Manitoba update: Retail Sales Tax reduction and transitional rules
Are you still charging 8% sales tax to Manitoba customers?
TAX ALERT |
A reminder to businesses with retail activities in Manitoba that, effective July 1, 2019, Manitoba’s Retails Sales Tax (“RST”) rate was decreased from 8 per cent to 7 per cent. Businesses that conduct business in the province will be affected by this change if they are registered, required to be registered, or otherwise pay RST on their operational expenditures.
We have summarized the transitional rules below to identify how the RST reduction will apply to taxable goods and services that straddle the July 1, 2019, transition date.
Manitoba’s transitional rules state that the 7 per cent sales tax applies to goods purchased after June 30, 2019; this includes goods for which the purchaser has already paid a deposit.
The 8 per cent RST rate still applies to taxable goods purchased before July 1, 2019, including goods where delivery is taken after that date. This includes goods purchased on credit or by deferred payment arrangements where payment is made after June 30, 2019.
Lease periods that end prior to July 1, 2019, are subject to the 8 per cent rate. Contracts that straddle July 1, 2019, or commence completely after June 30, 2019, are taxable at 7 per cent.
Taxable services (other than telecommunication services)
Under the new rules, services completed prior to July 1, 2019, remain taxable at 8 per cent, regardless of the billing and payment date. Contracts for services entered into prior to March 7, 2019, are taxable at 8 per cent for services provided up to June 30, 2019. Contracts that commence after March 7, 2019, with services that commence after June 30, 2019, are taxable at 7 per cent.
Prepaid service contracts
Prepaid service arrangements purchased and paid for prior to March 7, 2019, are taxable at 8 per cent. The 8 per cent rate continues to apply regardless of when the service is actually performed.
Prepaid service arrangements where a vendor provides a service for a coverage period will have an 8 per cent RST rate if the coverage period includes any day prior to July 1, 2019. The rate decreases to 7 per cent when the service is completely provided after June 30, 2019.
Where prepaid service contracts are not based on a service coverage period, special transitional rules apply. Prepaid services contracts for the installation, maintenance or other services to tangible personal property executed prior to March 7, 2019, are taxable at the 8 per cent RST rate for services provided up to June 30, 2019. For contracts executed after March 7, 2019, where the services provided straddle the July 1, 2019, transition date, the RST will be applied at 8 per cent for work completed prior to July 1, 2019 and 7 per cent for work completed after June 30, 2019.
For certain taxable professional services, such as legal, accounting, architectural or engineering services, that are provided by billable hour, day, or other periodic measure and are billed after the services are performed, RST at 8 per cent will apply on all work performed prior to July 1, 2019. The 7 per cent RST rate applies to work performed after June 30, 2019.
Telecommunication services – telephone, cableTV, internet, electricity and natural gas
The RST rate applies based on the billing date. Bills for services dated prior to July 1, 2019, are taxable at 8 per cent. This includes billing periods that straddle July 1, 2019. Billing periods for monthly services beginning after June 30, 2019 are taxable at 7 per cent RST.
The tax rate for electricity and natural gas used for home heating purposes will remain unchanged at 1.4 per cent. For all other uses, the billings will be charged in the same manner as telecommunications services.
Real property contracts
Contracts executed prior to March 7, 2019
The 8 per cent RST rate applies for all contract work relating to the original contract completed by June 30, 2019. The 7 per cent rate will apply after this date. This includes goods and services incorporated into real property, and related mechanical and electrical systems, as well as the services to install such systems.
Contracts executed after March 7, 2019
The RST rate will apply at the rate in effect at the time of purchase for purchases of taxable goods and services acquired for incorporation into real property. For instance, the 8 per cent RST rate will apply for goods and services purchased prior to July 1, 2019, and 7 per cent RST for goods and services purchased after June 30, 2019. The RST rate will apply based on the timing of the purchase or bringing such inputs into the province of inputs, not on the completion of the project.
Although not part of these changes announced earlier this year, it is important to note that Manitoba’s existing non-resident contractor rules related to bonding and the clearance process to be followed by contract principals (i.e. the customer), will soon become more administratively rigid and a task force within Manitoba Finance will be strictly enforcing these rules on both contract principals and non-resident contractors.
If you are engaging in any type of project in Manitoba, whereby you or your contractor(s) or their subcontractors, will be incorporating goods into real property or bringing such goods into the province, a tax advisor may be able to assist you in understanding your obligations and potential RST exposure that could arise.
Refunds and credits
Under the transitional rules, refunds of RST on returned goods or cancelled sales is calculated at the same rate at which the RST was collected on the original sale.