, existing PME was grandfathered except for those under lease arrangements after April 1, 2017.
Therefore, if I owned a drilling rig sitting in Saskatchewan, I did not owe additional PST on what I already owned. However, if I had to have repairs made to the drilling rig after April 2017, I would pay PST on the repairs. And if I bought new or used PME equipment after March 31, 2017, I would have an additional PST cost.
This hit the industry hard.
If you were an out-of-province business and brought the same PST-relieved equipment into Saskatchewan, you were now obligated to self-report PST on its temporary use in Saskatchewan. The same equipment already permanently in Saskatchewan and which could be used for the same contract was at a cost advantage.
Remission Order Amended
The industry quickly saw an uneven playing field was created when the remission order was repealed. The industry lobbied hard to have the exemption put back in place and it appears to have been successful.
The changes came through in the form of regulations as opposed to a new remission order. This appears to be a cleaner way of relieving the PST as a true exemption, and likely can be amended to make changes more quickly than using a remission order process.
Long story short, we once again have a specific list of PST-exempt equipment related to drilling and service rigs, equipment related to well servicing, and equipment related to geophysical exploration.
As this is a retroactive change, PST that has been paid will be considered tax paid in error and should be recovered. The equipment and capitalized repairs must be identifiable against the exempt equipment now residing in the regulations. The exemption will go back to April 1, 2017.
You also want to stop paying PST when it is not required. This will require some communication with your suppliers as they may not be aware of the changes. If you happened to have paid PST in error under the previous remission order concept, that should also be recoverable, but be aware refunds are only available up to four years from the date the tax was paid.
For more information, contact Jeff Harrison, CPA, CA, CMA, at 306.751.7998 or [email protected].
Related Topics:Indirect Tax
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