GST/HST Technical Information Bulletin B-053
April 15, 1991

This publication is not a legal document. It contains general information and is provided for convenience and guidance in applying the Excise Tax Act and Regulations. If interpretation problems occur, please refer to the legislation or contact the nearest Revenue Canada Excise office.

INTRODUCTION

This document explains the application of the Goods and Services Tax (GST) on construction supply and installation contracts which incorporate provincial sales tax in the final contract selling price.

GENERAL

In the construction industry, the prices contractors charge their customers for the supply of their services normally incorporate all of the direct costs incurred by the contractor to fulfill the terms of the contract. This generally includes all applicable taxes, duties and fees contractors pay on construction or building materials.

Contractors may include the provincial sales tax which they paid on their materials in their prices to their customers. In these circumstances, the provincial sales tax is not specified in the "Regulations Prescribing Certain Taxes, Duties and Fees". Therefore, contractors are not to exclude any portion that represents the provincial sales tax paid by them in determining the value of their services for GST purposes. The GST is calculated on the full selling price for their goods and services, regardless of the provincial sales tax content of that selling price.

Example

A structural steel contractor enters into a contract to supply and install structural steel for a building project.

The value of the fabricated steel purchased by the structural steel contractor for provincial sales tax (PST) purposes is $80,000. If the applicable PST rate is eight per cent, the structural steel contractor pays $6,400 PST ($80,000 x 8% PST) and includes this in the contract selling price to the customer, as well as $10,000 for on-site labour. A mark-up of 20 per cent for overhead and profit is calculated on the cost excluding the PST.

The $6,400 PST is part of the steel contractor's costs to provide and install the fabricated steel under the terms of the contract. As indicated above, the PST is included in the contract selling price of $114,400, and the GST is calculated on this amount (i.e., $114,400 x 7% GST).