- This Pointer will help you if you
are a real property contractor or subcontractor.
It explains the basic Retail Sales Tax (RST) rules for
your type of business in plain language.
Who is a real property
contractor?
A real property contractor or subcontractor
is someone who builds, repairs, or improves real property
for others. Real property contractors include general and trade contractors,
such as carpenters, electricians, painters, plumbers, and also installers
of fixtures, such as central airconditioning units, cabinets
and vanities, heating equipment, and water tanks. If you manufacture the
goods that you install, you should refer to Small Business
Pointer SBP 903 - Manufacturing Contractors.
Terms to know
Real
property means land and any item permanently attached
to land, such as buildings, fences, driveways, and patios.
Attached
means by screws, nails, bolts, or embedded in concrete or permanently
affixed in some way to real property.
Fixtures are
items that are permanently attached to real property,
such as water heaters.
Some items, such as telephone and computer equipment, are not considered
fixtures even though they are attached to real property. If you are not
sure that the items you install qualify as fixtures, you may call the
nearest Ontario Ministry of Finance Tax Office for confirmation or refer
to RST Guide 206 - Real Property and Fixtures
for more information.
How does RST apply
to contractors?
RST is a consumption tax. This means that
the person (consumer) who consumes taxable goods or taxable services pays
the RST. In real property contracts, the contractor is the consumer and
must pay the 8% RST. Contractors are considered to have consumed their
installation supplies and fixtures in the course of completing their real
property contracts. Contractors must also pay RST on their installation
equipment, tools, business supplies, and so on, which they use (consume)
in operating their business.
How do I bill my
customer?
When you draw up a real property contract,
do not show or charge any RST on your contract with your
customer. The taxable portion of a real property contract is paid by you,
the contractor, on the cost of your installation supplies and fixtures.
RST does not apply to real property installation labour. When you are
estimating the price of a contract, remember to consider the RST you will
pay on your costs.
Since you are responsible for paying the RST to your suppliers, you do
not need a Vendor Permit number if all your contracts
are for the supply and installation of goods which become a part of real
property. Vendor Permits are issued only to businesses which are required
to collect or self assess RST.
Taxable sales
You are required to collect RST if you sell
goods to other contractors (or homeowners) without installing them. You
must also collect RST when your real property contract includes components
that do not qualify as fixtures. For example, the contract to install
a central vacuum system contains a fixture (the power unit) plus taxable
goods (the beater bar, brushes). You must charge the homeowner RST on
the taxable goods.
Rentals
If you rent out fixtures (such as water tanks)
or real property (such as a house), you do not charge RST on the rental
fee. If you rent fixtures to your customers, you must pay RST on the purchase
of the fixtures that you intend to rent.
Repairs
If you repair real property or fixtures, you
do not charge RST on the repair charges. However, you must do the repairs
at your customer's location or you must remove the fixture
and take it to your place of business for repair. When you purchase repair
parts, you must pay the RST. Real property repairs are like real property
contracts: the contractor pays the RST on the parts and does not charge
RST on the labour.
If you remove a fixture and send it to a third party for repair, you
must pay RST on the parts and labour billed by the third
party. The item is no longer considered to be part of any real property,
and the labour cost to repair the item becomes taxable. RST does not apply
to the labour charge to remove and reinstall the fixture.
If your customer removes a fixture from their property and brings the
item to you for repair, you must charge them RST. The RST is calculated
on both the parts and the labour portion of the repair,
because the removed item is no longer a part of any real property.
Vendor Permits
You will require a Vendor Permit if you make
taxable repairs and/or sales. Once you are registered for a Vendor Permit,
you will receive regular RST returns. Use these returns to remit your
RST. Instructions on how to complete your RST return are included with
your return card.
Out-Of-Province contracts
& repairs
RST does not apply to parts used for repairs,
or supplies and fixtures that you use to complete real property contracts
outside Ontario. If you purchase goods that are intended for permanent
use outside Ontario, you can apply for a refund of the RST. You can find
more information about refunds in RST Guide 700 - Refunds
and Adjustments. We suggest that you enquire whether the
province or state you are operating within requires any local taxes to
be paid.
Out-Of-Province purchases
If you purchase your installation supplies
and fixtures outside of Ontario and install them in Ontario, you must
pay RST on these purchases. You should register for a Vendor Permit and
self assess the RST you owe on your returns. If you occasionally make
out-of-province purchases, you should remit your taxes directly to the
Centralized Programs Unit of the Retail Sales Tax Branch.
Federal government contracts
Tenders issued by the federal government usually
quote a "G" permit number and state they are exempt from RST. However,
this does not change the fact that if you enter into a real property construction
contract with the federal government, you must pay RST on the materials
used to fulfill the contract. These contracts are typically for the construction
of a building and/or supply and installation of equipment, such as elevators,
light fixtures or central heating, that directly service a building. On
the other hand, when the materials are not permanently attached to real
property or they do not directly service the building, you are not required
to pay RST on such purchases and should quote the contract for these materials
exempt from RST.
Exempt customers & refund programs
Certain customers may be entitled to an exemption
or refund of RST. If you enter into real property contracts with farmers,
religious, charitable or benevolent organizations, manufacturers, hospitals,
or status Indians and band councils, you should request the RST Guide
that applies to your customer.
Keeping records
You must keep all books and
records to support your sales and purchases for at least seven years.
Such records include sales invoices and journals, purchase invoices and
journals, bank records and financial statements.
For more information
The information contained in this publication is only a guideline. For more information, please contact
the Ontario Ministry of Finance at 1 866 ONT-TAXS (1 866 668-8297) or visit our website at ontario.ca/finance..
