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December 9, 2013

Sales tax transition has been a mixed bag for industry

On April Fool's Day, the Province of B.C. dropped the Harmonized Sales Tax (HST) and went back to the Provincial Sales Tax (PST).

The transition has gone quite well in B.C.’s construction industry, although it has not been seamless.

British Columbia Construction Association president Manley McLachlan said the transition has been relatively smooth

“Business people get on with their business,” he said.

Vancouver Island Construction Association CEO Greg Baynton said there are some lingering disputes caused by different interpretations of the terms of the HST-PST transition, but most of his members have put the issue behind them.

“That being said, the switch from HST to PST has not been good for the non-residential segment of the B.C. construction industry,” he said.

Independent Contractors and Business Association president Philip Hochstein said the transition hasn’t been seamless.

“Some of our members have had trouble properly pricing out the change from HST to PST to their customers, and that has led to some disputes,” he said.

“The transition has taken more time and been more complicated than opponents to the HST made it out to be.”

The HST, was in effect from July 1, 2010 to March 31, 2013.

The HST was applied to virtually all sales made by construction businesses.

But, a campaign led by former B.C. premier Bill Vander Zalm to scrap the tax led to an August 2011 referendum, and 55 per cent of voters opted to scrap the HST.

Carl Beck, a Delta-based accountant and independent sales tax advisor, who has worked with the BCCA on the transition, said some segments of the B.C. construction industry have fared better than others from the switch.

“The home renovation industry has benefited, the new home industry has been largely unaffected, but the non-residential construction industry has suffered,” he said.

“With the return to PST, the non-refundable portion of the tax is estimated to be a total of about $880 million for just the construction industry. That’s a big hit.”

Ronald Coleman, a Richmond-based construction industry consultant and accountant, said calculating the new PST isn’t complicated for most companies, but the transition can be tricky.

“It has created a lot of confusion because the time between when the government enacted the law and when it was implemented was very short,” Coleman said.

“The law was passed in late February 2013 and came into effect approximately 45 days later, on April 1.”

Coleman said most of the problems have involved contractors, who have been trying to recover PST that they paid on transition contracts.

“Where the contract was quoted before April 1, 2013, it was quoted excluding PST,” he said. “But, the rules about collecting the PST from the customer are vague. Unless the contract says the contractor can recover the PST, he may be out of luck. CCDC 2 Clause 10.1 does allow the contractor to recover his cost. But, I’m not sure if he can also get mark-up for overhead and profit on that figure. Ethically, he should.”

Coleman said billing a hold-back on transition contracts is a different process than when the HST was introduced in 2010.

“It has been simplified, so that any hold-back invoice for B.C. contracts that are dated after March 31, 2013 will be subject to five per cent GST,” he said.

Coleman said the new PST system is fairly similar to the old one, except that it is more automated because of advances in technology.

“A few sneaky items were introduced that were not there before, such as the sale of used private motor vehicles is subject to the full 12 per cent, whereas in the old system it was only seven per cent,” he said.

Coleman said the switch from HST to PST will help to reduce the advantages of the underground economy.

“Under (the previous tax system), a home renovation would have been subject to 12 per cent HST,” he said.

“(But under the new system), a similar project would only be subject to GST at five percent, as the PST would have to be paid at the time of purchase of materials for the project.”

Coleman said this means that, in the old system, a contractor could claim back the HST he paid on the materials he used, but not declare any sales tax on a cash job.

“The new system will help smaller contractors who are playing by the rules,” he said.

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