PST Collection For Contracts to Improve Real Property
Ever since the re-introduction of the Provincial Sales Tax (PST) back in 2013, issues of administering and collecting the sales tax continues to pop up to this day. The latest issue involving the PST is regarding the collection of the sales tax by real property contractors.
Back in 2008, the provincial government changed the way real property contractors collected and remitted the PST on behalf of customers. Starting in October 2008, real property contractors were required to pay the PST on any materials used in the completion of a contract to improve real property, unless explicitly stated otherwise in the contract that the customer would pay. Shortly after this change, the B.C. government began the transition to the HST, which made this transition by real property contractors moot.
When the provincial government transitioned back to the PST, they reverted back to the October 2008 method for real property contractors to pay PST on materials. But not all contractors began to pay the PST on materials they used to complete their projects. Instead, some contractors continued to use their PST exemption number when they purchased materials and then charged the customer the PST back on their invoice. These contractors would then remit the PST they collected from the customer to the provincial treasury.
Since real property contractors aren’t allowed to collect the PST from customers under current legislation, any customer charged PST by the contractor had to be refunded that amount. At the same time, those contractors who used their exemption on materials still owed the provincial government for the PST on said materials, even though the provincial government already received the PST that the contractor collected from the customers.
The potential scope of this issue is massive. New home construction has materials making up $175,000 of the cost for a home. With 30,000 new homes per year, that is $5.25 billion worth of materials. That means contractors are responsible for paying and/or collecting potential PST up to $350 million. For renovations, materials make up $2 billion meaning contractor pay and/or collect potential $140 million. For contractors, an honest mistake, whether working on large contracts or multiple projects, could meaning owing tens of thousands of dollars or more. As a small business operator, with smaller operating margins, this amount is a significant hit on the bottom line for any small business owner.
These real property contractors thought they were doing the right things when they collected the PST from customers. Under current legislation, this turns out not to be the case, but an honest mistake none the less that is impacting the viability of a number of small businesses.
This issue does raise the question as to what is the best, most efficient way for real property contractors to collect and remit PST. The Chamber has been consistent in its view, that the introduction of a value-added tax would solve many of these problems, but with the re-introduction of the PST it is vital that the provincial government work with real property contractors to find the right balance that works for them to collect the PST and remit it to the government.
THE CHAMBER RECOMMENDS:
That the Provincial Government:
Review the current method for real property contractors to collect and remit PST with all stakeholders; and
Amend regulations and/or legislation to provide real property contractors flexibility in collecting and remitting PST in a manner that best works for the contractor and their customer.