You can make a fortune hauling oilfield equipment between Alberta and British Columbia. You can also lose it if you miscalculate the real cost of using single trip permits. I recently met with an Alberta oilfield services company that had taken a job hauling heavy equipment from Slave Lake, Alta., to Prince Rupert, B.C. It penciled out the costs, including a 30-day trip permit ($312) and Alberta base plate ($2,400), and negotiated a contract with the customer. What the company failed to account for was having to pay roughly $70,000 in provincial sales tax to B.C. on the million-dollar piece of trailing equipment it used during the move.
B.C.’s switch from HST to a combination of GST and PST in April 2013 created a mass of confusion about what is and isn’t taxable. By February of this year, the province had completely rewritten its tax bulletin on PST and vehicles (you can still find the old version online, so make sure you’re reading the most current one). Unfortunately, confusion and miscommunication are not valid excuses when you’re staring down a tax audit.
What to know
British Columbia requires PST to be paid on vehicles regardless of whether they are for personal or business use.
If you’re based outside of B.C., it’s important to know that there are rules for taxing vehicles (“goods”) that come into the province for “temporary use.” The rules centre around how many days the vehicle is used in B.C. over a 12-month period. In most cases, a vehicle is exempt from PST if the number of days is five or less. The days can be consecutive or spread out, and a partial day is considered a full day for the purposes of PST.
Under the temporary use formula, you pay 7% PST on the depreciated value of the vehicle in installments over a three-year period. In this case, the oilfield services company owed approximately $23,000 PST this year, next year, and in 2016. If it failed to pay, it could be assessed the tax plus a penalty and interest on the amount owing from the time the vehicle first entered the province.
The fleet manager didn’t know about the PST issue until it came up during a review with an accountant at the head office in Calgary, who wanted to know why the company had recovered $312 from the customer for the trip permit but not any of the $23,000 in PST. Now here’s the kicker: the fleet manager got a call from the customer about doing more jobs in B.C. and also Saskatchewan. The fleet manager looked it up: Saskatchewan has PST, too – 5% on any commercial equipment, vehicle, or tools used in the province for one or more days in any 12-month period.
A decision to make
The company has a choice to make. Instead of paying for single trip permits and PST on equipment (and related supplies and repairs), it can license vehicles under the International Registration Plan (IRP). With IRP, you pay licensing fees and prorated sales tax to your base jurisdiction at the time of registration. The jurisdiction will calculate and forward the proper amounts to other IRP jurisdictions according to the proportion of distance you travel there. Licensing a million-dollar rig that spends 80% of its time in Alberta and the other 20% divided between B.C. and Saskatchewan would cost a total of $2,396 per year under IRP. It would be exempt from PST and instead the owner would pay a prorated sales tax of $3,294 to B.C. and $2,353 to Saskatchewan. The benefits would be significant.
The company could operate in all three provinces for three years for roughly what it would cost for one year of trip permits and PST paid to British Columbia alone. Plus, it would have the operational flexibility to use the vehicle in any IRP-member jurisdiction at a moment’s notice.
Prorating also makes it easier to calculate surcharges. If the total cost of prorated licensing fees and sales tax in Alberta, B.C., and Saskatchewan is $8,043 per year, divide that by 365 and you get a daily rate of $22.04.
Now you know how much to charge in order to recoup license fees and sales tax from customers.
When to permit?
When should you use trip permits and when should you register vehicles under IRP? It depends on how many days you plan to operate outside your home province and whether you’ve already paid the sales tax on your equipment.
Registering a vehicle under IRP doesn’t represent a cost savings in every situation. But it’s probably worth finding out – before the accountant calls from the head office.