The 2024-25 British Columbia (BC) budget, presented on 22 February 2024, included retroactive amendments to the Provincial Sales Tax Act (PSTA) aiming to broaden the definition of software and its taxability concerning software use in BC. These changes align with the BC government’s current stance, influenced by a significant 2023 BC Supreme Court (BCSC) ruling.
Proposed Amendments in Bill 3
The proposed amendments are part of Bill 3, the Budget Measures Implementation Act, 2024, which passed its second reading in the BC legislative assembly on 5 March 2024.
Pre-Budget Definition of Software
Before Bill 3, the PSTA’s software definition was narrow, lacking clarity on terms like “software program.” This ambiguity played a pivotal role in the BCSC’s decision, where the court disagreed with the government’s interpretation.
BCSC Decision in Hootsuite Inc.
The BCSC’s ruling in March 2023 distinguished between Software as a Service (SaaS) and Infrastructure as a Service (IaaS) from taxable “software” under the PSTA.
The BC Minister of Finance assessed the taxpayer for failure to self-assess PST; however, the court held that the purchases of respective services were not taxable, outlining criteria for taxability, emphasizing technical distinctions and usage locations.
Administrative Response from BC Ministry of Finance
In response to the BCSC’s decision, the BC Ministry of Finance (BC Finance) issued Information Notice 2023-005, Notice to Providers and Purchasers of Cloud Software Services, clarifying its administrative position and confirming intention to “retroactively support how the PST was administered prior to the court decision”.
It clarified that it had always considered cloud computing services which include SaaS and remote storage, computing capacity (IaaS)) as a right to access a taxable software program, a taxable telecommunication service, or both. Support services, which included “a non-incidental” right to use software or a telecommunication service, were considered taxable either in whole or in part.
2024–25 BC Budget’s Proposed Changes
The budget proposes an inclusive definition of software, encompassing coded instructions, Infrastructure as a Service, Software as a Service, and Application Programming Interfaces (APIs). These additions aim to eliminate previous distinctions and adapt to evolving digital services.
Expanded Definition of “Use”
The amended definition of “use” broadens software application scenarios, including access, possession, and interactions, especially relevant for cloud-based computing services.
Retroactivity and Implementation
Should Bill 3 pass, the changes will apply retroactively from 1 April 2013. BC Finance has already updated administrative materials to reflect these amendments, urging taxpayers and service providers to review their tax liabilities and registrations accordingly.
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