PST – impact on Business Income tax return (sole proprietorship)

A business in Ontario may register for PST if required once they start selling to BC.

Currently, HST registered and collecting.

My question is do PST amounts go anywhere on the income tax return specifically the T2125?

Breakdown of sales example:

Ontario sales
-Net $100.00 + Tax $13.00 (HST) = Total $113.00

BC sales
-Net $100.00 + Tax $12.00 (GST $5.00 + PST $7.00)

Net sales = $200.00
GST/HST = $18.00
PST = $7.00

On the T2125 would I enter

  • In Part 3A – Business Income $218.00 (Net sales $200.00 + GST/HST $18.00)

  • 3B: $18.00 (GST/HST collected)

If the client is registered with HST, the HST goes on the HST return.
Only HST for sales is recorded on the T2125, but as a deduction against total sales [amount including HST]

PST and HST for an unregistered client is part of the cost/sales.

Hello @Rein

Excuse me, apologies please allow me to clarify the original post (after gathering additional information)

Taxpayer DID collect PST from BC clients in 2021.
Sole proprietor providing online marketing services.

They called the BC sales tax office to see whether or not they should be collecting PST, which the representative responded NO.

Not wanting the client to be in a position years later owing PST on sales they were told they did not need to collect PST I started researching.

In my preliminary research, I came across PST bulletin 001. Specifically, page 4 of 11 - paragraph Businesses Located Outside B.C. but Within Canada which reads:

Businesses Located Outside B.C. but Within Canada

You must register to collect and remit PST if you are located outside B.C. (see Location of Your
Business below) but within Canada and do all of the following in the ordinary course of your

 Sell taxable goods to customers in B.C.
 Accept orders from customers located in B.C. (including by telephone, mail, email or
Internet) to purchase goods
 Deliver the goods you sell to your B.C. customers to locations in B.C. (this includes goods
you deliver through a third party, such as a courier)
 Solicit persons in B.C. (through advertising or other means, including mail, email, fax,
newspaper or the Internet) for orders to purchase goods

This has given us some written documentation because she does not sell goods rather online marketing services but I am still suggesting she seek an opinion from a sales tax expert specifically one that has knowledge of PST.

Regarding your responses:

They had sales to Ontario (HST), Alberta (GST), and BC (PST&GST)
Part 3A of T2125 states Gross sales (include GST/HST collected)
Part 3B states GST/HST, provincial sales tax

The way it reads is 3A = Net sales + GST +HST
would that not understate sales because the PST portion is missing from Gross sales?

To clarify if an unregistered client incurred a business cost with HST or PST the tax portion would be included as the cost of the expense on the income tax return, correct?

But regarding the sales what are you referring to? Do you mean that if an unregistered client collected PST or HST they put that amount in the tax return as their total sales?

I was under the impression unregistered taxpayers should not collect HST or PST and if they accidentally did (which might be the case in this scenario) they should return it to the customer they wrongly collected it from.

Correct. Clients not registered with HST should not be charging HST on their sales. They should pay it back to the customer if they did.

In Line 3A you report GROSS sales. That includes all applicable taxes including PST. On Line 3B you included both HST and PST. The result in 3C should be sales before any taxes. Because 3C is the amount that you get to keep and pay taxes on.

If they are not registered with HST, the HST on their expenses becomes part of the cost. You treat it on the T2125 as if it isn’t HST but cost. The reason you don’t take it out is that that specific HST is not refundable. It is not an ITC.

Thank you @Rein for clearing all that up!

Hello, @Rein I just wanted to clarify one last thing.
If the client collects GST (from Alberta sales) then that GST will be remitted on the GST/HST return along with the HST collected (from Ontario sales), correct?

Correct. The return is a GST/HST return.

Line 103: Enter the total of all GST and HST amounts that you collected or that became collectible by you in the reporting period.

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