David asked:

I am confused about P.S.T., when to pay it and when to charge it. In the swimming pool business my competitors charge P.S.T. on all replacement liners pool kits and any product that they install. However, my accountant tells me this is illegal and that I am not supposed to charge P.S.T. for any product that is installed in the pool or backyard. Could you please help? I do not want to break the law, and can not understand why every other company would be doing something that I'm told is wrong.

Ontario Ministry of Finance answered:

Thank you for submitting your question to us. To answer it, we consulted a representative from the Ontario Ministry of Finance. (Their general contact number is 1-800-263-7965.)

The representative explained that the province of Ontario imposes a general sales tax of 8 percent on the retail price of most goods and services sold to final customers, also known as end-users. This is called a retail sales tax or RST, and is also commonly called PST.

In your case, the RST should NOT be shown or charged on the contract made with clients purchasing swimming pools or fixtures. However, your business will pay the 8% RST on the materials purchased to complete the job or installation.

Why? According to the Ontario Ministry of Finance, your business falls under the category of a real property contractor. The Ministry considers the contractor who produced and installed the item (in this case a swimming pool or swimming pool fixtures) to be the end-user of that product. More information about the meaning of a real property contractor can be found at www.rev.gov.on.ca:80/tare/html/trierst.htm

For example, let's say that supplies to install a pool cost $10,000. The $800 RST on those supplies would have to be incurred by your business - not transferred to the purchaser of that pool.

How do you recover the cost? When you are estimating the price of a contract, the Ministry recommended that you include the RST costs as part of the entire invoice and factor in the retail sales tax that you will be required to pay. This could turn into a competitive advantage for you if your customers understand that you will not charge them RST on the total cost of installing the pool, including the cost of labour and transportation.

A note about the illegality of charging RST: Technically, it is illegal to charge a client RST and, if a client is incorrectly charged they are entitled to a refund. This could be a nightmarish situation if auditors discover the error at fiscal year's end and you are required to re-imburse several clients at once. The Ministry representative advised, though, that a contractor won't be charged or put behind bars for this type of mistake. If it is identified, the Ministry will send field officers to the contractor's place of business to "educate" them about proper business procedures.

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