This is the second in a series of articles about the introduction of HST in BC on July 1, 2010. This article focuses on how HST impacts the construction industry.
There is a complex set of transition rules affecting construction contracts. For the construction industry, it’s not as simple as “charge GST until June 30, then charge HST.” Under some circumstances, HST will apply to sales and contracts entered into before June 30, and under other circumstances HST will be prorated for projects spanning the July 1, 2010 implementation date for HST in BC.
In general, where goods are delivered or services performed before July 1, 2010, GST will apply, even if payment is not made until after July 1, 2010. Similarly, where goods are delivered or services are performed after June 30, 2010, HST will apply. One exception is where payments for goods and services became due, or were paid without becoming due, on or before October 14, 2009. In that case only, HST will not apply to these payments, even if goods are delivered or service performed after June 30, 2010.
The situation is more complex when a construction project is partially completed at June 30, 2010. In that case, GST is charged on services performed before July 1, HST is charged on services performed after June 30 and GST and HST are prorated based on the degree of completion as of June 30, 2010.
Where progress payments or holdbacks are involved, HST will apply where the progress payments or holdbacks can be attributed to property delivered or services performed after June 30, and GST will apply to property delivered or services performed before July 1.
Where progress payments became due or were paid without being due after October 14, 2009 and before July 1, 2010, the provincial portion of the any HST due on property delivered or services performed on or after July 1, 2010 have to be accounted for on the HST return for the period that includes July 1, 2010, and the recipient will be entitled to claim the appropriate Input Tax Credits on the HST return for the period including July 1, 2010.
For written contracts to construct a ship or vessel, or real property, where it is reasonable to expect that the construction will take three months or more, if the construction is substantially complete (90% or more), by June 2010, the construction is deemed to be completed on June 1, 2010. Any portion of progress payments and holdbacks attributable to construction on or after July 1, 2010 would be subject to the HST.
The progress payments rule would not apply to sales of newly constructed or substantially renovated homes, which would be subject to different transitional rules for new residential housing.
A PST refund is available to contractors, for PST paid on construction materials used in residential real property contracts that are subject to the HST. This rebate is available to contractors for PST paid on construction materials that are held in inventory at the end of the day on June 30, 2010, and used on or after July 1, 2010. If the materials are used to construct residential housing which is eligible for the PST Transitional New Housing Rebate, no refund can be claimed in addition to the rebate.
The provision of combined supplies, such as the purchase and installation of appliances, fixtures, or other items for a single price are subject to special rules. In general, if the equipment, appliance, or fixtures are delivered on or before June 30, but installed on or after July 1, then HST will apply to the payment for installation, but not to the payment for the equipment or goods. In this case, the contractor would pay PST on the purchase of the equipment, appliance or fixture.
If you are not sure you understand the HST rules for the construction industry, talk to your accountant soon.
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