Everything Charities & NFP’s Need to Know About GST/HST · •Total HST (in Ontario) = 13%...

Everything Charities & NFP’s Need to Know About GST/HST

By Laura Gay, CPA, CA

Manager & Not-for-Profit Specialist

Stern Cohen Accountants

Overview

Topics to be covered: • When does a charity/NPO need to register for GST/HST

• Taxable supplies

• Exempt supplies

• Small supplier rules

• Special Net Tax Method (charities only)

• Electing not to use the net tax calculation (charities only)

• Claiming input tax credits

• Public Service Bodies’ Rebate

Do you provide taxable supplies in Canada?

What are taxable supplies?

• Provision of property or service in any manner made in the course of a commercial activity

– Sales of new goods for a profit

– Rentals and leases

– Admissions to a place of amusement if any admission charged is more than $1.00

– Some memberships that entitle members to benefits

Exemptions for Charities

• Most property and services that charities supply are exempt from GST/HST

• Special exemptions for charities include:

– Supplies of used or donated goods

– Provision of new goods in exchange for donation

• No GST/HST on portion which qualifies for donation receipt

– Short term rentals of residential accommodation (< 1 month)

Exempt Admissions • Admissions to places of amusement if price charged

<$1.

• Admissions to a fund-raising dinner/gala, where part of the admission qualifies for a charitable donation.

• Admissions sold for a fund-raising activity UNLESS you sell the admissions on a regular/continuous basis.

• Admissions to a performance, athletic or competitive event at which 90% or more of the performers, athletes or competitors are not paid for their participation other than by government grants.

Direct cost exemption

Goods and services that you sell for an amount that is not more than your direct cost may also be exempt.

• If you just want to recover your direct cost of the item, then you usually have a choice of either making it a taxable supply or an exempt supply.

• If use the direct cost exemption then sales are not included in the $50,000 taxable supplies test

Direct cost example

• Say you purchase T-shirts with your logo on them in Ontario for $20.00 plus HST of $2.60 for a total of $22.60.

• If you sell them in Ontario for $22.60 and do not charge tax, then the sale is exempt.

• If you sell them in Ontario for $20.00 plus HST of $2.60, then the sale is considered to be a taxable supply.

Fund-raising activities

• Most goods and services that you sell in the course of fund-raising activities are exempt unless:

– You sell these goods or services regularly or continuously throughout the year or a significant part of the year; or

– The goods are not sold at an event where similar goods are sold by persons in the business of selling such goods

Gambling events

• Admission fees to gambling events are exempt if you meet both of the following conditions:

– Volunteers run the event and take the bets

– For bingo or casino events, the games are not held in a commercial hall or temporary structure (such as a bingo tent put up on a fair ground) used mainly for gambling activities.

Gambling events (cont’d)

• If you operate your own bingo games and

casino nights, the fees you charge for the sale of bingo cards or on bets taken during the event are exempt.

• GST/HST does not apply to revenues you receive from the sales of lottery, break-open, or raffle tickets. Eg. Fifty-Fifty draws.

Memberships

• A supply of a membership by a charity is exempt, unless the value of the following benefits is 30% or more in relation to the cost of the membership:

– Free or reduced admission to a place of amusement

– The right to use facilities at a place of amusement

– The right to participate in a recreational or athletic activity at a place of amusement

Recreation Programs

• Recreational programs are exempt if:

– You provide them primarily to children 14 years of age or under; or

– You provide them primarily to individuals who are underprivileged or who have a disability.

However, if there is overnight supervision throughout a substantial part of these programs, the fees are taxable.

Grants and Subsidies

• Grants and subsidies are exempt unless consideration is received in exchange

– does the grantor receive anything in exchange?

– What is the purpose of the grant?

• Commercial purpose vs public benefit

– What is the nature of the payor?

• Commercial enterprise/business vs funding agency

Do you provide taxable supplies in Canada?

Are you a small supplier?

YES

Small suppliers

• A charity qualifies as a small supplier under either of the following tests:

$250,000 gross revenue test

OR

$50,000 taxable supplies test

Test 1: $250,000 Gross Revenues

• Gross revenue is the total of:

– business income;

– gifts and donations;

– grants;

– property and investment income;

– any other revenue;

– capital gains less capital losses.

Test 1: $250,000 Gross Revenues (cont’d)

• First fiscal year: do not have to register for GST/HST.

• Second fiscal year: calculate gross revenue from the first fiscal year. If this amount is $250,000 or less, do not have to register for HST.

• Subsequent years: calculate gross revenue in each of the two previous fiscal years. If this amount is $250,000 or less in either of these years, do not have to register for GST/HST.

Test 2: $50,000 Taxable Supplies

• Include total revenues from supplies of goods and services subject to GST/HST

• Calculate: – total revenue from taxable supplies in the current

calendar quarter;

– total revenue from taxable supplies in the last four calendar quarters.

• If both these amounts are $50,000 or less, the charity is a small supplier and does not have to register for GST/HST.

Do you provide taxable supplies in Canada?

Are you a small supplier?

