Understanding MJV Exit and Trailer Taxes in BC
Re-implementation of the MJV tax following BC’s return to the PST in April 2013 appeared to contain a serious flaw in assessment of the exit tax that is triggered when a vehicle licensed under a prorating agreement ceases to be licensed. Depending on how the MJV tax legislation was intepretted, the exit tax could be applied more than once on a new truck-tractor, if it was taken out of prorate temporarily and then re-entered and removed again.
The MJV tax is a form of PST and the amount paid – including the MJV tax itself and any applicable exit taxes – should be consistent with the amount of PST due on the purchase of a vehicle licensed for commercial use in BC. However, since there are numerous situations in which carriers with a new prorate vehicle may need to change its licence status periodically, they could end up paying more in MJV and exit taxes than the PST on the purchase price. This appears to be the case, for example, when a prorate truck is temporarily re-assigned to BC operations or placed in storage for extended time off work (which some owner-operators do during slow periods).
Consumer Taxation Programs has clarified that the Provincial Sales Tax Act, Sections 72(2)(b) and 72.1(2)(b), does prevent future applications of exit tax in the case of a conversion to intra-provincial licensing status. Section 72(2)(b) in particular provides relief from multiple assessments of the exit tax as long as the vehicle, after exiting prorate for the first time, is licensed for use in BC without changing ownership (i.e., BC commercial-licensed by the same owner) as follows:
- A vehicle is licensed under a prorating agreement.
- The vehicle is then licensed for intra-provincial use in BC (exit tax is assessed).
- The vehicle is subsequently re-licensed under a prorating agreement.
- The vehicle is then licensed for intra-provincial use in BC a second time (no exit tax is assessed).
After the initial assessment of exit tax when the vehicle is BC commercial-licensed (first exit from prorate), there is no limit to how many times the vehicle can exit/re-enter prorate without triggering exit tax. In addition, if the vehicle exits prorate and is commercial-plated in another jurisdiction and not licensed for use in BC, exit tax does not apply, per Section 72(2)(d).
It is currently unclear, however, if there is a difference in the criteria used to assess PST on trailers used with MJVs vs. that defined under the pre-HST system. It appears that the assessment criteria has changed, resulting in more PST payable relative to the old system (i.e., there has been an expansion of the tax base).
Under the old system, trailers used “exclusively” with an MJV were PST exempt. In this case, in recognition that trailers might at times be used with an intra-provincial vehicle, an exclusive use test required that 90 percent or more of a trailer’s use had to be with an MJV to qualify for the PST exemption. Furthermore, if the same trailers were used with both MJVs and intra-provincial vehicles (i.e., mixed-use), PST was payable on a portion of the trailers.
Under the new system, trailers obtained for use “solely” with MJVs are exempt from PST. For example, a semi-trailer purchased for use solely with a fleet of five MJV tractors qualifies for the exemption. If a trailer is used with both MJVs and BC commercial-plated tractors, regardless of the proportion of use, the exemption does not apply, and PST must be paid on the full purchase price or lease price of the trailer. It would also appear that out-of-province (OOP) carriers using trailers with both MJVs and vehicles not licensed under the International Registration Plan may be required to pay PST on the temporary use of those trailers in BC. In other words, it would appear the PST on trailers continues to be prorated for OOP carriers, but not for BC carriers, which in turn places BC carriers at a tax disadvantage relative to OOP carriers.
For more information on this topic and to keep up-to-date on the issues above, please see BCTA Tackles Confusion Over MJV Exit & Trailer Taxes by BC Trucking Association (September 6, 2013).
Tia Chisholm, HUB International TRANSPORTATION
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