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RTG:162 General Instructions for Contractors

For Historical Reference Only

Effective April 1, 2013, the Province of Prince Edward Island adopted the harmonized sales tax (HST).  HST replaces the former provincial revenue sales tax (PST).  The information provided on the provincial revenue sales tax (PST) is presented for historical reference only. Please refer to the Canada Revenue Agency for assistance with the application of the HST.

 

July 2004
(Revised January 2009)

This guide is designed to assist contractors in Prince Edward Island to understand their obligations under the Provincial Revenue Tax Act and Regulations

Although this guide does not deal with all situations that could occur, it tries to simplify matters by providing contractors with the required information for remittance of revenue tax (PST).

PDF Version:
RTG:162 General Instructions for Contractors


1.

Contractor Defined

 

Section 1(h) of the Revenue Tax Act Regulations states:

 

"contractor means a person who undertakes for others the construction, repair or improvement of real property and includes subcontractors, general contractors and others who install or incorporate goods into real property for a person other than themselves and such goods become a part of or affixed to real property."


2.

Construction Contractor

A Construction Contractor may be classed in two ways:

 

(a)

(b)

General Contractor,

Subcontractor.

The General Contractor usually deals directly with the person or entity that wishes the contract performed, while for the most part Subcontractors perform contracts for the General Contractor.

Undertakings for the construction, repair or improvement of real property are generally executed on the basis of a lump sum, fixed price, unit price, time and material or cost-plus contract. When contractors or subcontractors perform such undertakings, they are, in all instances, the consumers of taxable goods used by them in fulfilling such contracts and must:

 

(a)

pay PST to their suppliers on such goods, where suppliers are registered to collect PST, or

 

(b)

pay PST directly to the Minister of Finance, Energy and Municipal Affairs where the goods are purchased or leased from a source other than a registered vendor, such as a non-registered out-of-province vendor. In the case of a contractor who holds a Vendor Registration Certificate, PST on these goods should be reported under the “Tax on Purchases” section of the Vendor Return. In the case of a contractor who does not hold a Vendor Registration Certificate, PST on these goods should be reported on a Revenue Tax (PST) Self-declaration form.

 

(c)

pay PST on all machinery, tools, instruments and other goods, which they consume in completing the contract.

 

(d)

pay PST on the “fair value” of goods. In the case of purchases of materials and other goods for consumption by contractors, “fair value” is usually the purchase price in Canadian currency, including GST, any other federal taxes, and customs duties paid, as well as the cost of transportation incurred to ship the goods into the province. 

The PST paid by the Contractor on his cost of materials forms part of his costs in completing the contract, and the amount billed to his customer will take into account all costs, including PST paid. However, in the billing of their customers for real property work, the Contractor must not show any PST on his invoice.


3.

Contractor/Manufacturer

A contractor/manufacturer means a person who agrees to manufacture and install goods which become part of real property.

A manufacturing contractor is a manufacturer who carries on a two-phase operation:

 

(a)

(b)

manufactures goods, and

contracts to erect, install or incorporate such manufactured goods into real property.

Manufacturing contractors are liable for PST on the fabricated or manufactured cost of goods they consume in carrying out the provisions of their contract.

"Fabricated or manufactured cost" includes the cost of material, transportation, shop labour, engineering, overhead, administration, royalties, Goods and Services Tax (GST) and other federal taxes. Profit and on site erection labour are not included.


4.

Contractor/Retailer

A contractor/retailer is a vendor who carries on a two-phase operation:

 

(a)

makes sales at retail - in this situation, he/she must register as a vendor under the Act and collect PST on these sales. This tax must be reported in the “Tax on Sales” section of the Vendor Return form.

 

(b)

performs contracts on real property - in this situation, the contractor must keep separate records of the cost of all taxable goods utilized in the performance of the contract and the PST on these goods should be reported in the “Tax on Purchases” section of the Vendor Return form.


5.

Contracts for Exempt Machinery and Equipment

Clause 12(1)(I) of the Revenue Tax Act exempts machinery and apparatus used directly in the manufacturing or production of goods for sale and clause 12(1)(i.1) exempts machinery purchased by manufacturers for pollution control. On contracts for the supply and installation of such machinery and apparatus the contractor should note that:

 

(a)

PST will not apply to the exempt machinery and apparatus.

 

(b)

PST will apply to all consumables and equipment used or consumed in the erection or installation of the exempt machinery and apparatus.


6.

Government Contracts

Retail sales made to any federal government department, or to any provincial government entity listed in Revenue Tax Guide RTG:168, are PST exempt, and no PST is to be charged on such sales.

Real property contracts with the federal or provincial governments, however, are to be treated by the contractor in the same way as contracts with any other customer. The contractor is considered to be the consumer of the goods and is responsible to pay PST on the fair value (i.e. landed cost, including GST paid) of the materials consumed in fulfilling the contract.

