The Low-Down on Construction – May 4
Earlier this week I sent a letter to Finance Minister Kevin Doherty to share our concerns on the new tax structure for the construction industry.
In general, members of our industry understand the reasons the province introduced PST on construction services and we are willing to do our fair share to support the province’s long-term financial stability.
Working with the Ministry of Finance to ensure our members have accurate and timely information has been a positive experience. They are committed to facilitating a smooth transition for our contractors to the new tax system and have been cooperative and collaborative in all respects. However, one sticking point remains: the 10 % rule.
What is the 10% Rule? The policy that Sask Finance has proposed is that when a project that was started prior to April 1 incurs change orders exceeding 10% of the initial value of the contract, that change order and all subsequent ones must fall under the “new rules” for PST.
While the 10% rule may seem deceptively simple on the surface, it is extremely complex on an operational level and is causing contractors a great deal of frustration.
Our letter informed Minister Doherty that the 10% threshold is too low and the administration around it is far too cumbersome. We estimate that up to 80% of our members’ projects could exceed this arbitrary 10% threshold. This puts an excessive administrative burden on contractors, both keeping track of the change orders, and running a project under two sets of rules. In addition, we strongly believe project owners that started construction and created their construction budgets under the old rules should not be financially penalized for unexpected occurrences that are a natural part of the construction process.
The PST Transition Committee, which is made up of contractors that deal with these issues daily, has developed what we believe to be an ideal solution to simplify the situation.
Our suggestion is quite simple. Projects falling under the old rules would apply to a provincially-operated Registry to confirm they qualify to proceed under the old rules. If approved by the Ministry of Finance, then construction would proceed under the old rules for its entirety. In other words, there would no longer be a 10% rule for projects on the Registry.
To be fair, a change in scope of the project would not have the same advantage and would fall under the new rules.
We believe this is the best, most workable solution to a very complicated and convoluted situation. Not only would the Registry eliminate confusion for the contractors, it would also provide clarity for the Ministry for audit purposes in the coming years.
Our PST Transition Committee looks forward to working with the Ministry of Finance to find a workable solution that will allow Saskatchewan contractors to move forward and do what they do best – build our province.