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?
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?
Do you provide taxable supplies in Canada? Are you a small supplier? Is this your first year? REGISTER FOR HST
Do you provide taxable supplies in Canada? Are you a small supplier? Is this your first year? REGISTER FOR HST 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 ITC s on Capital Property 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.
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
Option 2: Election Not to Use the Net Tax Calculation for Charities Claiming Input Tax Credits 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.
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
Do you provide taxable supplies in Canada? Are you a small supplier? Is this your first year? REGISTER FOR HST Option 1: 60% collected and PSB rebate Option 2: Election full collected full ITCs
Do you provide taxable supplies in Canada? Are you a small supplier? Is this your first year? REGISTER FOR HST Option 1: 60% collected and PSB rebate Option 2: Election full collected full ITCs PSB REBATE
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 nonharmonized 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
Do you provide taxable supplies in Canada? Are you a small supplier? Is this your first year? REGISTER FOR HST Option 1: 60% collected and PSB rebate Option 2: Election full collected full ITCs PSB REBATE
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?
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.
Do you provide taxable supplies in Canada? Are you a small supplier? REGISTER FOR HST REBATE & 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
Do you provide taxable supplies in Canada? Are you a small supplier? Do you have government funding? REGISTER FOR HST REBATE & FILING HEADACHES
Do you provide taxable supplies in Canada? Are you a small supplier? Do you have government funding? > 40% of total revenues REGISTER FOR HST REBATE & FILING HEADACHES
Do you provide taxable supplies in Canada? Are you a small supplier? Do you have government funding? > 40% At of least total 40% revenues REGISTER FOR HST REBATE & FILING HEADACHES PSB REBATE
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
Do you provide taxable supplies in Canada? Are you a small supplier? Do you have government funding? > 40% At of least total 40% revenues REGISTER FOR HST REBATE & FILING HEADACHES PSB REBATE
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
Do you provide taxable supplies in Canada? Are you a small supplier? Is this your first year? REGISTER FOR HST 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? Do you have government funding? > 40% At of least total 40% revenues REGISTER FOR HST REBATE & FILING HEADACHES PSB REBATE
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.