December 11, 2009

HST expected to benefit Ontario construction industry

VINCE VERSACE

staff writer

The competitive advantage of Ontario’s construction industry will be strengthened when the province’s new Harmonized Sales Tax comes into effect next July, industry stakeholders say.

“The breadth and depth of our industry is going to mean the application of this tax will mean different things for different people. More capital-intensive businesses will see more immediate benefits from the tax savings,” says David Zurawel, vice president, policy and government relations, Council of Ontario Construction Associations (COCA).

The HST will take effect July 1, 2010 and proposed changes to the marginal effective tax rates (METR) for construction businesses “will be significant,” says Zurawel. Small business will see their 2009 tax rate of 43.8 per cent fall to 15.5 per cent in 2010.

The METR for medium and large construction firms will fall from 42.2 per cent in 2009 to 20.9 per cent by 2018.

“Road builders or sewer-watermain companies buy a lot of equipment and they will get more upfront benefit than someone whose expenses are predominantly labour,” adds Zurawel. “Also, with a simpler tax system it will eliminate a lot of bureaucracy and paperwork. Construction is a paper-heavy industry, but having a streamlined tax system will alleviate a lot of that burden.”

A recent C.D. Howe Institute report estimates there was an increase in construction machinery and equipment investment by 12.1 per cent in the Atlantic Provinces after a HST was implemented there. As the purchasing power of a business increased, thanks to the benefits of input tax credits, so did the investment.

The Ontario Road Builders’ Association (ORBA) have been longtime advocates for sales tax harmonization and say the new HST will help with competitiveness and clarity. A retail sales tax (RST) can be applied only on some materials and not others in areas such as winter maintenance.

“If we use a load of just sand on provincial and/or municipal roads we do not pay RST on that product, nor calculate it in our price to the owner of the roads,” explains Karen Renkema, government relations director, ORBA. “However, if by chance that load of sand is mixed with a bit of salt, we then have to pay RST on the full load of materials and incorporate that into our pricing for the owner.”

Renkema says the current tax system has been “heavily biased” against investments in construction. She notes an Ontario Chamber of Commerce report that indicated construction “realizes the highest proportion of purchases subject to the RST” out of all industries at 39.9 per cent.

“These taxes become a part of the cost of construction and are ultimately passed on in the price of construction to the buyers of construction which, in our sector, is most commonly the province or municipalities,” says Renkema.

The Provincial Building and Construction Trades Council of Ontario also supported the HST though it did advocate for further provincial support for low-income Ontarians and a temporary bump of the HST exemption on single family homes $400,000 and under up to $800,000 and under.

“Ultimately, when you look at the options out there, the HST is the best option. Economists and the province expect it to create up to 600,000 jobs — a percentage of them would be in construction,” says Pat Dillon, business manager, Building Trades.

Clarification about the tax rules for projects that span the transition period from the current tax regime to the HST are still a concern for some.

“People are already bidding on big jobs that will span these transition times and they need to know where that cost is coming from,” says Zurawel. “But, we are certain we can work with the government to devise a satisfactory solution.”

Clive Thurston, president, Ontario General Contractors Association, says the HST is “a big plus” competitively for construction but his association is also looking forward to clearer language concerning transitional tax regime bidding.

“The big problem we had was the transitional bidding problem, do we include it or not? Now that we know it is law...the way we should be bidding is to include HST and that clears up a lot for us.”

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