Entrepreneurship & Small Business

Invoicing GST with material markup

  • Last Updated:
  • Jul 8th, 2020 11:48 am
[OP]
Newbie
Jul 6, 2020
1 posts

Invoicing GST with material markup

Hi, new small contractor in BC here.

Currently charging GST on total invoice that has 2 line items: labour and materials/markup. For this example, I paid $125 for materials including 5% GST. Then markup the material cost to $150. I go on to charge GST on total invoice.

ie:
Labour 100
Materials 150
GST 12.50
Total 262.50

At tax time, I remit the $12.50 I collected from client, minus the $5.95 I paid on the materials. Remittance = $6.55

Or should I be separating markup from material and charging GST to only labour and markup?

ie:
Labour 100
Material 125
Markup 25
GST 6.25 (Labour and markup 125*1.05)
Total 256.25 Remittance = 6.25

Are either of these scenarios right? Can anyone please clarify?
2 replies
Deal Fanatic
Jul 26, 2007
6701 posts
4269 upvotes
Toronto
Don't make it hard on yourself by charging some goods or services taxes and some not. Figure out what is taxable and what's exampted in your industry and go with it. Whatever you collect, you pay right back so it's no big deal to you nor your business client who claims it when they do the gst/hst remittance, unless you bill to residential. Ask your accountant what's what in your province.

Personally, I would add gst on subtotal of labour and all materials and don't breakdown the markup as they don't need to know.
Jr. Member
Oct 20, 2012
107 posts
61 upvotes
Vancouver, BC
You're effectively reselling the materials at a profit, just like any retail business does, so yes you have to charge GST on the "final" price to the customer.

PST is a bit trickier as it's unique (I think) in Canada in not being a value added tax, but rather a cascading tax with a zillion exemptions. It looks like as a real property contractor you do not need to charge your customers PST, but you still want to pass the cost of the PST that you paid on to them (as unlike GST it is not creditable back to you).
https://www2.gov.bc.ca/assets/gov/taxes ... actors.pdf

So if you buy $100 of materials, you'll pay $5 in GST and $7 in PST for a total of $112. If you want to have a 25% markup you'd calculate it as:
$107 Materials
$26.75 Markup
$133.25 Subtotal
$6.66 GST
$139.91 Total

I've never seen anyone break out the materials markup on their invoice, I wouldn't bother if I were you unless you have a client who is insisting.

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