Business owners and advocates say the B.C. government’s plan to expand the provincial sales tax to include professional services could kill some businesses and real estate projects.

Worse is that the tax changes could hurt the broader B.C. economy when it is already sputtering, advocates such as Greater Vancouver Board of Trade (GVBOT) CEO Bridgitte Anderson told Business in Vancouver.

That could translate into the B.C. government collecting less tax revenue, not more, because dormant businesses and languishing real estate projects would not generate taxable activity, she said.

Businesses in certain professional-services sectors are set to particularly feel pain.

“It is for accounting, security services and geoscience—there are a bunch of those affected,” Anderson said. “We are trying to calculate what that will look like.”

Starting Oct. 1, B.C. plans to apply its seven per cent PST will to:

• • Accounting and bookkeeping services;

• • Security services, including private investigation services; and

• • Non-residential real estate services, including trading services, rental property management services, strata management services and commissions related to the purchase and sale of non-residential real estate.

In addition, the province plans to charge that seven per cent PST on 30 per cent of the purchase price for architectural, engineering and geoscience services.

B.C. Finance Minister Brenda Bailey explained the move, saying she wants to align B.C. with how other provinces tax those services.

That rationale fell flat with Anderson, however.

“Alberta doesn’t have a PST,” she said.

Ontario is different too.

The harmonized sales tax combines Ontario’s provincial tax with the federal GST. That province’s businesses that pay the HST on professional services are later able to “recover” that tax paid on the provincial portion, McCarthy Tetrault LLP partner Simon Douville told BIV.

“Quebec is very similar to Ontario,” he said.

“There will be an increased cost of doing business in British Columbia.”

Exact details on how the tax will be applied has not yet been spelled out in regulations.

Security services to newly be taxable

Provident Security Corp. CEO Mike Jagger said he has never liked the PST.

“It’s the worst tax,” he said. “It creates so much hassle and it has always been such a convoluted mess.”

He voted to end the tax in 2011 and bring the HST to the province when the B.C. government held a referendum on the matter, which failed.

Nearly three-quarters of Jagger’s business is service-oriented and has not yet been subject to the PST. He does charge PST on some security devices, which has caused confusion.

Years ago, he laid out 16 motion detectors on a table for auditors and asked them which ones were subject to the PST.

He recalled that they said, “they all look the same.”

Indeed, he said, “they do.”

Yet only half of the devices required the PST. That meant he had to do extra work to ensure compliance.

 

One thing that is not clear is if security systems for emergency responders will be taxable. If it is, that would hit all businesses because fire alarms are mandatory, Jagger said.

If the PST is added to security services in October, Jagger said, he will have to pass that cost on to customers.

Time will tell if his competition does likewise, or if his customers decide to hire their own security guards internally.

The PST is only applicable on contracted out security services, not on employed staff who happen to work in a security role.

Hiring internally may be viable for some businesses but not others, given that Jagger’s company employs about 100 workers and has dozens of vehicles. It monitors businesses overnight, has high-tech cameras and provides a rapid response to prevent break-ins.

Those services, he said, are hard to replicate internally without spending a lot of money.

In other situations, internal security guard hiring might be reasonable.

Surrey-based Fruiticana owner Tony Singh told BIV that his security guards—at what is set to be his 25 grocery stores as of May—are on his payroll, so he does not expect the tax to impact his operations.

Other grocers, such as Georgia Main Food Group, contract third parties to provide security guards, vice-president of retail and marketing Palle Knudsen told BIV.

He said the tax on security services “will increase operating costs for our business” at grocery banners such as Fresh Street Market and IGA Marketplace.

Georgia Main is also set to be hit from the tax on engineering services and non-residential property management, he added.

Grocers, particularly in the downtown core, have seen expenses rise as they hire more security guards.

Decades ago, many grocery stores had no security guards. Those days are long gone.

Shoplifting and safety risks to customers and staff have prompted executives to at least consider if not act on closing stores.

Pattison Food Group Ltd. president Jamie Nelson told BIV that he has considered closing the Nesters Market location in the Woodward’s building because of shoplifting and security concerns.

