Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
Case Number: 120653
Attention: XXXXX
February 4, 2010
Dear XXXXX:
Subject:
GST/HST INTERPRETATION
PROPOSED LAW/REGULATION
HST on construction progress and holdback payments
Availability of GST/HST rebates for MASH sector
GST/HST INTERPRETATION
Value of consideration on which GST/HST applies
Thank you for your XXXXX of XXXXX, concerning the application of the proposed transitional rules for the HST to construction progress and holdback payments, the proposed rebates for public service bodies, and the application of GST/HST where a provincial sales tax paid by a supplier is incorporated into the supplier's selling price. Your enquiry has been forwarded to this office for reply.
The Government of Canada has signed a Comprehensive Integrated Tax Coordination Agreement with the Government of Ontario and with the Government of British Columbia respectively, on the implementation of HST in these provinces.
The HST will come into effect in Ontario on July 1, 2010, at a rate of 13%, consisting of a 5% federal part (equivalent to the existing GST) and an 8% provincial part. The HST is proposed to come into effect in British Columbia on July 1, 2010, at a rate of 12%, consisting of a 5% federal part (equivalent to the existing GST) and a 7% provincial part.
Legislation introduced in the House of Commons and in the Legislative Assembly of Ontario to implement the HST has received Royal Assent. Required provincial legislation has been introduced but is still under consideration by the Legislative Assembly of British Columbia. However, many of the rules which would apply to transactions will be contained in regulations made under the Excise Tax Act (ETA). Although the Governments of Canada, Ontario, and British Columbia have announced details of the rules which may eventually apply, the required regulations have not yet been made.
The following interpretation is based on the proposed tax changes as announced in the Ministry of Finance Tax Information Notice, HST Notice #1 General Transition Rules for British Columbia HST, and Information Notice No. 3, General Transitional Rules for Ontario HST. These information notices were issued by the Government of British Columbia and the Government of Ontario respectively, on October 14, 2009. This interpretation should not be taken as a statement by the Canada Revenue Agency (CRA) that the transitional rules will be made in their current form.
We understand that XXXXX. XXXXX.
Interpretation Requested
You would like to know, within this context, how the proposed HST rules in Ontario and British Columbia will apply to the special timing rules for construction progress and holdback payments. In addition, you would like to know how the Ontario and British Columbia rebates for the provincial part of the HST paid by the MASH sector differs from the rebates for the federal part of the HST.
Interpretation Given
As requested, the following comments are limited to the application of the proposed HST to progress and holdback payments under non-residential construction contracts.
Progress payments
General rule
The HST would generally apply to progress payments made under contracts to construct, renovate, alter or repair real property to the extent that the progress payment can reasonably be attributed to property delivered or services performed on or after July 1, 2010.
Transitional rule - Progress payment due or paid on or before October 14, 2009
As proposed, the provincial part of the HST would not apply to a progress payment made under a contract for the construction, renovation, alteration or repair of real property where the progress payment becomes due or is paid on or before October 14, 2009, regardless of when property is delivered or services are performed.
Transitional rule - Progress payment due after October 14, 2009 or paid after October 14, 2009 without having become due before that date.
The HST would generally apply to progress payments made under contracts for the construction, renovation, alteration or repair of real property where the progress payment becomes due after October 14, 2009, or is paid after October 14, 2009 without having become due before that date, to the extent that the payment can reasonably be attributed to property delivered or services performed on or after July 1, 2010. To the extent that the progress payment can reasonably be attributed to property delivered or services performed before July 2010, the payment would not be subject to the provincial part of the HST.
If a progress payment becomes due or is paid without having become due after October 14, 2009, and before July 2010, for purposes of the provincial part of the HST, the payment would be considered to become due on July 1, 2010, and not to have been paid before that date. To the extent that the progress payment is attributable to property delivered or services performed on or after July 1, 2010, the provincial part of the HST would be payable on July 1, 2010. In this case, a supplier would be required to account for the provincial part of the HST in its GST/HST return for the reporting period that includes July 1, 2010. If eligible, the recipient would be entitled to claim any corresponding ITC for the provincial part of the HST in its GST/HST return for the reporting period that includes July 1, 2010.
In cases of written contracts, if the construction, renovation, alteration or repair is substantially completed (90% or more) before June 2010, the construction would be considered to be substantially completed on June 1, 2010. In accordance with the general GST/HST rules iFootnote 1, any consideration or part of the consideration under the contract, other than an amount that is a holdback, that has not been paid or become due on or before July 31, 2010, would be considered to become payable on that date.
Examples of the proposed application of the HST to progress payments and holdbacks are provided in GST/HST Notice 244, Harmonized Sales Tax for Ontario - Questions and Answers on Housing Rebates and Transitional Rules for Housing and Other Real Property Situated in Ontario, and GST/HST Notice 246, Harmonized Sales Tax for British Columbia - Questions and Answers on Housing Rebates and Transitional Rules for Housing and Other Real Property Situated in British Columbia, available on the CRA Web site.
