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Saskatchewan 2017-18 Provincial Budget - PST Changes Affect Many

19/04/2017


​The Saskatchewan Budget announcement on March 22, 2017 brought a hardline message of tackling a large deficit that needs to be drastically trimmed. The shift is from income taxes to consumption taxes, which should result in taxing more consumers on goods and / or services within the province. Some of the PST changes are made to reduce tax leakage from occurring, such as non-resident businesses doing work in Saskatchewan. This appears to be one of the underlying changes to the tax application on services to real property. 

Whether you agree with the Provincial stance or not, the reality is PST changes were a big part of the Budget and impact many. Not only was there a rate increase, but also a broadening of the tax base at the same time: 

  • The PST rate increased from 5% to 6% on March 23, 2017;
  • As of April 1, 2017, the following changes came into effect:
    • Restaurant meals and confectionary/snack food items are now taxable;
    • Kid’s clothing and footwear are now taxable (diapers were included for a moment but have since been held back as exempt);
    • Services to real property are now taxed on the retail price of the services;
    • Vehicle trade-in allowance affected when acquiring or lease new eligible light vehicles (e.g.; licensed vehicles 1 ton or less);
    • Construction services of almost any kind are taxable supplies and
    • Removing a remission order on mobile capital equipment in the oil, gas, and potash sector.
  • Insurance premiums will be taxed as of July 1, 2017 onwards (with a few exceptions).  We can expect tax on life, accident, health, property tax, liability tax and casualty insurance premiums. This also includes agriculture insurance.

What does this mean to a business? Quite simply, a higher cost of PST to the business.  Whether it is meals and entertainment, insurance or repairs and maintenance property, it all adds up. 

Certain sectors are impacted more than others as we see a categorical shift in taxing concept from a PST regime. Services to real property have become taxable on the price to the customer. 

The previous rules viewed the contractor or subcontractor as the consumer of the materials, requiring the PST to be paid and passed on (aka embedded) into the price charged to the customer. Labour, overhead and profit did not become subject to PST.

With the shift to a retail sale concept, the materials are now acquired on a PST exempt basis in most cases. However, the price to the customer is now a tax on the retail price, which includes the materials, labour, overhead and profit. 

What must be considered, is the fact that services to real property will impact most sectors.  The oil, gas and potash sectors will incur more PST on the services since many of these are to real property. The service contractors need to understand and adopt these new changes. The entire construction industry is affected whether this is road building, new homes, renovation business and all the various subtrades involved. 

Going forward this should be an easier PST system to adapt to for those involved in supplying or acquiring services to real property. The PST should be visible on the invoice and follow much the same application as the GST. This can reduce the exposure for not having self-assessed PST in many cases as the vendor / contractor should be applying the PST on the services.

The transition between following the old rules in place prior to April 1, 2017 and when the new rules apply after March 31t is the main focus at the moment. Saskatchewan Finance has advised that services to real property will be grandfathered under the old rules if it can be demonstrated that an existing contract was in place before April 1, 2017. The subtrades can also be grandfathered to this main contract and follow the old invoicing rules (e.g.; PST included pricing) but must be able to demonstrate this. The main contract must have been in place before April 1, 2017 in order for a subcontractor to attach itself as being grandfathered as well. 

While the changes will make better sense in the years to come, there is a good chance this might be one step closer to harmonizing the PST with the GST. The tax base is broad enough that there are few options left to expand what is taxed. The rate increase can only go so high before it impedes growth. Harmonization may be a viable option to consider.

The many changes that have come through in the 2017-18 Provincial Budget are likely to create a lot of confusion and concern depending on who is impacted. As the rules evolve, it is a good idea to seek written rulings for areas that are uncertainand seek professional advice to help you effectively navigate the changes.

For more information, contact Jeff Harrison, CPA, CMA, at 306.751.7998 or [email protected] or your local MNP Tax Advisor.