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.
- The GST/HST Registration Threshold.
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.
- Electing to Provide Separate Branches or Divisions with Their Own $50,000 Threshold.
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.
- Claiming Rebates where ITCs are not available.
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%).
- GST/HST Registration is not required to claim the PSB Rebates!
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 .
- The Rules Regarding when to Charge GST/HST are Vastly Different than for Businesses.
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.
- Completing GST/HST Returns for Registered Charities.
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.
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.
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