Saskatchewan will soon become the only jurisdiction in Western Canada to fully collect provincial sales tax (PST) on construction services, drawing a stern rebuke from local industry officials.
The announcement was made in the province's 2017 budget which removes a PST exemption for construction services. The budget also raised PST from five per cent to six per cent. It was one of several ways the budget is attempting to address a $685 million deficit forecasted for this year.
"This amounts to a tax on growth because we are the only jurisdiction that taxes construction labour and this will drive up the cost of every project," said John Lax, an advocacy, governance, and communications official for the Saskatchewan Construction Association (SCA). "We are exceptionally disappointed they decided to make this move. We are already dealing with a fragile economy and now is not the time to push investors away."
Lax and the SCA noted the tax will also hurt the integrity of the industry, saying that spending will be deferred and other cost-cutting measures, such as the use of unregistered and uninsured contractors, may become more common.
Construction remains the second largest private sector employer in Saskatchewan, despite shedding 8.7 per cent of its workforce in 2016 — dropping almost tenfold over the combined provincial average for all industries.
"The role of construction is to facilitate and enable growth," said SCA President and CEO Mark Cooper. "It is important we recognize the significant economic and social contributions made by the sector. (The) announcement will make it more difficult for the construction industry to build a more prosperous Saskatchewan for future generations."
The tax goes into effect April 1, giving the industry a matter of days to prepare.
"We are extremely concerned about the challenges this presents going forward," Lax added.
The Saskatoon and Region Home Builders Association' (SRHBA) was also unhappy with the decision, stating it "is extremely disappointed in the Government of Saskatchewan's decision to attempt to overcome a substantial deficit by introducing a budget that stifles growth, discourages professionalism, and fosters an already thriving underground construction economy that puts workers and homeowners at risk both financially and with respect to safety."
The association explained the tax includes construction of new homes, renovation contracting work and any construction work that adds to the value of a property. In addition to hurting home affordability for residents, the tax could also hurt the competitiveness of ethical builders.
Seventy five per cent of builders that the SRHBA represents are small businesses who build less than 10 homes per year. According to the association, the new home building market in Saskatoon is very competitive due to a high number of builders who cut costs by not conducting themselves with the professionalism required of a responsible homebuilder.
"The SRHBA members who have elected to conduct themselves with that professionalism, displayed by their dedication to safety and proper business practices and ethics, have had to invest a lot of time and experience into developing business plans that allow them to operate responsibly and still compete with those who have opted to sacrifice professionalism in favour of cost savings," stated the homebuilders. "Now, those business plans have been completely turned on their heads with only a week to reevaluate and make the change. Even if we accept that there may have been reasons that the provincial government decided to raise the costs of construction labour and effectively tax growth, what was the reasoning behind enforcing this in a time frame that doesn't allow these businesses to adequately prepare?"
The province also opted to apply PST to children's clothing, restaurant meals and snack foods, insurance premiums and permanently mounted equipment used in the resource sector.
According to the budget, new contracts entered into on or after April 1 will be subject to PST on the total contract price to the purchaser. However, contractors will now be eligible to acquire tax-free building materials for use in fulfilling a contract.
The change removes the distinction for PST purposes that has existed between contracts relating to real property and those relating to tangible personal property, simplifying the PST rules for contractors and their customers, the government stated. The budget explains this change will also benefit contractors by improving their cash flow and improving their competitiveness in bidding for jobs both inside and outside Saskatchewan.