Holdbacks
A holdback from a progress payment would be considered to be part of the progress payment from which it was held back. The holdback would therefore be subject to the same allocation under the progress payment rule as the progress payment itself, even if the holdback becomes due or is paid on or after July 1, 2010.
If, in accordance with federal or provincial law or a written agreement for the construction, renovation, alteration or repair of real property, a purchaser keeps a part of a progress payment as a holdback pending satisfactory completion of the work, the HST would generally apply to the holdback to the extent that the progress payment can reasonably be attributed to property delivered or services performed on or after July 1, 2010, provided that the progress payment becomes due or is paid without having become due after October 14, 2009.
The provincial part of the HST would not apply to a holdback that is withheld from a progress payment that is attributable to property delivered and services performed before July 2010 even if the holdback is paid on or after July 1, 2010. In this case, the holdback would be subject to the GST at the rate of 5%.
The GST/HST on the amount of the holdback, or any part thereof, becomes payable on the earlier of the day the purchaser pays the holdback and the day the holdback period expires. The GST/HST is collectible by the supplier on the earlier of the above dates even if the supplier already issued an invoice for the holdback and charged the GST/HST on this amount.
As indicated, examples of the proposed application of the HST to holdbacks are included in the Notices referenced above.
Rebates for the MASH sector
Public service bodies, sometimes referred to as the MUSH or MASH sector, are entitled to claim rebates of the GST/HST paid or payable on inputs used in the course of providing exempt goods and services, or for which no input tax credits may be claimed.
Public service bodies use the same rebate rates for the federal part of the HST as they do for the GST. The rebate rates for the provincial part of the HST will vary depending on the province of residence.
In some cases public service bodies will calculate their rebates using more than one rebate rate. This would happen when goods and services are acquired by these organizations for use in different activities. These rules only apply to selected public service bodies (that is, school authorities, universities, or public colleges that are established and operated other than for profit; hospital authorities; municipalities; facility operators; or external suppliers) that are registered charities or qualifying non-profit organizations.
It has been proposed that effective July 1, 2010, public service bodies in Ontario and British Columbia will be entitled to claim rebates using the rates shown in the following chart.
PSB rebate of the GST/HST
GST or
Federal
part of the
HST
Provincial part of the HST
Resident in
Ontario
(proposed)
Resident in British
Columbia
(Proposed)
Qualifying NPO
50%
82%
57%
Charity
50%
82%
57%
School authority
68%
93%
87%
Hospital authority
83%
87%
58%
Public College
67%
78%
75%
University
67%
78%
75%
Municipality
100%
78%
75%
External Supplier
83%
87%
58%
Facility Operator
83%
87%
58%
Additional information regarding these rebates will be available in the coming months.
The foregoing comments represent our general views with respect to the application of the transitional rules as announced in the Ministry of Finance Tax Information Notice, HST Notice #1 General Transition Rules for British Columbia HST, and Information Notice No. 3, General Transitional Rules for Ontario HST issued by the Government of British Columbia and the Government of Ontario respectively, on October 14, 2009, as they relate to the subject matter of your request. Any change to the wording of the transitional rules or any regulations regarding the HST in Ontario or British Columbia, if made, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the CRA with respect to a particular situation.
Interpretation Requested
XXXXX further indicates that misunderstanding remains within XXXXX as to the application of GST/HST to selling prices where provincial sales tax payable by the supplier on the supplier's inputs is included in determining the base price for their own supply. You therefore ask that we confirm the tax treatment in this regard.
Interpretation Given
It is our understanding that in the construction industry, a contractor's price for a contract reflects the contractor's cost of materials and labour among other things. Contractors may have to pay provincial sales tax on the construction or building materials they purchase or manufacture for installation under the contract, and this expense typically forms part of the cost on which their price is based. In some instances, these costs are itemized while in other cases they are not.
For GST/HST purposes, provincial sales tax incurred by the contractor and included in the determination of the contract price for a taxable supply (whether or not it is identified as a separate amount in the itemized costs) forms part of the consideration for the taxable supply made by the contractor. The contractor, if a GST/HST registrant, is required to collect the GST/HST on the full value of the consideration for the supply.
XXXXX may be directed to GST/HST Technical Information Bulletin B-053, Construction Supply and Installation Contracts, for additional details on this subject.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-3772.
Respectfully,
Marcel Boivin
Manager, Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
i 1 Under the general GST/HST rules, where a construction, renovation, alteration, or repair contract is substantially completed in a particular month and the consideration or part of the consideration has not been paid or become due on or before the last day of the month following the particular month, the consideration or part of the consideration is deemed to have become due on the last day of the month following the particular month.
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