That said, he added that “closing grocery stores is not the business we’re in. We’re in the business of growing, but we’ve had some challenges [at that store.]”

London Drugs Ltd. shuttered its 16-year-old store in that same complex Feb. 1.

“Retail stores, grocery stores and others have all really been suffering with public-safety issues, and they have had additional costs that they have had to bear to hire their own security,” said the GVBOT’s Anderson.

“This additional cost on top of that is just adding insult to injury.”

Expanded tax would hit the real estate market

Real estate developers will have to pay more to build projects because they need architectural, geoscience, security, accounting and other services.

That cost could kill projects, Reliance Properties Ltd. CEO Jon Stovell told BIV.

“Theoretically, mathematically, there could be a project that’s right on the brink and this just pushes it over the edge,” he said.

 

“This is at a time when projects are waiting patiently for construction costs to come off a bit, which they are finally beginning to do. If every time that happens, those savings get cancelled out by Metro government fee increases, DCL [development cost levy] increases, DCC [development cost charge] increases and tax increases that are not recoverable, it’s just stupid.”

He said governments have been making moves to increase housing supply and this just flies in the face of those initiatives.

“Why they would choose now to add a further tax on housing development is beyond me,” he said.

Views differ on merit of the expanded tax

Tax expert and University of British Columbia economics professor Kevin Milligan said the government’s move to expand the PST makes sense.

“There are two ways to raise the same amount of money,” Milligan said on a recent Hotel Pacifico podcast.

“One is to have a very narrow tax with a high rate. The other one is to have a broad tax that covers almost everything in the economy, and you can have a lower rate. The way we tend to think about it as economists is having something that covers almost everything with a low rate is just better.”

That lower broad-based tax helps the economy function more efficiently, Milligan said, because people make choices without thinking as much about tax consequences because almost everything is taxed.

Anderson said she did not favour either of Milligan’s two options.

Her solution is for the government to aggressively cut costs. Its budget included a $13.3-billion deficit for the 2026-27 fiscal year.

That represents 2.9 per cent of the province’s gross national product and is far steeper than the $9.6-billion deficit the government is estimated to rack up in the fiscal year ending March 2026.

“The cost of servicing the debt is now $9 billion [annually,]” Anderson said. “That is unsustainable.”

Small business will also bear the brunt

Some small-business owners are shrugging off the B.C. government’s plan to expand the PST as something they can manage.

Others are in a more precarious situation.

For Proshow Audio Visual president Tim Lang, the tax will likely be a $5,000 annual cost to his business, he said.

 

Much of that added tax will be for accounting. Six of his 90 full-time employees are in his accounting team, but he hires external auditors to do year-end accounting, among other tasks, he said.

While Lang called the expected added tax bill “not great,” he said his real beef with the B.C. government is that its PST is also on audio-visual equipment.

That costs him about $100,000 per year, and puts him at a disadvantage against competitors in Alberta, for example, where there is no PST, he said. Those companies often do some work in B.C. and are able to do that work without paying B.C.’s tax on their equipment.

Competitors in Ontario pay the HST but are able to get tax credits to recover the part of that tax that is provincial. That is unlike in B.C., where there are no tax credits for the PST, he said.

Other small business owners may face a tougher time, said Merchant Growth Ltd. CEO David Gens, whose company lends money to small businesses.

He said the expanded PST could kill some businesses.

“It can be death by a thousand cuts,” he said. “Every little increase in cost matters.”

His company in February surveyed 102 small business owners and found that they increasingly said profit margins are shrinking.

Most said they need to hike prices in the next six months to cover past costs that they have absorbed, Gens added.

“Each business is small, but in aggregate, they make up a huge part of the economy—half of our GDP and two-thirds of our employment,” Gens said.

“It’s a really important sector operating on thin margins.”

Gens’ own business, and his Merchant Opportunities Fund, which finances his loan portfolio, will also be hit with higher costs, he said.

“We have many entities to audit [using external auditors] so there’s no question we’re going to see increased costs,” he said.

“We’re 85 people, and have a strong finance and accounting team. We’ll be OK, and will comply with reporting burdens. It’s more challenging for smaller businesses.”