Using single-trip permits for out-of-province work could cause trouble
February 11, 2014
CALGARY, Alta. -- Alberta-based oilfield services companies that are using single-trip permits to conduct work in neighbouring provinces may be doing it wrong. And it could cost them a bundle of money.
CALGARY, Alta. — Alberta-based oilfield services companies that are using single-trip permits to conduct work in neighbouring provinces may be doing it wrong. And it could cost them a bundle of money.
Sandy Johnson, managing partner with North Star Fleet Solutions, says many oilfield services companies don’t realize they’re required to pay provincial sales tax on equipment used in B.C. or Saskatchewan, and given the cost of that equipment, it could amount to quite the bill.
During a recent webinar on the topic, Johnson gave the example of an Alberta-based oilfield services provider using a million dollar piece of equipment in B.C. In addition to requiring Alberta plates ($2,400) and a trip permit ($312 per month), the company would also be expected to pay 7% provincial sales tax on the equipment, which totals $70,000. But since B.C. has a temporary use formula in place, the equipment owner would have to pay just one third of that amount initially, which still totals about $23,000 in the first year. (The one-third formula applies each year of use until the tax payable of 100% is reached in the third year, Johnson explained).
The situation is similar in Saskatchewan, where a 5% provincial sales tax exists.
The alternative, said Johnson, is to permanently licence the equipment for use in neighbouring jurisdictions.
A piece of equipment that will spend 80% of its year in Alberta, and the other 20% divided between B.C. and Saskatchewan can be permanently licensed for $8,043 per year.
“The benefit of that is that you’re licensed for the entire year, you have all three provinces and it costs about $24,000 for three years which is what it would cost for one year in B.C.,” Johnson explained.
It also makes it easier to charge back the licensing fees to the customers, she said, because a simple formula can be used to determine the daily rate of operating the equipment outside its home jurisdiction.
And, “You can leave and go across all three provinces at a moment’s notice, you don’t have to wait around for a permit,” she added.
Johnson estimates about 85% of oilfield services providers would benefit from the permanent licensing method, but she said few take advantage of it, not realizing the tax implications involved with a single-trip permit strategy. She said provincial governments have the ability to demand retroactive payment for unpaid sales tax and are on the lookout for these scenarios.
“B.C. and Saskatchewan are saying, ‘Have you paid your sales tax? We want our money.’ The gambler may buy a single-trip permit and not pay tax, but if you don’t and you’re audited, you’re going to pay the tax and they can go back a number of years and collect that money, plus penalty and interest,” Johnson warned.
The same applies to trailers, tires and commercial vehicle repairs, she added.
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