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Charities in Canada have distinct GST/HST registration thresholds that differ from for-profit businesses. Generally, charities must register for GST/HST if their taxable worldwide sales exceed $50,000 in a single calendar quarter or over four consecutive quarters. This threshold is crucial for charities to understand, as it influences their tax obligations and compliance requirements.
For instance, while most businesses must register once they surpass $30,000 in taxable sales, charities benefit from a higher threshold. This allows smaller charities to operate without the burden of GST/HST registration, enabling them to allocate more resources toward their charitable activities. Understanding these thresholds is essential for effective financial planning and compliance.
Input Tax Credits (ITCs) are vital for charities and not-for-profit organizations as they allow these entities to recover GST/HST paid on eligible expenses. Charities can claim ITCs for the GST/HST incurred in the course of their commercial activities, which helps to alleviate some of their operational costs and enhance their financial sustainability.
The amount of ITC a charity can claim depends on various factors, including the nature of the organization's activities and the tax rate applied. For example, if a charity engages in fundraising activities that are subject to GST/HST, they can claim ITCs on the related expenses, thus improving their cash flow and enabling them to focus more on their mission-driven work.
The Public Service Body (PSB) rebate is a significant benefit available to charities, allowing them to recover a portion of the GST/HST paid on their purchases. Regardless of their registration status, all charities are entitled to this rebate, which can provide crucial financial relief and support their operations.
For example, the PSB rebate allows charities to claim back 50% of the GST paid on eligible purchases and 83% of the HST. This rebate can significantly impact a charity's budget, enabling them to redirect funds toward their programs and services, ultimately enhancing their impact within the community.
Charitable organizations often engage in fundraising activities that may be subject to different GST/HST rules compared to for-profit businesses. Certain fundraising events, such as bake sales or charity auctions, can be exempt from GST/HST, which is a critical aspect for charities to understand in order to maximize their fundraising efforts.
For instance, when a charity conducts a fundraising event, it is essential to determine whether the activities are exempt. This can significantly affect the overall revenue from the event, as exempt activities do not require the collection of GST/HST, allowing charities to retain more funds for their charitable purposes. Understanding these exemptions can help charities strategize their fundraising initiatives more effectively.
GST/HST Rules for Canadian Charities & NPOs: 6 Key Differences
Trying to understand the special GST/HST rules which apply to Charities and Not-For-Profit Organizations can be complicated. Especially for someone who has historically only examined the GST/HST rules applicable to ‘For Profit’ businesses. Below is a list of 6 areas where the rules for charities and NPOs differ from everyone else.
In general, most people are required to register for GST/HST if their taxable worldwide sales exceed $30,000 in any single calendar quarter, or over the span of four consecutive calendar quarters. For NPOs and charities this threshold is increased to $50,000. Furthermore, charities which exceed $50,000 in taxable sales but have gross revenues under $250,000 are still not required to register for GST/HST.
While the threshold for GST/HST registration purposes typically includes any taxable revenues from all operations, this is not always the case. In some instances, where a charity or NPO has multiple branches or divisions, it may be possible to elect with the CRA to have each separate branch or division considered separately for purposes of determining whether or not GST/HST registration is required.
As with most businesses, charities and NPOS are entitled to claim input tax credits (‘ITC’) to recover certain amounts of GST/HST incurred in the course of their commercial activities. A portion of the GST/HST not recouped as an ITC is recoverable by filings a Public Service Body Rebate (‘PSB Rebate’). The exact amount of the rebate is dependent upon the type of organization, what it does, and what rate of tax has been paid (5%, 13%, 15%).
Many organizations are under the mistaken belief that they must be registered for GST/HST to claim the PSB rebate. This is simply not true. All charities are entitled to claim a PSB rebate, regardless of whether or not they are registered for GST/HST. For NPOs is a little more complicated. NPOs are not required to be registered for GST/HST to claim a rebate but they must meet a ‘qualifying test’. A ‘qualifying’ NPO in one who receives at least 40% of its total revenue from government funding sources. What qualifies as government funding and how the 40% test is calculated is described in more detail in the Canada Revenue Agency’s Guide – RC4034 GST/HST Public Service Bodies’ Rebate .
Generally, the GST/HST applies to all goods and services sold in Canada. There are a wide range of GST/HST exemptions that apply only to certain types of PSBs or charities. For example, certain types of fundraising activities which may be taxable if performed by a for profit business may in fact be exempt from the GST/HST when undertaken by a charity or NPO. It is tremendously important to understand these unique rules exist, and to ensure they are reviewed to fully grasp when your organization is required to collect GST/HST.
There is an often-missed set of GST/HST reporting rules which apply to registered charities. In general, when a charity is registered for and collects GST/HST – they report only 60% of the taxes collected. The retain the other 40% of the tax collected, but as a direct result are not entitled to claim ITCs with respect to these operations. In certain instances, the full amount of tax collected must be reported (such as on sales of certain capital property, or when the GST/HST has been collected in error). It may be possible to elect out of these special rules where certain conditions have been met. Please note these special reporting rules apply to Registered Charities only.
In conclusion, there are many nuances in the GST/HST legislation that are unique to Charities and NPOs. I have touched on a number of them and hope that you find this information useful, please note however that many of these rules are complex and I encourage you to conduct further research to ensure you fully understand how they impact your organization. Please reach out to me should you require further assistance in understanding how the GST/HST impacts your organization.
If you found this information valuable, I encourage you to check out my other blog posts.
The Disclaimer:
Please note the content above and throughout this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. I urge you to seek specific legal advice by contacting me (or your current legal counsel) regarding any legal issues you may face. I do not warrant or guarantee the quality, accuracy or completeness of any information found on this website and will not be held liable for anything contained in this document or any use you make of it. Finally, accessing the information on my website does not create a lawyer-client relationship.
Regards,
Jeremy
© Jeremy Scott 2021. All rights reserved.
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