Written by Sigita Bersenas, manager at RSM Canada’s national tax centre in Toronto, and Gautam Rishi, partner at the firm’s Vancouver office who specializes in indirect tax planning.
The effectiveness of critical budgetary measures aimed at bolstering manufacturing and innovation in B.C. will ultimately depend on whether they can overcome—rather than be overshadowed by—rising costs and a new provincial sales tax (PST) measure facing businesses.
The measures proposed in the provincial budget could provide businesses with an opportunity to advance manufacturing modernization, build stronger supply chains and improve investments in R&D.
But any advancements could erode amid rising costs, increased administrative complexity and more taxes on the indirect front.
As pressure mounts on B.C. business, the provincial government may need to consider broader relief measures to regain a competitive edge.
Rising costs of doing business in B.C.
Innovation incentives are most effective when embedded within well‑designed, coherent policy frameworks and complemented by broader conditions that support innovation—such as stable and predictable foundational business costs, according to guidance from the International Monetary Fund and the Organization of Economic Co-operation and Development.
Those fundamentals are trending in the opposite direction in B.C. as costs rise and growth stagnates. It’s against this backdrop that the provincial budget outlined its intent to expand the PST base.
Effective Oct. 1, 2026, the scope of PST will expand to several professional services, including accounting, bookkeeping, architectural and engineering. The province also intends to remove several PST exemptions that historically applied to goods and services once considered essential or traditional.
While these changes bring B.C.’s PST framework closer to regimes in provinces such as Manitoba and Saskatchewan, they raise important questions about business costs and competitiveness. Unlike GST/HST, PST is generally not recoverable and often becomes a direct cost of doing business.
These changes may increase overall project costs for industries that rely heavily on professional services, such as construction, infrastructure development and real estate. Businesses may need to revisit procurement strategies, renegotiate service contracts or incorporate additional tax costs into project budgets.
Service providers will also need to consider registration and remittance obligations; systems, contracts, and invoicing processes may also require updates to ensure compliance with these upcoming changes.
The provincial government framed these changes as a modernization of its tax system to align the treatment of traditional communication services with digital and streaming alternatives.
While these measures broaden the tax base, they also signal a broader shift in how B.C. views consumption taxes—moving away from narrow exemptions and toward a more comprehensive tax framework.
Relief by way of credits?
For those in the manufacturing and processing (M&P) industry, a temporary, refundable M&P investment credit announced in the budget could help improve cash flow amid high costs.
However, the issue is in scale and duration. The credit fully phases out after 2036, with the rate beginning to decline in 2031. For capital-intensive industries like manufacturing, where planning commonly spans 10 to 15 years ahead, the phase-out period offers a narrow window relative to project life cycles.
Critically, this credit does not offset the broader tax increases and cost pressures affecting manufacturers—including energy costs, labour availability, rising property taxes and the looming PST expansion.
The new provincial budget also proposed expanding B.C.’s scientific research and experimental development (SR&ED) incentive program to align with recent changes to the federal SR&ED program. This tax credit is intended to encourage corporations to invest in research and development that supports innovation, productivity and long-term growth in the province.
However, those corporations first must qualify for the credit and then have the capital to spend. This becomes more complex when you account for the expanded taxes on professional services that are essential for innovation, R&D, tech growth and scaling.
In an environment where costs are rising sharply, this could mean that companies may struggle to finance the very expenditures needed to access these incentives. While R&D tax incentives may be effective on average, they often disenfranchise smaller, cash-constrained firms, according to a survey from the National Bureau of Economic Research.
Looking ahead
While these innovation-focused measures may help, they won’t offset the cumulative competitiveness challenges facing B.C. businesses on their own.
Now is a critical opportunity for businesses in the province to re-evaluate current structures and utilize credits where possible to boost cash flow in order to effectively position themselves for success amid new obligations and ongoing challenges.
