Below is an excerpt from an article by Carl Beck, CMA, Sales Tax Advisor. This article underlines some of the benefits HST may bring to BC’s construction industry. It is a detailed article with some interesting to questionable points on the benefits and how it may vary across the industry. The excerpt summarizes some of these points.
The BC Government’s recent PST Consultation on Real Property Improvements produced several PST simplification measures that had previously burdened BC Construction association members for many years. PST audits had been particularly onerous against construction companies which were perpetually exposed to assessments for errors, mainly because of the excruciating complexity of the PST rules affecting construction contracts.
HST represents the optimal PST simplification measure for contractors and the entire construction industry. Compliance with one tax, essentially a larger GST, will be much easier than trying to administer two inherently different sales tax systems. The business tax savings generated by a refundable HST is an added bonus.
Significant Cost Savings for Contractors – And their Suppliers
Among the beneficiaries are manufacturers, wholesalers, exporters and most commercial enterprises whose costs will decrease by the amount of unrecoverable PST presently paid. The construction industry will be the single biggest beneficiary of the newly-refundable provincial portion of HST. BC Finance estimates that, of the $1.9 billion of PST currently paid by businesses, the construction sector will save $880 million, or 46% of the total expected business savings from conversion to HST! The transportation sector will save $210 million; Manufacturing – $140 million; Forestry – $140 million; Mining, oil and gas – $80 million. These sectors are major suppliers to the construction industry. Contractors should expect, perhaps demand, that PST savings realized by these and other suppliers are passed on through lower prices.
The Effect on your Construction Industry Customers May Vary
As with any change of this magnitude, there will be winners and losers. Commercial real estate customers are the big winners as the provincial portion of HST becomes newly refundable throughout the distribution chain (e.g., forestry, manufacturing, construction) as well as on selling, purchasing and/or rental costs. New residential developments with unit prices of $400,000 or less will be eligible for a partial HST New Housing Rebate that theoretically will not increase the tax cost of the purchase. Even high-end homes will be eligible for some reduction of the 12% tax, up to $20,000. Municipalities get all the GST back, and may benefit with 100% HST rebates on infrastructure and other construction projects. Hospitals get 83% rebates while universities, colleges and schools are eligible for refunds of two-thirds of the GST that they pay. These and other public sector entities may also find that the cost of major construction projects is lower under HST. Organizations that provide GST exempt supplies will generally experience higher costs due to the increased non-refundable taxation on expenditures such as office rent and services. Some examples are residential rental and seniors’ home operators, industries serving resale homes such as home renovators and realtors, the financial services sector, and doctors and dentists. Others who will be hurt by HST are industries where PST is currently not collectible on revenues, and the customer isn’t eligible for HST refunds. Restaurateurs, for example, will see the 5% GST on their services increased to 12% overall.
Consumers worry that they will have to pay more when HST is implemented. However, the implementation of HST during recessionary times will put pressure on businesses which are competing hard for limited consumer dollars. Smart businesses will move quickly to reduce their cost structure and will pass on savings as soon as possible, to preserve their market share.
Ultimately, the markets will have a greater effect on prices, including new and resale housing, renovations and commercial construction, than the harmonization of the GST and PST.
In relation to preparation transitional rules and other specific details have been released but with little time for many to prepare for HST. Therefore many companies within the construction industry will not be ready as these rules to understand can be overwhelming.
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