Accounting for engineering & architecture firms.

Questions worth getting ahead of

• Charging the right HST rate on out-of-province projects
• Billing clients outside Canada
• Deciding whether development work is SR&ED
• Paying subconsultants and freelance drafters
• Partnership reporting for the firm

Work out the place of supply for each project

For services related to real property, the CRA says the usual service rules do not apply. Instead, the place of supply is generally set by where the property is, using a largest-proportion test based on physical size under the legal description. A firm in Ontario designing a building in another province may therefore charge a different rate from the one on its Ontario work. Record the legal address of each site on the engagement letter, and flag projects that cover more than one province. Your accountant can then confirm the rate before the first invoice goes out.

Separate exports from taxable Canadian work

The CRA’s export guidance says a supplier does not charge GST/HST on services performed entirely outside Canada or on services that relate to real property outside Canada. Certain professional or consulting services supplied to a non-resident, other than to an individual while in Canada, may also be zero-rated. These rules have conditions, and the line between the categories is not always obvious. Keep the client’s details, the location of the site and where the work was done with each file, and ask before assuming that a foreign client means no tax.

Test development work against the SR&ED definition

SR&ED supports work done in Canada that seeks a scientific or technological advancement through systematic investigation, and the basic investment tax credit rate is 15%, with an enhanced rate for some corporations. The CRA excludes routine testing and quality control, and also excludes the commercial production of a new or improved product or process. Delivering a client project with established methods is not eligible simply because the design is complex. Where you did face real technological uncertainty, keep project notes, test results and time records as the work happens, and ask about it before filing the year-end return.

Check how you engage subconsultants and freelancers

Firms often bring in drafters, modellers or specialist engineers on a project basis. The CRA says status depends on the whole working relationship, and it looks at control, who provides the tools, the ability to hire helpers or send a replacement, financial risk and the chance of profit. A worker who is an employee must have CPP, EI and income tax deducted. Written agreements help, but they do not decide the question on their own. Bring your contracts, invoices and a short note on how each person actually works, and see the employee or contractor tool for a first screen.

Know when a partnership return applies

Many professional firms are organized as partnerships. A partnership is not taxed itself. Its income and losses flow out to the partners, who report their shares on their own returns. The CRA nonetheless requires certain partnerships to file a T5013 partnership information return, which can depend on the firm’s size, on whether a corporation or trust is a partner, or on a written request. Bring the partnership agreement, the fiscal period end and a list of partners, including any holding company, so the filing requirement can be checked each year.

Support to discuss with Sora