Rules, Rules, Rules!
The construction industry is fraught with rules, regulations and codes that must be complied with—from building codes to financial requirements. Failing to comply with these rules could lead to a hit to your business’s cash flow and your time. The financial compliance summaries below highlight some of these requirements.
Workplace Safety Insurance Board (WSIB)
Your business must remit WSIB payments based on the insurable earnings of you and your employees. As a business owner or executive officer, your earnings may be exempt from WSIB if you perform home renovation work exclusively, or you have applied as the one exempt officer (if your business is a corporation or partnership). There is a separate WSIB rate for non-exempt partners and executive officers when the individuals do not perform construction work and have not been elected as exempt. To obtain this separate rate, a request must be made to WSIB.
Those businesses that report monthly or quarterly to WSIB must make their premium payments by the end of the following month; annual filers have an April 30 deadline. Those who file monthly must also submit their reconciliation reports for the calendar year by March 31 of the following year.
If your company uses subcontractors, a clearance certificate for each subcontractor must be obtained before work begins. Business owners should also ensure they are aware of the timelines and requirements for reporting workplace accidents.
Employer health tax (EHT)
If you have annual payroll of at least $450,000, you must register for and remit EHT. Annual payroll is based on the total payroll for the year for all associated corporations. The EHT rates vary from 0.98 percent to 1.95 percent depending on the Ontario payroll paid for the year above the $450,000 exemption. If your Ontario payroll is $600,000 or more, EHT must be remitted monthly. Annual EHT returns must be filed if you are registered for EHT and are due March 15 of the following year.
Annual tax reporting
All corporations must file corporate tax returns within six months of the corporation’s year-end, with any taxes owing being due within two or three months depending on your situation. Sole proprietors must report their business earnings on their personal tax return which must be filed by June 15 of the following year with any taxes owing remitted by April 30 of the following year.
T4 reporting
If wages are paid out of the business, T4 slips must be prepared and filed with CRA by February 28 of the following calendar year. The T4s should include any taxable benefits provided to the employee. Vehicle benefits are a common review point with CRA so take extra care to ensure vehicle benefits are accurate and adequate supporting documentation is kept on file.
T5 reporting
If any dividends or interest are paid out of a corporation, T5 slips must be prepared and filed by February 28 of the following year.
T5018 reporting
If your primary source of business income is construction and you use subcontractors, you must also consider if you need to file a T5018 – Statement of Contract Payments. If you pay a subcontractor over $500 in a year for services (or mixed service and goods payments), you must prepare and file a T5018 slip for each such subcontractor as well as a T5018 summary. The T5018 slips and summary are due within six months of your reporting period.
Harmonized sales tax
You are required to register for HST when you have sales of taxable supplies of $30,000 or more in any four consecutive calendar quarters. In certain circumstances, it may be beneficial to register before reaching the $30,000 threshold to recover HST paid on expenses.
HST returns and payment of any balances are due the month following the reporting period for monthly or quarterly filers or three months after the period for annual filers.
Planning points
While there are many requirements, there are some points you should consider to optimize deductions and minimize remittances and taxes.
- Determine if you can apply to WSIB to designate an executive officer as exempt from premiums. To be considered an exempt officer, you must not perform any construction work; however periodic site visits are permitted.
- Consider what earnings will trigger insurable earnings. Dividends paid may be considered insurable earnings for WSIB purposes if the dividend is paid to a person or holding company owned by a person doing construction work.
- Is the business eligible for any tax credits such as co-operative education and apprenticeship credits? The apprenticeship tax credit can earn up to $2,000 annually per apprentice, and the co-op tax credit can earn up to $3,000 per student work term on your tax return. The provincial apprenticeship funding is still being reviewed for apprenticeships that began after November 15, 2017 but will be through a grant system.
- Owner remuneration planning to ensure optimal salary and dividend mix to optimize benefits while minimizing overall taxes.
- Consideration regarding corporate or personal vehicle ownership to maximize deductions and minimize compliance requirements.
Construction Lien Act
The changes to the Construction Lien Act came into effect on July 1, 2019 with the prompt payment requirements in effect as of October 1, 2019. These changes have been widely discussed and should be reviewed to ensure you are complying and have adequate processes in place.
Conclusion
With the high level of compliance requirements in the construction industry, it is important to ensure compliance in each area. An external accountant can be a great resource in ensuring you are compliant and planning to minimize your overall taxes.
Written by Kimberly Aitken, CPA, CA, Co-Leader of RLB LLP’s Construction Team. Contact her at 519-822-9933 or visit rlb.ca.