Is this your first year?

NO

YES

REGISTER FOR HST

Do you provide taxable supplies in Canada?

Are you a small supplier?

Is this your first year?

NO

NO

YES

REGISTER FOR HST

Do you provide taxable supplies in Canada?

Are you a small supplier?

Is this your first year?

NO

NO

YES

Option 1: 60% collected and PSB rebate Option 2: Election full collected full ITCs

Two options

If your charity is a GST/HST registrant, you have to use a special net tax calculation.

You can elect not to use the net tax calculation if 90% or more of your supplies are taxable.

Option 1: Special Net Tax Calculation

• Your GST/HST payable on line 105 of your GST/HST return is 60% of the GST/HST you charged on your taxable supplies;

• Do not claim an input tax credit for the GST/HST paid on expenses relating to your taxable activities except for capital property;

• Claim the PSB rebate for expenses you cannot claim an ITC on.

Option 1: Special Net Tax Calculation

• Capital property consists primarily of buildings, furniture and equipment

• If the capital property is used more than 50% in your commercial activities (i.e. activities where you charge GST/HST), then you can claim a full ITC.

• If the commercial use is 50% or less, then you cannot claim an ITC.

ITC’s on Capital Property

Option 2: Election Not to Use the Net Tax Calculation for Charities

• To make this election you need to file completed form GST488.

• You can elect not to use the net tax calculation for charities if:

– you make supplies outside Canada or zero-rated supplies in the ordinary course of your business; or

– If 90% or more of your supplies are taxable

• Eligible to claim ITC’s (GST/HST paid on expenses related to commercial activities).

• If expense relates to a specific activity: – Taxable supply -> claim the ITC

– Exempt supply -> cannot claim the ITC

• General operating and overhead expenses are allocated between taxable and exempt activities in a “fair and reasonable” way and be used consistently throughout the year.

Option 2: Election Not to Use the Net Tax Calculation for Charities

Claiming Input Tax Credits

What is fair and reasonable?

• CRA mentions the following methods

– Number of square meters of space used in commercial activities relative to the total space occupied

– Time allocation

– Cost

– Revenue earned

Comparison of Options 1 & 2

REGISTER FOR HST

Do you provide taxable supplies in Canada?

Are you a small supplier?

Is this your first year?

NO

NO

YES

Option 1: 60% collected and PSB rebate Option 2: Election full collected full ITCs

PSB REBATE

Do you provide taxable supplies in Canada?

Are you a small supplier?

Is this your first year?

NO NO

YES

YES

YES

REGISTER FOR HST Option 1: 60% collected and PSB rebate Option 2: Election full collected full ITCs

NO

GST/HST Rebate for Charities

• Even if you are not registered for GST/HST, registered charities are considered to be Public Service Bodies and are eligible for a rebate of a significant portion of the GST/HST that they pay

• If you are registered for GST/HST, you can claim an ITC on the GST/HST paid on expenses relating to your taxable supplies and a rebate for the GST/HST paid on expenses relating to exempt activities.

Calculating the Rebate

• Total HST (in Ontario) = 13%

– Federal = 5%

– Provincial = 8%

• The rebate is calculated as 50% of the federal portion of the HST on eligible expenditures plus 82% of the provincial portion (in Ontario).

• This reduces the net HST from 13% to 3.94%.

Rebate on out of Province Expenses

• Depends on place of permanent establishment (PE)

• Can claim rebate on provincial portion of HST in other provinces if a PE in an HST province – Example: charity in Ontario with expenses in Nova

Scotia

• Can claim a rebate only on federal GST in non-harmonized provinces – Example: charity in Ontario with expenses in

British Columbia

Harmonized and Non-Harmonized Provinces

Harmonized Non-Harmonized

New Brunswick 15% Alberta 5%

Newfoundland 15% British Columbia 5%

Nova Scotia 15% Manitoba 5%

Ontario 13% Northwest Territories 5%

PEI 15% Nunavut 5%

Quebec 5%

Saskatchewan 5%

Yukon 5%

Applying for the rebate

• Federal - form GST66

• Provincial - form RC7066

• Filed together

– Semi-annually if not registered

– With GST Return if registered

• Up to four years from due date of form

• Can be filed online through CRA’s My Business Account or Represent a Client

YOUR ORGANIZATION NAME

PSB REBATE REGISTER FOR HST

Do you provide taxable supplies in Canada?

Are you a small supplier?

Is this your first year?

NO NO

NO

YES

YES

Option 1: 60% collected and PSB rebate Option 2: Election full collected full ITCs

YES

Do you provide taxable supplies in Canada?

Taxable supplies - NPOs

• Most goods and services supplied in Canada are subject to GST/HST

• Different from charities where most are exempt

• Includes:

– Registration for conferences, educational seminars and trade shows

– Theatre subscriptions

– Books and subscriptions to magazines and newsletters

Fund-raising activities

• Sales of goods (except alcoholic beverages and tobacco products) are generally taxable

• They are exempt when all the following conditions are met: – You are not in the business of selling those goods

– All the salespersons are volunteers

– The sale price of each item is $5.00 or less

– The goods are not sold at an event where similar goods are sold by persons in the business of selling such goods

Memberships

• Memberships in a club are taxable if the main purpose of the club is to provide dining, recreational, or sporting facilities to its members.

