Does your business have customers in Saskatchewan or Manitoba, where you’ve provided services or installed equipment related to land and/or buildings and structures? Perhaps you hired contractors or subcontractors who provide services to your business premises, office or shop in these provincial sales tax (“PST”) provinces. If either of these situations applies to your business, then this article is for you.
A Primer on PST for Contractors
PST is a consumption tax similar to the GST/HST regime, but it is not refundable like input tax credits on a GST/HST return. PST is paid by the final business or individual consumers when they “consume or use” the services or goods (digital or physical) purchased.
For instance, a contractor may use equipment, tools, vehicles, or other inputs in the course of providing services to land and buildings in a PST province. In Manitoba for instance, a contract to improve or construct a building does not generally require the contractor to charge its customer PST. However, the contractor must pay PST directly to Manitoba Finance on the cost of its materials, supplies, equipment, tools, vehicles, etc. used to complete the contract, unless PST was paid to the suppliers.
Saskatchewan PST Rules for Contractors and Their Customers
In Saskatchewan, the contractor charges PST to its customers on labour, materials and supplies invoiced to its customer, but must also pay PST directly to Saskatchewan Finance on equipment, tools, vehicles, etc. that it uses in carrying out the contract in the province. To enforce these rules, both provinces use a “contractor payment reporting and clearance system”, thereby putting the onus on the contractor’s customers, to “police” their contractors with respect to these rules.
For the purposes of this article, we will focus on these rules in Saskatchewan, while noting that Manitoba has similar rules. We will outline the rules as seen through the “eyes of the customer” since they’re the ones “on the hook” for any PST liabilities of their contractor(s) in relation to PST on equipment, tools, vehicles, etc. used or consumed in carrying out the contract in the province. This is NOT what most customers who hire subcontractors would expect, so these rules are easy for them to miss, which can lead to substantial challenges with not only these two PST provinces but British Columbia as well.
Saskatchewan defines a “contractor” to be any person who “engages in the business of constructing, altering, repairing, erecting, demolishing, re-modelling, improving or doing any other thing in relation to real property or a building or other structure on real property for others”. The definition of “contractor” includes general contractors, subcontractors and others that install or incorporate goods or equipment into another person’s land, building or other structure.
How does this Affect Me as a Customer in Saskatchewan?
Saskatchewan’s PST legislation requires every contractor to put up either a bond or cash security equal to 6% of the total contract price. It is the Saskatchewan customer’s responsibility to ensure that its contractors comply with these rules. Failure to do so will result in the customer being liable for any PST that their contractor(s) fail to report and pay to the province in respect of equipment, tools, vehicles, etc. that are consumed in the course of the contractor’s services. These rules apply equally to resident and non-resident (of Saskatchewan) contractors, however practically speaking, Saskatchewan Finance auditors are more concerned with non-resident contractors’ PST responsibilities and related liabilities.
Alternatively, contractors can request a “clearance certificate” at the end of the project (or at interim project milestones) from Saskatchewan Finance (the “Ministry”). This request typically results in a mini-audit or review of the contractor’s PST compliance generally and once the Ministry approves the clearance certificate, the contractor must provide it to their customer, relieving them from any further PST liability related to your contractor(s) and their PST owing on equipment, tools, vehicles, etc.
As a customer with these types of projects in Saskatchewan, you should be mindful of these requirements and consider a holdback process with its contractor(s), which the Ministry recommends in its publications. That is, Saskatchewan customers may want to hold back 6% of the total contract amount (including change orders) from its contractor(s), in case they are not complying with these rules and end up owing PST as described above, which then falls to the customer.
Where your contractors have not placed a bond or cash security with the Ministry, it will be important for Saskatchewan customers to obtain a final clearance certificate from all of its contractors (resident or non-resident) before making the final contract payment(s).
Takeaways and Next Steps for You
If you are a customer or a contractor and you’ve found this article applies to you and you’re uncertain about how to proceed, we are here to help. It’s ideal to address these issues and the overall PST cost to all parties, as early as initial quoting and estimating of the project. We can help either party determine their overall estimated PST cost and compliance requirements well before the contract or statement of work is drafted so that neither party is blind-sided later on. This makes for good business relations among the parties as well as with the Ministry.
Not so complicated right? At Achen Henderson, we can help you to take the complexity out of sales taxes. We are excited to learn about your firm and how we can help.