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Provincial Sales Tax (PST) BulletinBulletin PST 110Issued: May Revised: February Production Machinery and Equipment ExemptionProvincial Sales Tax ActLatest Revision: The revision bar ( ) identifies changes to the previous version of this bulletin datedJuly. For a summary of the changes, see Latest Revision at the end of this document.This bulletin provides information to help manufacturers, software developers, serviceproviders (businesses that provide manufacturing services to manufacturers), and localgovernments involved in certain power generation activities understand how the productionmachinery and equipment exemption (PM&E; exemption) applies to their activities.Businesses in the logging, mining, and oil and gas industries are also eligible for the PM&Eexemption.; The application of the PM&E; exemption for these businesses is described in thebulletins referenced on page 2 of this bulletin.Table of ContentsOverview. 2Manufacturers. 3Software Developers . 11Pollution Control and Waste Management . 14Transmission or Distribution of Goods or Software . 14Transmission or Distribution of Electricity . 16Service Providers . 17Local Government Power Generation. 18PM&E; and Software Used toOperate, Control or Monitor Exempt PM&E; . 19Parts, Materials and Services for PM&E; . 19Claiming the PM&E; Exemption. 21Other Exemptions . 22Refunds . 24Taxable Goods . 25Goods Brought Into BC. 27Sales. 28Real Property Contracts and Affixed Machinery . 28Tax Payment Agreements . 29Ministry of Finance, PO Box 9442 Stn Prov Govt, Victoria BC V8W 9V4
OverviewIn this bulletin: Goods means tangible personal property as defined in the Provincial Sales Tax Act.Tangible personal property is personal property that can be seen, weighed, measured,felt or touched, or that is in any other way perceptible to the senses, and includes: natural or manufactured gas, electricity, heat, affixed machinery, and an improvement to real property or part of an improvement to real property that isremoved from the site at which it is affixed or installed, while it is removed from that site. Obtain means: purchase or lease in BC, bring or send into BC, receive in BC, or receive as a gift. Substantially means more than 90% (except in the Qualifying Manufacturing Activitiessection below).If you qualify for the PM&E; exemption, you may obtain certain machinery andequipment (PM&E;) exempt from PST.The PM&E; exemption includes replacement parts, materials and services for qualifying PM&E;,parts and materials to assemble qualifying PM&E;, certain PM&E; used by service providers, andcertain PM&E; used by local governments involved in certain power generation activities.To qualify for the PM&E; exemption, you must be involved in a qualifying activity and, for mostactivities, you need to perform the qualifying activity at a qualifying location and meet minimumlevels of sales, manufacturing costs (for goods) or development costs (for software).The following activities qualify for the PM&E; exemption and are discussed in this bulletin. Manufacturing Software development Pollution control and waste management Transmission or distribution of goods or software Transmission or distribution of electricity Providing services to manufacturers, oil and gas producers or mine operators Local government power generationThe following activities qualify for the PM&E; exemption and are discussed in the referencedbulletins. Logging – see Bulletin PST 112, Logging IndustryProduction Machinery and Equipment ExemptionPage 2 of 29
Exploration for, discovery of or development of, petroleum or natural gas – seeBulletin PST 114, Oil and Gas Industry – Exploration, Discovery and DevelopmentExtraction or processing of petroleum or natural gas – see Bulletin PST 113,Oil and Gas Industry – Producers and ProcessorsExploration for minerals or development of mines, or extraction or processing ofminerals – see Bulletin PST 111, Mining IndustryGeophysical surveying – see Bulletin PST 114, Oil and Gas Industry – Exploration,Discovery and Development and Bulletin PST 111, Mining IndustryManufacturersIf you manufacture goods, you may qualify for the PM&E; exemption as a manufacturer.Manufacturers may obtain qualifying PM&E; exempt from PST.To qualify, you must: be involved in a qualifying manufacturing activity, meet minimum levels of sales or manufacturing costs, and perform the qualifying activity at a qualifying part of a manufacturing site.Qualifying Manufacturing ActivitiesThe following activities qualify as manufacturing. Fabricating or manufacturing goods to create a new product substantially different from thegoods from which it was made Processing goods by performing a series of operations, or a complex operation, that resultsin a substantial change in the form or other physical or chemical characteristics of the goodsThe following activities by themselves do not qualify as manufacturing. However, theseactivities qualify as manufacturing if they are combined with a qualifying manufacturing activityas described above and occur at the qualifying part of a manufacturing site. Cleaning, painting, staining, blending, combining, grading, grouping, mixing, packaging,re-packaging, sorting, storing, screening, cutting, drying or testing goods Transforming goods from a gaseous, liquid or solid state to another one of those states bymeans of a change in temperature or pressure Generating heat Changing the voltage of electricity Crushing, dismantling, compressing, breaking down or shredding goods for the purposes ofrecycling those goods Disposing of goodsExample:If your business is to package other manufacturers’ products, you are not involved in aqualifying manufacturing activity as packaging on its own does not qualify as manufacturing.However, if, at the qualifying part of your manufacturing site, you package your own productsafter you manufacture them, the packaging activities qualify as manufacturing.Production Machinery and Equipment ExemptionPage 3 of 29
