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Need-to-Know Information for Real Property Contractors on B.C.’s PST rules

22/09/2017


It has been more than four years since the new PST in B.C. was implemented. However, if there is one area that still causes small businesses the most confusion, it would certainly have to be the PST rules for real property contractors on time and materials contracts.

A real property contractor is a person or company that supplies and installs tangible personal property to become real property. Some examples include framers, roofers, electrical contractors, drywall installers, etc.

Over and over again we hear real property contractor clients tell us, “We called the Consumer Taxation Branch when PST first came back and they told us the rules are exactly the same as before.”

Unfortunately, the new PST rules for real property contractors are not the same as the old PST rules. Let’s use an example to highlight how the rules differ. Here is a typical scenario:

A roofer quotes a supply-and-install roofing job for $20,000; $5,000 for the materials and $15,000 for labor 

Under the old regime (prior to July 2010), roofer would account for PST in this way:

  • Do not pay PST to the supplier on the $5,000 roofing materials;
  • Charge the customer $5,000 of roofing materials, plus $350 of PST;
  • Charge the customer $15,000 of labor, no PST; and
  • Profit on the job is $15,000 ($20,000 total revenue, minus $5,000 paid for materials).

Under the new regime (2013 onward), this is how the default rules* would look to the roofer:

  • Pay the supplier $5,000 for roofing materials, plus $350 of PST (total cost $5,350);
  • Charge the customer $20,000 for supply-and-install, no PST; and
  • Profit on the job is $14,650 ($20,000 total revenue, minus $5,350 paid for materials).

Under the old rules, the customer paid the $350 of PST on the materials. Under the new PST, the contractor pays the $350 of PST on the materials, which reduces the profit on the job. Even though the province of B.C. received the same amount of PST revenue, the new rules dictate the PST needs to come out of the contractor’s pocket. As a contractor, to maintain the same profit level, you would be required to quote the job as $20,350.

The same rule applies if a contractor is providing services to real property for a manufacturer. A manufacturer cannot use their production machinery exemption to relieve the contractor from the obligation to pay PST on materials.

What happens if a contractor has not paid PST on the materials, but charged PST to his customer? The contractor is still liable to remit all the PST due on the materials and the customer is entitled to a refund of PST paid in error.

If you are a real property contractor and are uncertain about the PST implications to your business, please discuss your concerns with your indirect tax specialist.

Contact Angela Chang, CPA, CGA, CAFM, Indirect Tax Services at 778.374.2121 or [email protected]

*Under very specific circumstances, it is possible for a contractor to buy materials exempt of PST and charge the customer the PST. This exception requires the contractor to enter into a specific type of written agreement with the customer.