Yesterday, the Saskatchewan government released its 2017-2018 provincial budget which set out a number of changes relating to Provincial Sales Tax (PST), including an increase in the PST rate (from 5% to 6%) and the removal of a number of PST exemptions.
One of the most significant PST changes arising from the budget is that, effective April 1, 2017, PST will apply to construction contracts and other service contracts in relation to real property improvements in Saskatchewan.
Under the current rules, contractors are considered the “consumers” of building materials incorporated into real property improvements, and are required to pay PST on the cost of any equipment or materials used or consumed in building projects. However, contractors must quote their services as “PST included” and cannot collect tax from owners of projects.
Beginning on April 1, 2017, contractors must become licensed vendors under The Provincial Sales Tax Act (Saskatchewan), and must collect PST at the rate of 6% on the total contract price charged to their customers. PST must be indicated as a separate line item on contractor invoices.
However, contractors will be able to purchase building materials exempt from PST if the building materials are “resold” as part of the contract with the owner. Similarly, subcontractors will not be required to collect PST on the value of their subcontracts, provided that the subcontract is made with a contractor licensed as a PST vendor.
In addition, contractors who construct residential or commercial premises for the purposes of resale are required to collect PST on the “retail selling price” of the premises to the purchaser, excluding the value of the land.
While the new PST rules will apply to “transactions initiated April 1, 2017, or later,” agreements entered into prior to April 1, 2017 will be subject to the PST rules currently in place.
Further details about PST on services to real property and the changes announced in the Saskatchewan provincial budget can be found in Information Notice IN 2017-02 – PST on Services to Real Property and Information Bulletin PST 12 – Contractors.