Non-Qualifying ActivitiesThe following activities do not qualify as manufacturing. Growing, harvesting or producing agricultural or aquaculture products, or raising livestock Logging (see Bulletin PST 112, Logging Industry) The production of television programs, radio programs, motion pictures, commercials,master films, master video tapes or any similar product in electronic format Providing a service, except services described in the Service Providers section belowMinimum Sales or Manufacturing CostsTo qualify as a manufacturer, you must meet any of the following criteria. The goods you produce are for sale and there is a reasonable expectation that thetotal value of sales for that class of product will exceed 30,000 per year (worldwide). The goods you produce are for lease or for your own business use, and there is areasonable expectation that the total manufacturing cost (see Calculating ManufacturingCost below) for that class of product will exceed 30,000 per year. The goods you produce are for sale, lease or own business use, and there is a reasonableexpectation that the total manufacturing cost for that class of product will exceed 30,000per year. You may combine the cost of the goods that are for sale, lease or business use,as long as the goods are for the same class of product.Example:You manufacture furniture that you both sell and lease to your customers. Your sales are 30,000 or less per year, but the total manufacturing cost for all the furniture you produce (forboth sales and leases) is more than 30,000. In this example, you would meet the criteria, asthe total manufacturing cost exceeds 30,000 per year.Classes of ProductsTo qualify as a manufacturer, you must exceed one of the minimum sales or manufacturingcost thresholds described above for each class of product you produce.Example:If you manufacture tables and bookshelves, you are a manufacturer of furniture and the productclass in this case is furniture. You exceed the 30,000 per year threshold if your combinedsales or manufacturing costs of the tables and bookshelves exceed 30,000. However, if youmanufacture furniture and you also process lumber for sale, you are producing two differentclasses of products (furniture and lumber). If you exceed the 30,000 threshold for furnituremanufacturing, you qualify for the exemption on the PM&E; used to manufacture the furniture.You also have to exceed the 30,000 threshold for processing lumber in order to qualify for theexemption on the PM&E; used to process lumber.Calculating Manufacturing CostsTo calculate manufacturing costs, include the following costs and expenses – excluding thegoods and services tax (GST) – that are directly related to the manufacture of your product. Direct cost of materials Direct cost of labour Manufacturing overheadProduction Machinery and Equipment ExemptionPage 4 of 29
Manufacturing OverheadYou include the following types of overhead costs and expenses provided they are directlyrelated to the manufacture of your product. Depreciation or amortization expenses for PM&E; and the qualifying part of manufacturingsites Employee benefits on direct and indirect labour (e.g. vacation pay and pension plans) Engineering and drafting costs for own use Heat and light for the qualifying part of manufacturing sites Indirect labour (e.g. manufacturing supervision, material handling, inspection, repairs andmaintenance) Insurance for the qualifying part of manufacturing sites and PM&E; Power for PM&E; Property and business taxes for the qualifying part of manufacturing sites Rental of the qualifying part of manufacturing sites Rental of PM&E; Royalties or licence fees for production processes or the use of PM&EYou; do not include any general or administrative expenses to calculate your manufacturingoverhead (e.g. heat and light for areas occupied by administrative staff, such as humanresources).Note: While energy costs are part of manufacturing overhead, this does not mean that energycosts are exempt from PST. Energy is not machinery or equipment, and does not qualify forthe PM&E; exemption. For details on the PM&E; that qualifies for the exemption, see QualifyingPM&E; below.Qualifying PM&EGenerally;, if you qualify as a manufacturer, you may obtain qualifying PM&E; exempt from PSTprovided the PM&E; is for use in BC: primarily and directly in the manufacture of qualifying goods, and primarily at the qualifying part of a manufacturing site.Qualifying GoodsQualifying goods means goods that are from the particular class of products for which youqualify for the PM&E; exemption that: are manufactured by you, and are either for sale by you or are for your own business use.Note: The qualifying criteria is different for the PM&E; exemptions for pollution control orwaste management equipment, and for machinery and equipment used to transmit or distributeelectricity, goods or software. For more information, see Pollution Control and WasteManagement, Transmission or Distribution of Goods or Software, and Transmission orDistribution of Electricity below.Production Machinery and Equipment ExemptionPage 5 of 29
PrimarilyPrimarily means used more than 50%. How you measure ‘primarily’ depends on the nature ofthe PM&E.; You may measure in terms of time, volume, production value or some othermeasurement that is appropriate for that particular type of PM&E.In; some cases, you may use the PM&E; seasonally or during specific production phases.When this happens, the time when the PM&E; is idle or in storage is not considered use. Youcalculate primarily based on the actual usage.For example, you may have PM&E; that is used for three months and is stored for theremainder of the year. To qualify, the PM&E; needs to be used primarily (more than 50%)during that three-month period.DirectlyDirectly means PM&E; must be a part of, or an integral component of, the process thattransforms the raw material into the finished product.For example, sawmill PM&E; used on the production line, such as saws and planers, area direct and integral part of the process that transforms the logs into a finished product.Therefore, the production line PM&E; qualifies for the PM&E; exemption. However, PM&E; suchas wrenches and screwdrivers used to maintain or repair the production line PM&E; are notdirectly part of the production process and do not qualify for the PM&E; exemption.Qualifying Part of a Manufacturing SiteThe qualifying part of a manufacturing site is: the part of the manufacturing site from the point where the raw material is received, throughout the production process, and up to the point where the finished product is first stored or is first placed on a vehicle,train, boat, aircraft or other means of transportation for removal from the manufacturingsite (whichever comes first).The diagram below shows the scope of the PM&E; exemption. All PM&E; obtained for useprimarily within the gray shaded area (i.e. the qualifying part of a manufacturing site) and foruse primarily and directly in the manufacture of qualifying goods