GST/HST on Completed Construction Contracts
According to Construction Accounting Best Practices, every contactor whose earnings exceed $30,000 in one single quarter or over four consecutive quarters, must register for a General Services Tax (GST) / Harmonized Sales Tax (HST) number in order to collect GST/HST on behalf of the Canadian government. These collected taxes are not seen as revenue, but rather as a liability for the contractor.
However, when a contractor registers for a GST/HST business number, they become eligible to file a claim in the form of an input tax credit for all the GST/HST taxes paid on the construction project related costs. This can be done monthly, quarterly, or annually. For Ontario businesses that collect GST/HST this becomes a viable option for saving money on a construction project.
Contractors, however, should also be aware of the provisions that apply when a project is substantially completed (90% or more). Once a project is substantially complete, GST/HST on the consideration, or any part of which has not been paid or become due, is payable on the last day of the month following the month of substantial completed. For example, if a construction project is substantially completed by December 13th, then the GST/HST is due on the last day of January.
In situations where the consideration for a construction project is not ascertainable at the time of substantial completion, GST/HST is only due on the portion of the consideration that is ascertainable, with the remainder payable on the day the value of the remaining consideration can be determined. This might arise when a contractor has taken on a project in a cost-plus arrangement wherein the contractor has yet to determine the costs (i.e.: labour and materials) to go from substantial completion to being fully complete.
A final point on substantial completion. The Canada Revenue Agency considers a project to be substantially complete when all the essential or material aspects of a project would be completed. Therefore, minor omissions or issues that remain would not be sufficient to delay the time of substantial completion.
The construction industry can be a bumpy road that seems to always be turning in a different direction with the many tax laws shifting in and out of place. At Hogg, Shain & Scheck we can help you navigate your GST/HST obligations on your next construction project, ensuring you collect enough taxes for the government so you don’t owe any money out of pocket at the end. We will also help you set up an account where you can safely keep these funds, and we will even schedule the pay out the GST/HST for you on a quarterly basis to keep you up to date with the tax-man. At Hogg, Shain & Scheck we specialize in accounting for the construction industry; contact us today at 416 499 3100 to set up an appointment.