Government real property contracts may state that the contract price to be billed to government is to exclude GST paid by the contractor on materials. Such instructions have no bearing on the calculation of PST owed by the contractor on his purchase of materials, tools and equipment to do the work. The contractor must pay PST on the fair value of goods consumed in fulfilling the real property contract, and the fair value includes GST paid by the contractor on his purchase of the materials.


7.

Equipment Rental

PST is due by the lessee on the fair value of the consideration given in payment of the lease or rental of any taxable equipment except where equipment is leased or rented with an operator. In this latter case, the transaction is not deemed a rental but a non-taxable service and the lessor is subject to PST on the fair value of the equipment purchased by him for lease or rent.


8.

Non-Resident Contractor

Where a non-resident contractor enters into a contract in Prince Edward Island, the non-resident contractor

 

(a)

on demand, shall deposit with the Minister of Finance, Energy and Municipal Affairs a sum equivalent to 5% of the total amount to be paid under the contract, or

 

(b)

shall furnish the Minister of Finance, Energy and Municipal Affairs with a guarantee bond in a sum equivalent to 5% of the total contract amount,

and shall obtain a certificate in duplicate from the Minister of Finance, Energy and Municipal Affairs that these requirements have been met or waived.

Any person dealing with a non-resident contractor without first obtaining the duplicate copy of the certificate or waiver shall deduct 5% of all amounts payable to the non-resident contractor and pay the 5% to the Minister of Finance, Energy and Municipal Affairs, or shall provide a guarantee bond, to secure payment of the PST payable.

Where a person dealing with a non-resident contractor fails to comply with the above conditions, he/she is personally liable for payment of the PST owing on goods consumed or used in the carrying out of the contract.

For further information, please refer to subsections 10(3),(4) and (5) of the Revenue Tax Act Regulations.


9.

Transportation Charges

Where taxable goods are purchased from a supplier located outside the province, transportation charges form part of the contractor's landed cost and are, therefore, taxable.

   

10.

Non-Resident Contractor's Equipment

Equipment and other goods brought into the province for temporary use or consumption are subject to PST calculated according to the following formula:

  Tax = current tax rate x M x V 
                                      36

in which "M" equals the number of months such equipment and goods were located in the province and "V" equals the current fair value of such equipment or goods.

Guidelines to Temporary Use Formula:

 

1.

Three years and under is considered temporary use.

 

2.

Equipment is not taxed if in the province less than 12 days.

 

3.

Tax applies on the full rental charge for leased equipment.

 

4.

Equipment is taxable if it is in the province for 12 consecutive days or more, whether it is being used or not.

 

5.

Twelve consecutive days or more are considered to be a month.


11.

Reporting Forms

Taxation and Property Records Division requires certain information from contractors at the time that a contract is awarded. The following forms are used to facilitate the collection of this information:

 

(a)

Contractor's Supplementary Return;

 

(b)

Report on Contracts and Subcontracts.

The Contractor's Supplementary Return identifies the type and location of the contract and provides the name and address of the General Contractor. The return also allows Taxation and Property Records Division to identify PST remittances pertaining to a specific contract, as well as to identify when the final payment of PST is being made.

The Report on Contracts and Subcontracts is to be completed by a General Contractor. This report provides a description of the contract, the contract value, the names of subcontractors and the type and value of all subcontracts.


12.

Letter of Clearance

Before final payment is made to a Contractor or Subcontractor, the owner or General Contractor should obtain certification from the Taxation and Property Records office that all PST has been paid. Before a Letter of Clearance can be issued, the Contractor or Subcontractor must complete and file the forms referred to in Section 11. If a Contractor or Subcontractor does not merit a Letter of Clearance, the Minister of Finance, Energy and Municipal Affairs may require the owner or the General Contractor to remit an amount equal to the PST due.


13.

Progress Billings

PST is usually due and payable in the month that goods are consumed in fulfilling contracts. However, where a contract extends over a long period of time and several progress billings are made, PST may be remitted on the materials consumed relative to these progress billings in the month of each billing.

 
14.  Contractor's Records
Contractors, both local and non-resident, are required to maintain adequate records for each project in sufficient detail for auditors appointed under the Revenue Administration Act to verify that taxes due to the Province of Prince Edward Island have been paid.

 

FURTHER INFORMATION:

Copies of the Revenue Tax Act and Regulations or any other inquiries regarding this Revenue Tax Guide, please contact:

Taxation and Property Records Division
Finance, Energy and Municipal Affairs 
PO Box 1330
Charlottetown, PE 
C1A 7N1
Telephone:
Fax:
Email:
Website:
(902) 368-4070
(902) 368-6164
taxandland@gov.pe.ca
www.taxandland.pe.ca

 

This guide is prepared for information purposes only, and should not be considered a substitute for the applicable statutes. Should there be any conflict between the contents of this guide and the statutes, the statutes shall prevail.

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