BC PST for Contractors and Trades in Vancouver: When to Charge vs Pay
Understanding when to charge or pay Provincial Sales Tax (PST) is crucial for contractors and tradespeople in British Columbia. Misapplying PST rules can lead to costly audits, penalties, and client disputes. This guide clarifies the key distinctions between contractors and vendors, when PST applies to materials versus services, and how to structure your invoices to pass CRA audits.
Why PST Rules Matter for Contractors
BC’s PST rules differ significantly from GST. The key distinction is between tangible personal property (materials, equipment) and real property (installations that become part of a building). Understanding this difference determines whether you charge PST to clients or pay it on purchases—and getting it wrong can cost thousands in penalties.
Contractor vs Vendor: Key Distinctions
In BC, how PST applies depends on whether you’re acting as a contractor (installing/fabricating) or a vendor (selling goods). Most tradespeople operate as contractors, which changes PST obligations:
Contractor
Definition: Installs, fabricates, or modifies real property (buildings, structures)
- Pays PST on materials purchased
- Does NOT charge PST on installation labor
- May charge PST on materials if itemized separately
- Examples: Electricians, plumbers, carpenters, HVAC installers
Vendor
Definition: Sells tangible personal property (goods) without installation
- Charges PST on all sales
- Pays PST on inventory purchases (if not registered)
- Collects and remits PST to government
- Examples: Building supply stores, equipment retailers
When to Pay PST on Materials
As a contractor, you typically pay PST when purchasing materials from suppliers. This is because you’re buying tangible personal property that you’ll use in your work:
Materials for Installation
When buying lumber, wiring, pipes, fixtures, or other materials that will be installed into real property, you pay PST at the point of purchase.
Tools and Equipment
Tools and equipment used in your business operations (not installed) are subject to PST. You pay PST when purchasing.
Materials You Resell
If you purchase materials to resell (not install), you may need to register as a PST vendor and charge PST to your customers.
When to Charge PST to Clients
Contractors charge PST to clients in specific situations. The key is understanding real property (installations) versus tangible personal property (goods):
Real Property Installation Rules
Invoice Examples That Pass Audits
Proper invoice structure is critical for PST compliance. Here are examples of invoices that will pass CRA audits:
Example 1: Lump Sum Installation (No PST Charged)
Example 2: Itemized Materials (PST Charged)
Example 3: Sale of Goods (PST Required)
Common PST Exemptions for Contractors
Several exemptions apply to contractor purchases, which can reduce your PST costs:
Production Machinery
Machinery and equipment used primarily in manufacturing or processing are PST-exempt.
Commercial Vehicles
Vehicles used primarily for commercial purposes (trucks, vans) may be PST-exempt.
Resale Items
If you’re registered as a PST vendor, materials purchased for resale are exempt (you’ll charge PST when selling).
Government Contracts
Materials purchased for government contracts may be PST-exempt with proper documentation.
Reconciling PST with Bookkeeping
Proper bookkeeping ensures PST compliance and simplifies audits. Here’s how to track PST correctly:
PST Tracking Best Practices
PST Checklist for New Quotes
Use this checklist when preparing quotes to ensure PST compliance:
Common Audit Pitfalls to Avoid
Charging PST on Labor
Never charge PST on installation labor. This is a common error that triggers audits and requires refunds to clients.
Missing PST on Itemized Materials
If you itemize materials on invoices, you must charge PST. Failing to do so can result in penalties.
Poor Documentation
Without receipts showing PST paid, auditors may assume you didn’t pay PST and assess additional tax.
Mixing Contractor and Vendor Activities
If you both install and sell goods, ensure proper PST registration and separate tracking to avoid confusion.
Book a 15-Minute PST Review
PST rules for contractors can be confusing, and mistakes are costly. J. Wang Chartered Professional Accountant offers quick PST reviews to help Vancouver contractors ensure compliance and avoid audit issues. We’ll review your invoice structure, bookkeeping practices, and help you understand when to charge or pay PST.
Schedule Your PST Review
Let’s discuss your PST compliance and ensure your invoices are structured correctly
Need help understanding GST and HST as well? Schedule an appointment with our Vancouver accounting team today.