Blogs Of The Past: Provincial Taxes And Computer Service In Ontario
You may not know this, but before I moved this blog to the Blogger service (in it’s current form), I wrote a number of articles that, after the switch, were archived. I’ve decided that it might be cool to bring back some of these and see if they are still relevant today. One such blog entry was created in the spring of 2003. Back then I was looking to understand the scenarios that PST (or called RST) was going to need to be charged on various services. Of course, with this year’s change to HST, most of this is depreciated, but still interesting. My notes are interspersed.
In an effort to be as compliant as possible – Calwell Inc. has taken a very strict compliance position on Provincial Taxes. When your bill arrives in 2003 and onward (Edit: I was, at the time writing to customers only) you will find that it will clearly distinguished PST taxable from PST non-taxable goods and services. Over the years, the tax rules for Computer Programs and Computer Services have changed so much that a clear answer needed more investigation. This article is the result of that research. Upon reading this, the goal is to make the tax rules that Calwell Inc. follows clearer. (Edit: ..and inform those who are curious)
You can now view the text of a recent ruling on RST by the Government of Ontario. You can view the pages below, note these files are quite large (Aprox. 100k Each Page).
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In the current Ontario Retail Sales Act a “taxable service” is defined as:
“taxable service” means,
(a) telecommunication services of all kinds, including without restricting the generality of the foregoing, telephone and telegraph services, community antenna television and cable television, transmissions by microwave relay stations or by satellite, and pay television, but not including public broadcasting services that are broadcast through the air for direct reception by the public without charge,
(b) transient accommodation,
(c) labour provided to install, assemble, dismantle, adjust, repair or maintain tangible personal property,
(d) any contract for the service, maintenance or warranty of tangible personal property, or
(e) the provision of the right to park a motor vehicle or to have a motor vehicle parked in a commercial parking space; (“service taxable”) Of particular interest in this act is section (c) and section (d).
These two sections make it very clear that any service done to a computer (Edit: is service “done to” a computer?), a computer program, cables, or any other property that is touched by Calwell Inc. is to be taxed under the umbrella of the Provincial Sales Tax.)
Services Performed Remotely
Another interesting question regarding PST is whether services performed remotely using software such as Radmin, Remotely Anywhere, or PC Anywhere is actually taxable under the above rules. (Edit: I had not heard of Logmein at the time). In Publication 650 (provided by the OntarioTax Revenue Division) states:
“If you provide assistance or support, either in person, over the phone, electronically, or via email, you are not required to charge RST. However if your assistance is hands-on, either by physical contact or by remote access, this is taxable labor. Taxable labor is considered to be labor provided to install, assemble , repair, or maintain taxable goods.” (Edit: yea, it still makes no sense)
The most common interpretation of this passage is that if the consultant has any contact with “Tangible Goods” directly or remotely, that service is taxable. Services that are done indirectly (assistance or walking the customer through a fix – if you fill that).
So, what is Non-Taxable?
This is a tougher question to answer. Since the Ontario Government defined the rules of “Tangible Goods” – most services ended up being taxable. The problem for (Edit: grammar!) the Ontario Government is that they need to define the creation and service of non-tangible goods like software. The Ontario Finance branch recently created an amendment to the rules defined for consultants that more clearly defines the rules for taxability.
Given this, the following are defined as nontaxable (found here):
– testing a computer program (unless the testing is done in connection with the installation, configuration, modification or upgrading of a computer program);
– training;
– advisory services;
– data management.
What is the Government doing? (Edit: that was rhetorical)
The most recent changes to the legislation mentioned above are to be retroactive on July 19, 2002 – but there should be more changes for Ontario Budgets in 2003.
Additional Resources
Please refer to these links for more information regarding tax rules and general tax information:
Ontario Ministry of Finance – (Edit: The link at left takes you to a “page not found”)
Ontario Finance – (Edit: This one is another “page not found”)
Ontario Tax Revenue Division – (Edit: This link still exists)
Retail Sales Act – (Edit: This page is completely dead)
Tax Revenue Division – Guides – IT Industry Publications – (Edit: Another broken link)
So, that’s it for this one! I look back at this seven year old article and think: “I was really on to something by putting this information out there”. I was indeed. I hope you have enjoyed this, and I look forward to your thoughts. Until the next time I dig up another old blog!