Do General Contractors charge GST on materials twice?

Question

I have run into this situation often, without a concrete legal/tax answer. A contractor pays for supplies at a Home Depot or Rona and there pays GST for them. This charge then goes on his/her invoice to the clients they are doing the work for. When the job is completed and the invoice sent to the customer/client, the entire total (materials & labour) has GST added to it. Therefore, although the client already is paying the GST that the contractor paid at Home Depot, he/she is now paying that same 5% GST on the complete subtotal(twice on materials). What is the legal/tax position on this as it appears that GST should only be charged on materials once...(Ontario, Canada)

Answer 1

He is attempting to get another 5-13% from you.

The charge on the invoice to you for the materials should be the amount BEFORE GST.  If on your invoice the fees you are charge is one lump sum of the Home Depot bill including taxes, and then he chrges taxes on this amount then he is infact added the taxes paid on the Home Depot bill to his profits.  Example you have a 100.00 Home Depot bill with 5.00 GST

On his invoice to you if he charges 105.00 plus tax the 5.00 becomes profits for him as he claims back the GST he paid on the 100 on his GST report.  You do not get the GST credit since you are the end consumer.

BTW, I've seen A lot of contractors do this to "pad" their invoices.  They have hidden an addtional 5% profit built in to their work unless you notice it.  

Answer 2

I don't think that's right.

What he should do is charge what he charges for the job then add his GST and charge for the supplies with both GST and PST then add both together after.

He is making money on you if he is charging GST on a total which is calculated with everything together.

Answer 3

This is not a legal question, really, it 's a case of a lax contract and/or an unethical contractor.

Here's the deal:

The contractor pays GST on the materials.  However, when he files his quarterly GST return, he gets a credit for that amount.  This counts against the GST payable on his sales.

So the government gets the GST on the highest amount, essentially.

So if the contractor is being paid cost plus (in other words, he's billing for his purchases plus some amount of markup), then he should ONLY be using the pretax amount.

However, if the contract is vague, he may charge the total (after GST), then mark that up by his percentage, THEN apply GST to that.  The extra does not go into the government, it is kept by the contractor.

Every cost plus agreement needs to specify that the basis for cost will be the purchase price NET of taxes.  Anything else, while it may be legal on the face of it, is unfair to the consumer, and actually acts as an increased (hidden) additional profit for the contractor.

Answer 4

Double check with an accountant but.....

I believe that you take a credit for GST paid on your own GST return.

For example:  You pay $500 in GST for items and resell them and collect $800 in GST.  You would report the $800 as GST collected and then take a credit for the $500 paid.  You would forward the difference of $300 to Canada Customs and Revenue.