17 Issue 2 Summer Edition 2019 BUILD MANITOBA WCA EDUCATION NAVIGATING THE RST CHANGE By  Tracey Osmond, FCPA, FCGA | Senior Manager, Indirect Tax, Grant Thornton LLP What does Manitoba’s new RST rate mean for the construction industry? The 2019 Manitoba budget announced the province will reduce its provincial sales taxes effective July 1, 2019. The Retail Sales Tax (RST) rate will decrease from 8 to 7 per cent, while the sales tax on ready-to-move homes (including mobile and modular homes) will fall from 4.5 to 4 per cent, among other rate decreases. Although there are no changes to the list of RST exemptions, Manitoba’s sales tax rules remain among the most complicated in the country from a real estate perspective. Notably, under the transitional provisions, 8 per cent RST will still apply: • on goods purchased or paid for before July 1, 2019, even if they are delivered after June 30, 2019; and •  on taxable services, other than telecommunications services, completed before July 1, 2019, regardless of when the customer is invoiced or payment is made. This makes it critical for organizations within the real estate sector to determine at which date certain services are provided, rather than when those services are billed. REAL PROPERTY CONTRACTS The RST changes do not affect which items are taxable for real property contracts. But the timing will affect which RST rate will apply on taxable supplies and services, including engineering and architectural services, materials and M&E work purchased for the construction or incorporation into real property. Goods purchased or services performed after June 30, 2019 will attract 7 per cent RST regardless of when the contract was executed or when the project is completed. For goods purchased without RST that are subject to self-assessment – including those brought into Manitoba that were purchased out of province or exempt for resale: •  The tax rate is determined based on when the good is incorporated into the real property contract and not when it was originally purchased. -  If the good is taken out of inventory and incorporated into real property before July 1, 2019, 8 per cent RST must be assessed. -  If the good is incorporated into the real property after June 30, 2019, it will be taxable at 7 per cent. As for most services, RST on progress payments for taxable services – including M&E contracts – will be determined based on when the service is performed so that work performed before July 1, 2019 is subject to 8 per cent RST and work performed afterwards is taxed at 7 per cent. The RST applicable to holdbacks will be apportioned and applied based on the tax rate in effect for the corresponding progress billing. Organizations may need to consider the terms of their agreements to determine if any fixed price agreements entered into prior to the announcement of the rate change could require a price adjustment. LEASED GOODS In relation to leased vehicles, tools and other goods, the rules are slightly different than those of prepaid contracts. Lease periods ending prior to July 1, 2019 are taxable at 8 per cent. For lease periods that straddle or begin after June 30, 2019, the full lease period is subject to a 7 per cent tax rate. THE SILVER LINING Although these changes may alter how real estate companies bill for their goods and services in the short term, the longer-term implications are positive. Ultimately, this 1 per cent decrease in sales tax means companies will save money, despite the complexity of the rules. To understand how these changes affect your business, contact your local Grant Thornton advisor.