January 31st, 2024
CPAs, Firms with operations in several Canadian provinces
Hootsuite Inc. v. British Columbia (Finance), 2023 BCSC 358
On March 10, 2023, the British Columbia Supreme Court issued an important decision regarding the application of British Columbia’s provincial sales tax (PST) in Hootsuite Inc. v. British Columbia (Finance), 2023 BCSC 358.
This long-awaited decision rules on the application of PST to various web-based services. In particular, the Court had to determine whether cloud data storage services and various services related to data storage constitute services subject to PST.
Hootsuite Inc. was successful on all the points listed below. PST was not applicable, contrary to the position of the Ministry of Finance indicated in Bulletins PST 105 – Software and PST 107 – Telecommunications services.
Hootsuite didn’t have to self-assess PST on the various services it had acquired from providers such as Amazon and AWS Direct Connect.
Retroactive modification of the PST following the decision of the BC Supreme Court
In June 2023, following the Hootsuite Inc. v. British Columbia (Finance) decision, 2023 BCSC 358, the provincial Ministry of Finance issued Bulletin 2023-005 to advise suppliers and purchasers of its position on the application of PST following the decision.
Before the decision
Generally, the Ministry considered the “cloud computing services (such as software as a service, remote storage and computing capacity)” to be either a taxable right of access to a computer program or a taxable telecommunications service, or both.
However, support services were not taxable unless the support service included a non-accessory right to use a computer program or telecommunication service, in which case the service was taxable.
The Ministry’s response to the decision
In response to this decision, the government wants to amend the law retroactively in the 2024 budget to support the Ministry of Finance’s position prior to the decision. The Ministry recommends that suppliers and purchasers continue to follow the position indicated in Bulletins PST 105 – Software and PST 107 – Telecommunications services.
Discussion
Retroactive law changes when tax authorities don’t win undermine the credibility of the courts and the tax system as a whole. Such a change should be allowed only in very rare cases where the government’s financial stability is affected following a decision by the courts.
