Reminder: Are you still charging 8% sales tax to Manitoba customers?
INSIGHT ARTICLE |
Businesses with customers or operations in Manitoba, Canada, are reminded that effective July 1, 2019, Manitoba’s Retail Sales Tax (RST) rate decreased from 8% to 7%. Taxpayers that conduct business in Manitoba will be affected by this change if they are registered, required to be registered, or otherwise pay RST on their operational expenditures.
Below is a summary of transition rules applicable to taxable goods and services that straddle the July 1, 2019 transition date.
Manitoba’s transitional rules state that the 7% sales tax applies to goods purchased after June 30, 2019; this includes goods for which the purchaser has already paid a deposit.
The 8% 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% rate. Contracts that straddle July 1, 2019 or commence entirely after June 30, 2019 are taxable at 7%.
Taxable services (other than telecommunication services)
Under the new rules, services completed prior to July 1, 2019 remain taxable at 8%, regardless of the billing and payment date. Contracts for services entered into prior to March 7, 2019 are taxable at 8% for services provided up to June 30, 2019. Contracts that commenced after March 7, 2019, with services that commence after June 30, 2019, are taxable at 7%.
Prepaid service contracts
Prepaid service arrangements purchased and paid for prior to March 7, 2019, are taxable at 8%. The 8% 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% RST rate if the coverage period includes any day prior to July 1, 2019. The rate decreases to 7% when the service is entirely 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% 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% for work completed prior to July 1, 2019 and 7% 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% will apply on all work performed prior to July 1, 2019. The 7% RST rate applies to work performed after June 30, 2019.
Telecommunication services – telephone, cable TV, 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%. This includes billing periods that straddle July 1, 2019. Billing periods for monthly services beginning after June 30, 2019 are taxable at 7% RST.
The tax rate for electricity and natural gas used for home heating purposes will remain unchanged at 1.4%. For all other uses, the billings will be charged in the same manner as telecommunications service.
Real property contracts
Contracts executed prior to March 7, 2019
The 8% RST rate applies for all contract work relating to the original contract completed by June 30, 2019. The 7% 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% RST rate will apply for goods and services purchased prior to July 1, 2019 and 7% 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.
Contractors engaging in real property contracts in Manitoba are encouraged to reach out to their tax advisers with questions.
Refunds and credits
Under the transitional rules, refunds of RST on returned goods or cancelled sales are calculated at the same rate at which the RST was collected on the original sale.
Taxpayers conducting business in Manitoba or selling into Manitoba should be cognizant of the extensive transition rules related to the RST rate reduction. Taxpayers who are unsure whether they should register for the provincial or federal Canadian sales taxes, or how and whether the new rules in Manitoba apply, should contact their indirect tax adviser.