PST changes in last spring’s budget are still a concern in oil sector

Estevan – There was so much interest in MNP’s presentations on federal tax changes and provincial sales tax changes that they were bringing in extra tables and chairs to squeeze more people in at the Estevan Legion Hall on Nov. 8.

Wayne Paproski led off with a talk on proposed changes for private corporations.

Jeff Harrison spoke about the six month journey on the provincial sales tax (PST) since the 2017 provincial budget.

Back in 2000, services were added to the PST, but since then, not much has changed.

“The frustration with all these changes is they didn’t consult the industries they were going to affect ahead of time,” Harrison said. “They didn’t really make any changes you couldn’t really plan for, but you should have been able to understand.”

“The oil and gas sector, itself, is going to have some challenges. We understand Sask Finance is willing to listen to some changes, but they want to see at least six months passed since their changes have come through, to more or less provide some information, some numbers to show them the cost.

“In a way, it’s a bit of an unlevel playing field,” Harrison said.

“The first impact is on capital goods. There used to be a remission order on very specialized equipment, referred to as permanently-mounted equipment. What it meant was, you would buy that equipment, free of PST, used in your business. It was drilling rigs, rig components, very specialized equipment, and expensive as well.

“Now that that’s been removed, every time you purchased new and used equipment like that, it used to be under a remission order, you paid PST on it. That will be involving bringing equipment in from out of province, or a contractor bringing in equipment from out of province, or you outright purchase it or rent it from within the province,” Harrison said.

Items already in the province are grandfathered, until sold. Harrison said, “The non-resident contractor, bringing that exact same equipment in, has to pay tax as soon as they cross the border. It’s the temporary import rule, no different than bringing equipment or tools across the border. That’s always been inherit with PST, whether it’s Saskatchewan, Manitoba or B.C. They have to pay tax on it if it’s used in the province.”

Using the example of a $10 million drilling rig, if owned in Saskatchewan, it’s grandfathered. It’s not until it’s sold to someone else or you go to replace it that PST will have to be paid. A drilling rig coming in from out of province, the same drilling rig, same value, has to have tax paid when it crosses the border. It can be appreciated method, or paid over time for the time it is here. That’s an additional cost for coming into the province, he explained.

“When the rules came out, we were dealing with Sask Finance right away, specific to oil and gas,” he said. “They said, ‘This is taxable, this is taxable, this would be exempt,’ and so forth. Then it was about two, three months later in June of 2017, they came out with a bulletin with a whole host of exemptions that came out.”

The list is available from Sask Finance.

It created a lot of confusion, because some items on which taxes were being collected was now except, and vice versa.

“That’s creating a lot of confusion. You’re going to either collect tax that you shouldn’t have, or you’re not going to collect enough tax, and they’re going to deal with it at audit time,” Harrison said.

Repairing real property has PST, for instance. But maintenance, like snow removal, is exempt.

“Service to real property is taxable, unless it’s exempted,” Harrison said.

For examples, he said construction of a well bore, including cementing services, is taxable, as are above ground construction, services and repair. Pipeline construction, service and repair, hydrovac service and well abandonments are also covered.

Rentals are another matter. Providing equipment without an operator is treated as a rental, but if you’re providing service, then it’s not a rental, and taxed on the entire selling prices.

Drilling the wellbore is exempt, as is downhole servicing is exempt, but not the materials supplied. If materials are not segregated on the invoice, then the full price of the invoice is taxable. “That was kind of a sleeper that came through when we read it,” Harrison said.

Non-taxable items include snow removal, weed control, grass cutting, health and safety consulting, fracture mapping and reservoir monitoring, as just a few examples.

The industry is still trying to find the cost of all these changes. Subcontractors have other items they need to deal with to ensure they are PST exempt.

He suggested getting confirmation on what is taxable, and what is exempt, warning of audit risks. Harrison said to expect audits starting in a few years on the new changes.

“You’re going to be in a world of change for a while that will settle down, and we’ll understand it more, going forward,” Harrison concluded. 

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