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GST expected to reduce builders' costs.

GST expected to reduce builders' costs

The industrial and commercial construction industry in Northern Ontario doesn't seem too concerned about the proposed Goods and Services Tax.

Since the GST is a tax on personal consumption, such companies will be able to fully recover the GST paid on purchases.

In addition, their clients are usually companies which can also pass the tax along until the cost reaches the consumer.

That gives industrial and commercial construction companies insulation from direct impact of the tax, aside from possibly creating an overall slowdown in the economy.

A play-by-play description of the system comes courtesy of Vern Cameron, controller with Acme Building and Construction Ltd. in Sudbury.

"If you consider a typical example of me building a shopping mall.... The bricklayer charges me the GST on the bricks and labor. I then charge the GST on the cost of building the building to the developer. The developer then leases the space to a sporting goods store, for example. The sporting goods store pays the GST to the developer on his rent and then the sporting goods store turns around and charges you the GST on the football you just bought."

For companies involved in each step of the process, each time they pay the GST, aside from the final consumer, it becomes an input credit to them.

If they collect more GST than they pay, they submit it to the government. If they pay out more than they collect, they get a credit.

Len Arbour, financial controller with A.J. Wing and Sons Ltd. in Thunder Bay, says the tax, besides being an administrative nightmare, shouldn't work out too badly for his company.

"I'm sure it's going to result in a little bit of a slowdown in the beginning of next year, but once everybody starts living with it, it's going to be back to normal," Arbour says. "I don't think it's going to deter anybody from our end, because everybody that we sell to is eligible for a rebate anyway."

At A.J. Wing and Sons there hasn't been a rush from clients to get projects moving before the tax takes effect, and Arbour is not expecting any.

In fact, he thinks it may be just the opposite because the companies will be eligible for the tax credit next year.

"I figure, if anything, they're going to want to put work off until they can get a credit, rather than paying the FST with no credit available."

Arbour is interested in seeing if the price of building materials will decline Jan. 1 with the switch from the 13.5-per-cent FST to the seven-per-cent GST.

Denis Alarie, president of Leo Alarie and Sons Ltd. in Timmins, doesn't think the GST will have much impact on his firm, since the cost will just be passed on to clients.

"If the work must get done, it will still get done," he says. "It means to the end-user some of the work that they were planning on doing may not be feasible, but the biggest impact with us is strictly labor. We'll have to charge tax on some of our labor."

Alarie believes the switch from the FST to the GST could mean a decrease in the price of materials.

"It might take a while for the feedback on that to get down to the consumer level. That's the eventual outcome."

He doesn't expect any client firms to beat the tax by building before it comes into effect.

While he thinks the GST is a great idea, Alarie foresees trouble with its implementation.

"The only problem is they (the government) are going to put exclusions in, and that could really hurt the whole concept," he says. "Once they start saying that is exempt and that isn't, that just opens up the floodgates."

Alarie believes the GST should be implemented across-the-board, with no exemptions.

"We're going to have an army of bureaucrats administering it, with about four or five volumes of exemptions. They don't even know what's exempt and what isn't half the time you call them."

Ron Elliot, president of R.M. Elliot Construction Ltd. in Sault Ste. Marie, also believes the GST will have little effect on the industry.

"We're getting rid of a 13-percent tax and putting seven-percent tax in its place, so price-wise there shouldn't be much difference," he says.

However, he foresees some initial difficulty in collecting the tax.

"It's going to be a pain in the neck to collect for the first six months and then we'll get the computers set up to do it."

Cameron of Acme Building and Construction says the GST will substantially affect the industry because general contractors have never dealt with sales taxes in a big way, since that has always been done by the subtrades.

"With the GST, we now become an entity which has to charge and remit tax," he explains.

"It gets very complex when you consider that construction schedules are variable," Cameron says.

Right now, Cameron can only provide a ballpark figure for the GST if the project extends beyond Jan. 1.

"It all depends on what the progress payments are to the end of December, versus what they'll be after December. Progress payments after Jan. 1 are subject to the GST - no ifs, ands or buts."

When everything is in place, Cameron thinks the GST is going to be just an additional accounting issue.

His problem now is teaching his project managers and estimators to understand the tax, because when they are bidding a job they have to be very careful that they know whether a subtrade has included the GST or not.

"As long as everybody is consistent in the way they treat the GST for contracts straddling Jan. 1, we won't have a problem," he says. "It doesn't take that much time, but you have to continually remind them. Remember, these guys have worked with a tax that has always been built in."

Cameron notes the construction industry generally sees the GST as a good tax.

"Some people have calculated that the savings from the removal of the Federal Sales Tax will be greater than the additional cost of the GST. But how it all washes through in the end remains to be seen."

PAUL BICKFORD Staff Writer
COPYRIGHT 1990 Laurentian Business Publishing, Inc.
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Title Annotation:Construction Report; industrial and commercial building may benefit from Goods and Services Tax
Author:Bickford, Paul
Publication:Northern Ontario Business
Date:May 1, 1990
Words:1047
Previous Article:Home builders prepare for poor 1991.
Next Article:Increased mortgage rates have varied effects on housing markets.
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