The Ottawa Construction News – June 2010 – PAGE A5 The HST transition: Dealing with Embedded PST in trade supplier contracts
STAFF WRITER – The Ottawa Construction News
Builders, trade contractors and suppliers are preparing for the transition to the Har- monized Sales Tax in July – and this process presents special challenges for construction projects currently under-way with embed- ded Provincial Sales Tax and differing re- quirements and issues for residential and non-residential construction.
The process of adjusting and calculating the consequence of embedded PST and its potential impact on pricing requires chal- lenging and highly individualized decisions, says The Altus Group in a report: “Embed- ded PST in Construction Contracts: A Strat- egy & Guide for Residential Developers for the Introduction of HST on Construction Contracts.”
“The introduction of HST will result in an increase in tax liability for Devleopers of residential products that will be payable upon the sale of the product from revenue,” the report says. “In order to minimize this tax burden, developers must target the cor- responding savings fromc onstruction con- tracts from PST that is currently embedded in the material component of construction contracts.”
The issue is that under the new rules, suppliers and trade contractors price their services incorporating the embedded PST.
When the HST takes effect, they will be able to reclaim the tax currently paid as PST as an input credit, and these savings should be passed on to their clients in lower prices. However, there are many variations, espe- cially for projects under construction at the transition period, and even within the proj- ect depending on the nature and type of ma- terials and supplies used. (Labour costs for example do not have embedded PST.) Altlus Group says considerations (and its services) include, for:
New Contracts • preparation and/or review of new con- tract documentation to be issued to en- sure the PST issue is addressed appropriately;
• review and/or verification of PST in contract payment schedules and monthly invoices, pre-July1 , 2010.
Existing Trade Contracts • Cost-to-date/cost-to-complete analysis to establish eprcentage completion of contract at June 30, 2010;
• review of current contract documents to determine the amount of PST included indivdiual trade contracts;
• assist with contract adjustment analysis; • negotiate with affected trades for amount of PST to be credited from cur- rent contract amounts.
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