• You can choose to have any other membership treated as taxable. This choice allows you to claim input credits for tax paid or payable on expenses related to the memberships.

Memberships (cont’d)

• Memberships are exempt if they allow for the following benefits, but nothing more:

– The right to vote or participate in meetings

– An indirect benefit that is intended to accrue to all members collectively

– The right to receive services in the nature of investigating, conciliating, or settling complaints or disputes involving members;

Memberships (cont’d)

– The right to receive or acquire property and services for an additional fee equal to the fair market value

– The right to receive a discount for property or services sold by the organization when the total value of all the discounts is less than 30% of the membership fee.

– The right to receive periodic newsletters and other publications if the value is less than 70% of the membership fee.

Do you provide taxable supplies in Canada?

Are you a small supplier?

YES

NFP Small Suppliers

You are considered a small supplier if:

Total revenues from taxable supplies are $50,000 or less in a single calendar quarter;

AND

$50,000 or less in the previous four consecutive calendar quarters.

REGISTER FOR HST

Do you provide taxable supplies in Canada?

Are you a small supplier?

NO

YES

YES

NO REBATE & NO FILING HEADACHES

Registered for GST/HST

• Full remittance of GST/HST collected

• Eligible to claim ITC’s

• If expense relates to a specific activity: – Taxable supply -> claim the ITC

– Exempt supply -> cannot claim the ITC

• Expenses related to general operating and overhead are allocated between taxable and exempt in a “fair and reasonable” way.

• ITCs on capital property same as Charities

REGISTER FOR HST

Do you provide taxable supplies in Canada?

Are you a small supplier?

Do you have government funding?

NO

YES NO

YES

NO REBATE & NO FILING HEADACHES

REGISTER FOR HST

Do you provide taxable supplies in Canada?

Are you a small supplier?

Do you have government funding?

> 40% of total revenues NO

YES

YES

NO

NO YES

NO REBATE & NO FILING HEADACHES

PSB REBATE

REGISTER FOR HST

Do you provide taxable supplies in Canada?

Are you a small supplier?

Do you have government funding?

NO REBATE & NO FILING HEADACHES

At least 40% NO NO

YES

YES

YES

NO

NO YES

> 40% of total revenues

PSB Rebate for NPOs

• You do not have to be registered for HST to claim the rebate

• Generally, an NPO qualifies for the rebate for a fiscal year if its percentage of government funding for the fiscal year or for the previous two fiscal years is at least 40% of its total revenue.

How to apply for the rebate

• Complete form GST523-1 Government funding

– Total government funding for fiscal year

– Total revenue for fiscal year

• Complete form GST66 along with the provincial schedule, form RC7066-SCH

• Can both be filed online through CRA’s My Business Account or Represent a Client

PSB REBATE

REGISTER FOR HST

Do you provide taxable supplies in Canada?

Are you a small supplier?

Do you have government funding?

NO REBATE & NO FILING HEADACHES

At least 40% NO NO

YES

YES

YES

NO

NO YES

> 40% of total revenues

CRA Resources - Charities

• CRA has a number of guides and info sheets to assist you including:

– RC4082 - GST/HST Information for Charities

– RC4034 – GST/HST Public Service Bodies Rebate

– GI-067 – Basic GST/HST Guidelines for Charities

– GI-066 – How a charity calculates the net tax to be reported on its GST/HST return

CRA Resources - NPOs

• CRA has a number of guides to assist you including:

– RC4081 – GST/HST Information for Non-Profit Organizations

– RC4058 – Quick method of accounting for GST/HST

– RC4247 – The Special Quick Method of Accounting for Public Service Bodies

– RC4034 – GST/HST Public Service Bodies’ Rebate

Top 5 Tips for NPOs and Charities

1. Stop paper filing!

2. Re-evaluate your HST/GST requirements at least annually

3. Take advantage of the PSB Rebate

4. Refer to these two flow charts as your starting point

5. If you need help use the CRA resources or contact an NPO/Charity specialist

PSB REBATE

Do you provide taxable supplies in Canada?

Are you a small supplier?

Is this your first year?

NO NO

YES

YES

YES

REGISTER FOR HST Option 1: 60% collected and PSB rebate Option 2: Election full collected full ITCs

NO

PSB REBATE

REGISTER FOR HST

Do you provide taxable supplies in Canada?

Are you a small supplier?

Do you have government funding?

NO REBATE & NO FILING HEADACHES

At least 40% NO NO

YES

YES

YES

NO

NO YES

> 40% of total revenues

Contact Us

Laura Gay, CPA, CA Not-for-Profit and Charity Specialist

Email: gay@sterncohen.com

Web: www.sterncohen.com

Tel: 416-967-5100

Disclaimer - This presentation provides general information only. Readers should consult with us on your specific situation before taking any action.