The Ontario Construction Report – July 2009 – PAGE OCR 3
HST transitional regulations create challenges,
opportunities for contractors and builders
STAFF WRITER – The OCR Construction Report
30,2010,” Deloitte reports. “The greater the
amount of construction that occurs after
Transitional regulations for the new Har- June 30,2010, the greater the tax loss.
monized Sales Tax, intended to solve possi- “As a transitional compensatory meas-
ble tax and management problems as the tax ure, and to prevent this tax erosion, builders
goes into effect on July 1, 2010, will create will be required to pay a TTA intended to
some challenges for contractors and approximate the amount of non-recoverable
builders, especially if they have projects ORST that would have been payable on ex-
under construction at the transition date. penses incurred after June 2010, but for the
Regulations call for a Transitional Tax impelemntation of the OHST.
Adjustments (TTAs) and Transitional Hous- The adjusted rate depends on the amount
ing Rebates (THRs). of construction. A similar Transitional
“The TTA and THR will cause addi- Housing Rebate accommodates the possi-
tional cost and compliance burdens on bility of double taxation for work under
builders,” says accounting firm Deloitte in a construction in the transition period.
report on the new tax’s transitional rules. In its report, Deloitte observes:
“Ontario retail sales tax (ORST) cur- “Builders need to sharpen their pencils
rently applies to a range of new home con- regarding home construction projects under
struction and renovation expenses. Since way.
the ORST is not recoverable by the “With the combined new rebates and
builder/renovator, it can be embedded in the THR and TTA, is there a reason to acceler-
builder’s costs and reflected in the purchase ate construction – or slow it down;
price of the home. “Although the rebates and the TTA are
“On the other hand, where the construc- intended to equate to the current ORST con-
tion of a new or substantially renovated tent, assumed by the government of Ontario
home straddles the OHST implementation as 2 per cent of current sales prices, do they
date, the provincial portion of the OHST really correspond to your business’s situa-
paid by a builder after June 2010 would tion or your specific construction project?
generally be recoverable as an input tax “Could you pay too much TTA or could
credit. This reduces tax revenue for On- the THR be too low unless you manage the
tario, in particular in the case of sales that timing of your expenses?”
would be grand-parented and for which the Deloitte also warns builders to be cau-
provincial component of the OHST will not tious about disclosure requirements for new
apply on the sale, even when construction homes under construction during the transi-
competes and the sale closes after June tion period.
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