Most individuals when starting their own business for the first time in British Columbia (B.C.) do not incorporate. They will usually register their name with the B.C. Corporate Registry Services as a sole proprietorship and operate as so until they feel the need to incorporate their business. Some businesses before incorporation will hold assets or equipment that the owner will still want to use in the newly incorporated entity, upon which the appropriate GST election and Section 85 rollover will have to be contemplated with your professional corporate tax specialist.
One area, however, that is often overlooked is what happens if your sole proprietorship holds trucks, trailers, cars or recreational vehicles that you wish to transfer into your newly incorporated company? We are all aware that when you move the vehicles into your new incorporated company you have to sign the appropriate transfer documents with ICBC for title ownership. However, you are also subject to the Provincial Sales Tax (PST) on the transfer of the vehicle, as technically even though you are moving the vehicle to your own company, under corporate law your incorporated company is treated as its own independent person.
Many individuals who I have the pleasure of working with in the trucking and construction industry are often caught off guard by this tax and they don’t understand why they have to pay it twice. The trick is, you don’t. If your vehicle qualifies as a “Tax Paid Asset” under PST then you can claim an exemption upon transfer. However, if you bought your trailer, truck, car or other vehicle under the Harmonized Sales Tax (HST) regime in B.C. a few years back and claimed the HST tax credit on purchase or claimed any PST credits upon purchase under the PST regime before or after HST, you will not be able to qualify for the exemption. Please note that there are also other specific rules for vehicles brought in from out of province or from outside of Canada.
For those individuals looking to avoid this issue altogether by artificially lowering the transfer price of their vehicle or simply not reporting the transaction, be aware that both actions are highly punitive and the recourse through a PST audit is not worth it.
The exemption from paying the PST on the transfer of the vehicle title to your new or existing incorporated company can save you tens of thousands of dollars in tax. Just make sure you are doing it correctly and have the right corporate tax professional guiding you through the process.
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