Provincial Sales Tax on a Business Asset Sale in British Columbia

When a British Columbia business sells its assets, provincial sales tax can apply to part of the price, and the part is set by what each asset is rather than by the deal as a whole. The Government of British Columbia says PST applies to the sale of new and used goods and software unless a specific exemption applies, and that when all or part of a business’s assets are sold, PST applies to the assets that are taxable goods or software. This guide walks through how that sorts a typical asset list. It describes British Columbia’s rule only. Other provinces that charge a provincial sales tax set their own.

Which assets are taxable

The ministry’s bulletin lists taxable assets that include business equipment such as vehicles, shop equipment and appliances, computer hardware, and stationery, furniture and office equipment. It also lists affixed machinery. The Provincial Sales Tax Act defines affixed machinery as machinery, equipment or apparatus used directly in, among other things, the production, handling or distribution of tangible personal property or the provision of software or a service, and affixed to or installed in a building, structure or land so that it ceases to be personal property at common law. The definition excludes equipment installed for heating, air conditioning or lighting, sewage disposal, or lifting persons or freight by elevator or escalator, as well as certain large equipment constructed on site and other prescribed items. The bulletin says PST applies to affixed machinery even when it is included in a purchase of real property.

Which assets are not

The same bulletin lists as non-taxable accounts receivable, shares of a business, real property and goodwill. It says PST does not apply to franchise fees and royalty fees unless they include the purchase of taxable goods or software. Certain affixed machinery is exempt if it qualifies for the production machinery and equipment exemption, which the ministry handles in its own bulletin. In the bulletin’s winery example, the buyer gives the seller a completed Certificate of Exemption Production Machinery and Equipment (FIN 492) for the winemaking equipment.

Goodwill and the price allocation

Goodwill is outside PST, and the ministry sets a limit on how the price is allocated. It says the value of goodwill that the purchaser and seller agree to must be reasonable, and that they cannot increase the price of goodwill and reduce the price of the taxable assets below fair market value to avoid paying PST. It also says it may ask for information supporting the value of the taxable assets. If the sale is bundled, with taxable and non-taxable assets sold for a single price, the bulletin says PST generally applies only to the fair market value of the taxable assets, and it points to Bulletin PST 316 for exceptions to that rule.

Inventory

Inventory goods bought solely for resale are not subject to PST, but the exemption has a condition. The bulletin says the purchaser must give the seller their PST number or, if they have none, a completed Certificate of Exemption General (FIN 490). If the seller takes taxable items from resale inventory for business or personal use, the seller must self-assess and remit the PST due on their next PST return or, if not yet registered for PST, on a Casual Remittance Return (FIN 405).

Who collects and who remits

If the seller is a collector, the seller must collect and remit PST on the sale of taxable business assets. The bulletin says that if the seller is not a collector or does not charge PST on the taxable assets, the purchaser must self-assess and remit the PST due on their next PST return, or file a Casual Remittance Return (FIN 405) if they have no PST number. The bulletin defines a collector as a seller who is registered to collect PST, or a seller who is not registered but is required to be, and the Act’s definition of collector is the place to confirm who counts. Separately, the ministry advises a purchaser to hold a clearance certificate before closing, and says a purchaser who does not obtain one is liable for an amount equal to any outstanding amount owed by the collector, a point covered in our answer on a seller’s unpaid provincial sales tax.

Questions to put on the closing checklist

• Is the seller a registered collector, and will the invoice show PST on the taxable assets?
• Has the price been allocated asset by asset, with a reasonable figure for goodwill that you could explain to the ministry?
• Does any machinery qualify as affixed machinery, and does the production machinery and equipment exemption apply to it?
• Do you have a PST number or the exemption certificate for inventory ready before closing?
• Have you asked about GST/HST separately? The CRA’s GST44 election, which concerns GST/HST on the sale of a business, is a federal form and does not decide PST.