Tax Responsibilities for the Construction Industry is Not Easy

Tax Responsibilities for the Construction Industry

There are many different sub levels in the construction industry and as such this can make the accounting responsibilities much more complicated.   Most often the main construction company will hire subcontractors to fulfill various obligations of the projects that they are working on.

The Main company making payments to the subcontractors has to keep careful records regarding these payments.   This is not just applicable to large companies either.   It is applicable to individuals, partnership and even trusts or corporations.

In some cases subcontractors will make trade deals or barter deals with the various companies.   These too have to be accounted for.

Sometimes it can be difficulty for a company to know whether they are categorized as a true construction company.  The general rule is if in excess of 50% of income generated by the business comes from construction activities then its main activity is classed as construction.   There are a lot of companies that do have a lot of construction done on their behalf, or perhaps even do the work themselves but this is not their primary business.   As such they are not required to report under the Contract Payment Reporting System

The whole concept of this system is to ward off underground economic activity and maintain compliance with the tax laws so it is fair to all tax payers.   This system became in force in 1998 when it was introduced in the Federal Budget. Over the years it has been modified to help reduce the administrative costs that come with the reporting requirement.

Although all types of payments to subcontractors must be reported for construction services goods only payments are excluded.   If the payment is a combination if the service component is $500 or in excess of this then the entire amount is reported.

It is important the company making the payment properly identifies who qualifies as a subcontractor.   These also include companies that have remained below the $30,000 GST/HST limit.   What the payment is being made for has to be watched carefully as well.   For example, services such as janitors, lawyers or accounting are not included in the sub contractor category for the construction industry.

This industry has a big need for experienced accountants in order to remain fully compliant with all of the tax laws.   This is important if they want to keep themselves off the CRA’s radar for being scrutinized.



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Sam Seidman, CPA, CA, LPA
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Toronto, Ontario
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