By Alissa Bryden, CPA, CA
Contractors often ask me about how to charge GST on the materials included on their invoices. There are two main ways contractors can create their invoices. One where the materials are paid for by the client as a reimbursement and one where the materials are part of the sale price. It is important to note that GST charged on your invoices is called “GST Collected”. GST paid when you pay for the materials are called “ITC’s”. When you remit a payment to the Canada Revenue Agency you net these two.
When a client is paying the materials as a reimbursement, the total value including GST paid is included on the invoice as a separate line item. This amount is not subject to GST Collected. However, the contractor cannot claim the ITC’s on this amount either. The GST rules are made so the end user pays the GST.
A Contractor invoiced a job at $1000 Labour plus Materials (including GST paid) that amounts to $1,050.
GST Charged on Labour: $50
The net amount to the Contractor is the $1,000 labour charge.
If you invoice a job at a flat rate without breakout of the materials and labour then GST is charged on the full amount.
A Contractor invoiced a job at $2,100 including GST. The same labour and material charges are as per the previous example.
The GST paid on the materials ($50) is claimed by the contractor against the $100 of GST Collected when it is remitted to Canada Revenue Agency. The take home to the Contractor is $2,100 – GST Collected + GST Paid – Total Materials = $1,000.
Both options result in the same take home pay. However, there are other issues to consider which may change this. These include: PST, markups on materials, inventory tracking, quoting/invoicing software’s and industry standards. Small changes can make you not in compliance with the Canada Revenue Agency requirements. Seek professional advice to ensure that the flow through is correct before finalizing invoice layout and content.
Need more help? Contact Virtual Heights Accounting at http://vhaccounting.ca/contact-us/
This blog is intended for general use and understanding. These recommendations evolve as new court cases or CRA interpretations become available. Direct professional advice is recommended to ensure you are getting the right information for you and your business.