For contractors in the B.C. construction industry, the transition back to the provincial sales tax (PST) is proving to be more confusing and difficult than expected, says a local accountant and management consultant.
“The main problems with the implementation of the PST is that it came so close to the deadline and it is frustrating contractors because they did not get the opportunity to do advanced planning,” said Ron Coleman, a construction accountant and business management consultant.
“The biggest problems are the contracts in transition, specifically the CCDC2. It’s a moving target and so many documents have been issued, changed or cancelled at the last minute.”
The PST, which was re-implemented in B.C. at a general tax rate of seven per cent on April 1 is a retail sales tax that is payable when a taxable good or service is acquired for personal or business use.
The PST applies to the same goods and services that were subject to PST prior to the implementation of the Harmonized Sales Tax (HST) on July 1, 2010.
However, contractors are having problems returning to the old system.
Coleman recommends that construction businesses look at PST notice (2013-003) produced by the provincial government to provide guidance to real property contractors.
The government defines a real property contractor as a business that works under a contract to construct buildings, or supply and affix or install goods that become improvements to real property or affixed machinery.
This includes contractors and subcontractors in the construction industry, as well as other businesses that make improvements to property under a contract.
The notice provides an overview of how the PST applies to goods purchased, brought, sent or received in B.C. by contractors and used to improve property.
“All jobs that are quoted as supply and install, where the customer does not have the option of supply, only are subject to General Sales Tax (GST),” said Coleman.
“The contractor will pay PST on his purchases and build that into his cost structure. If the customer has the option of supply only, then PST on the selling price of the supply applies and any PST paid by the contractor can be refunded.”
He said the selling price is subject to GST and PST, which is paid on materials and rental equipment.
This applies when the customer doesn’t have the option of supply only, even if there is a price breakdown between materials and labour.
In addition, inventory that was on hand on March 31, 2013 is subject to PST when it is installed.
The exception would be inventory on which PST had been previously paid.
This covers inventory on hand on June 30, 2010 that was subject PST and not claimed back.
In this case, contractors will have to self-assess PST and inventory sold as supply only is subject to PST on the selling price.
Contracts quoted as subject to HST with no PST component built in need to be recalculated, which is a claim for an increase in contract value.
Any of the work done effective April 1 will be subject to PST on the cost of materials and equipment rental.
However, this only applies to the portion of the contract completed after March 31, 2013.
The change in contract value will have to be negotiated on a job-by-job basis because there is no rule on how this calculation is done.
According to Coleman, regardless of when the work was done GST is applicable on invoices dated April 1, 2013 or later. This applies to change orders completed prior to April 1, 2013 but invoiced subsequent to March 31, 2013.
GST at five per cent is applicable on holdback invoices dated April 1, 2013 or later, regardless of when the work was done.
This refers to projects completed within B.C.
Any work completed by March 31, 2013 will not be subject to PST even if it is not invoiced until April 1 or later. The contractor won’t have to self-assess PST.
The guidance Coleman is providing to construction businesses is based on information from the B.C. government website and discussions with the appropriate authorities.
However, the regulatory framework is in the process of change, so Coleman can only interpret the government’s statements about how the process for PST will be implemented for contractors.
For this reason, it is necessary for construction businesses to get specific advice on any circumstances that might be particular to their activities.
Coleman’s consulting firm will only take responsibility for information provided about the re-implementation of the PST if their clients obtain written consent.
Recent Comments
comments for this post are closed