Real Property Contractors

RST Small Business Pointer 902, February 2001

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 Revenue 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 Revenue at 1 866 ONT-TAXS (1 866 668-8297) or visit our website at ontario.ca/revenue..

ISBN 0-7794-0698-2