CONTRACT PAYMENT REPORTING

 

 

FEBRUARY 2000

 

As previously outlined in our 1999 Federal Budget Summary, the mandatory reporting for the construction industry for payments that was announced in the 1998 budget became effective January 1, 1999.  The information return to be filed for the first reporting period is due on or before June 30, 2000 (extended from March 31, 2000).  As will be discussed, later due dates will generally apply to payers choosing to report on a fiscal period basis.

 

Individuals, partnerships, trusts and corporations whose primary business activity is construction, are required to record and report payments made to subcontractors for construction services.  Although not free from doubt, it would appear that a joint venture, and not each of its members, should report payments for construction services made by the joint venture.  A subcontractor is an individual, partnership, trust or corporation that provides construction services to a business. These payments must be reported annually to the Canada Customs and Revenue Agency (“CCRA”) on an information return form.  Payments to contractors who provide other services, such as janitors, bookkeepers and lawyers, do not have to be reported. 

 

Construction includes, but is not limited to, the following activities relating to any part of a building, structure, surface or subsurface construction, or any similar property:

 

                        Erection                        Excavation

                        Installation                      Alteration

                        Modification                   Repair

                        Improvement                   Demolition

                        Destruction                     Dismantling

                        Removal

 

See attached Exhibit 1 for examples of structures, surface or subsurface construction and Exhibit 2 for construction activities.

 

If more that 50% of a business’ income earnings activities are construction, its primary activity is construction.  Payments to subcontractors for construction services have to be reported.  Mixed service and goods payments have to be reported if there is a service component of $500 or more per year.  Goods-only payments are exempt from these reporting requirements.

 

For each subcontractor, the following information would be reported by the contractor:

 

·       Name or tradename under which the subcontractor carried on business.

·       Business address of the subcontractor (not mandatory).

·       Identification number of the subcontractor (business number or social insurance numbers for individuals without a business number).  Subcontractors must provide this information to contractors when it is requested.

·       Total of all amounts paid or credited to a subcontractor for the reporting period in respect of services rendered (or mixed service and goods) in the course of the contractor’s construction activities.  These amounts must include provincial sales tax, GST and HST, where applicable.  The amount paid to a subcontractor may not necessarily be readily available in the format required.  Contractors should consult with their partner at Goldfarb, Shulman, Patel & Co. LLP or their computer advisors to ensure that the above-mentioned information can be collected and accessed as required.

 

Administratively, the CCRA will not require an information slip if the subcontractor was paid or credited less than $ 500 in total for services during the reporting period.

 

Businesses can report payments on either a calendar or fiscal year basis.  Once a reporting period is chosen, it cannot be changed for subsequent years unless authorized by CCRA.  The reporting requirements apply to reporting periods that begin after 1998.  For calendar year filers (other than those with a short year end in 1999), the first reporting period will be the calendar year ended December 31, 1999.  For fiscal year filers (and calendar year filers with a short year end in 1999), the first reporting period will be the fiscal period starting in 1999.  Information returns shall generally be filed within six months after the end of the reporting period to which it pertains.  However, for fiscal years beginning and ending in 1999 (such as a new business), the filing of the information returns is extended to June 30, 2000.  Note that the reporting of payments made before 1999 or during reporting periods beginning before 1999 is not required.  To illustrate the fiscal method of reporting, a business with an April 30 fiscal year-end would file as follows:

 

 

Information  returns are due within 30 days after a business is permanently discontinued.

 

Contractors have a choice as to how they file their information:

 

1.     The payment information can be provided on the T5018 Information Return.  This form includes T5018 Information Slips (Statement of Contract Payments) and a T5018 Summary of Contract Payments.  CCRA strongly recommends this reporting method.  A copy of the forms is attached as Exhibit 3.

 

2.     Alternatively, the information may be reported in a column format with one line for each subcontractor showing the required information.  A summary must be included that states the total number of subcontractors reported and the aggregate of the amounts paid to them in the reporting period.

 

Only one information slip is required for each subcontractor.  A separate slip is not required for each payment.  While contractors are encouraged to provide copies of the information slips to their subcontractors, they are not required to do so since the information slips are not necessary for subcontractors to file their income tax returns.  There is no requirement or expectation for subcontractors to reconcile information slips they receive with income reported for tax purposes.  However, if the amount on the information slip is significantly different from the amount received by the subcontractor, the subcontractor should contact the issuer to ensure the amount reported is accurate.

 

There are penalties for late filing or failure to file information returns.  Furthermore, to ensure compliance, any contractor that colludes with subcontractors to evade tax by sheltering underground activity could face criminal prosecution, with fines and penalties of up to 200% of the tax sought to be evaded.

 

The Honourable Martin Cauchon, Minister of National Revenue and Secretary of State has promised to “… review the system with the construction industry at the end of the first two reporting cycles” to ensure that the new reporting system is working smoothly.

 

If you require more information or have any questions, please contact your partner at Goldfarb, Shulman, Patel & Co. LLP at (416) 226-6800.

 

   

                                Exhibit 1

CONTRACT PAYMENT REPORTING

 

Structure, Surface or Sub-Surface Construction

Examples of Structures, Surface or Sub-surface Construction

·       Highway, streets and bridges

·       Waterworks and sewage systems

·       Hydro electric power plants

·       Power and telecommunication transmission lines

·       Gas and oil pipelines

·       Industrial and commercial buildings

·       Personal homes and residences

·       Apartment buildings

 

Examples of Items Not Considered Structures, Surface or Sub-surface Construction 1

·       Ships

·       Planes

·       Satellites

  1    These items are constructed but are not structures.