Saskatchewan landlords experienced a budget double whammy March 22 — receiving the more forceful cost hit from their provincial finance minister. His budget, released almost in sync with his federal counterpart’s announcements, delivered a surprise reinstatement of provincial sales tax (PST) on labour costs associated with renovation, retrofit and maintenance projects and a province-wide increase in education property taxes.
The measures are part of a package of spending restraints and tax realignment as Saskatchewan grapples with a dramatic slump in resource prices that has seen the government’s share of revenue drop from $2.6 billion in 2014-15 to $1.3 billion last year.
“This budget meets the challenge by taking a number of significant measures — including some difficult but necessary measures — on both the revenue and the spending side,” Finance Minister Kevin Doherty told the provincial legislature as he outlined plans to boost the PST to 6 per cent, remove some previous PST exemptions, reduce or eliminate some tax credits and cut funding for a range of programs and services.
Property owners will now pay a higher PST rate, up from 5 per cent prior to budget day, on the items they’ve traditionally been taxed on, while the elimination of other PST exemptions effectively adds a new 6 per cent surcharge to some key operations and labour costs. These include insurance premiums and contracts for “repair, renovation or improvement of real property”, which will apply on many of the skilled trades, such as plumbers, electricians, HVAC and elevator maintenance technicians, that commercial and residential owners/managers typically employ.
“There is standard maintenance that’s scheduled quarterly, seasonally or annually to maintain the integrity of the facility that, as landlords, we still have to execute,” says Jamie McDougald, president of the Saskatchewan Landlord Association and chief operating officer of Regina-based Deveraux Developments. “For other capital projects that are more optional, this tax may be a deterrent.”
Critics suggest it could also undermine professional service providers and public safety.
“Saskatchewan already has a massive underground cash economy in the renovation market, a cash economy that undercuts renovators who have elected to hold themselves to high professional (and legal) standards that ultimately protect consumers. With the cost of hiring a professional being raised as a result of the new budget, it has now become even more appealing to consumers to go for a cheaper, illegal cash deal,” a statement from the Saskatoon & Region Home Builders’ Association asserts.
Contractors and property owners alike are now trying to ascertain the status of contracts signed prior to the April 1 start-date for the new rules. In future, the 6 per cent tax may help some larger property owners/managers make the business case for in-house maintenance staff over outsourcing.
While new homebuyers will ultimately absorb added construction costs, the rental housing market currently affords little leeway to pass costs through to tenants. “In the multifamily sector, there hasn’t been any significant increase in rental rates in the last 18 to 24 months,” McDougald observes.
The budget also announces the provincial government’s intention to fund a larger share of education costs through property tax, necessitating a nearly 10 per cent bump-up, province-wide, from what was collected last year. An accompanying backgrounder states that ratepayers have been contributing just 35 per cent of education funding, even though their share is meant to be 40 per cent.
“In recent years, education property tax remained unchanged while education costs have continued to rise,” Doherty noted in his budget speech. “The budget restores the 60/40 balance.”
That will equate to a $35 million increase across the residential tax base and an extra $24 million in taxes for the commercial/industrial class. The actual breakdown for each taxpayer will depend on the assessed value of the property.