GST/HST FOR CHARITIES

What your charity needs to know about GST/HST

Course Overview

• Topics to be covered

– When does a charity need to register for GST/HST

– The small supplier rules

– Taxable supplies

– Exempt supplies

– Determining your net tax payable

– Electing not to use the net tax calculation

– Claiming input tax credits

– Public Service Bodies’ Rebate

When does a Charity have to register for GST/HST?

• A charity must register for GST/HST and file GST/HST returns if:

– It provides taxable supplies in Canada; and

– It is not a small supplier

Small suppliers

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

– The $250,000 gross revenue test

– The $50,000 taxable supplies test

The $250,000 Gross Revenue Test

• Gross revenue is the total of business income, donations, grants, gifts, property income, investment income, any other revenue, capital gains less capital losses.

• If it is the charity’s first fiscal year, it does not have to register for GST/HST.

• If it is the charity’s second fiscal year, it calculates its gross revenue from it’s first fiscal year. If this amount is $250,000 or less, it does not have to register for HST.

The $250,000 Gross Revenue Test (cont’d)

• After the charity’s second fiscal year, it calculates its gross revenue in each of its two previous fiscal years. If this amount is $250,000 or less in either of these years, it does not have to register for GST/HST.

The $50,000 Taxable Supplies Test

• Total revenues from taxable supplies include a charity’s worldwide revenues (and those of its associates) from supplies of goods and services subject to GST/HST, including zero-rated supplies.

The $50,000 Taxable Supplies Test (cont’d)

• The charity calculates its total revenue from taxable supplies in the current calendar

• The charity calculates its 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.

What are taxable supplies?

• Examples of taxable supplies made by charities include:

– Sales of new goods that you bought, manufactured or produced to resell

– Admissions to a place of amusement such as a museum, recreational complex or theatre if any admission charged is more than $1.00

What are taxable supplies?

• Examples of taxable supplies (cont’d):

• Memberships that entitle members to benefits such as free or discounted admission to a place of amusement, the use of facilities, or the right to participate in recreational activities at a place of amusement. However if the value of these benefits are less than 30% of the membership fee, the membership is exempt.

What are taxable supplies?

• Examples of taxable supplies (cont’d):

– A membership that allows the member to receive supervision or instruction in a recreational or athletic activity unless it is provided primarily to children 14 years of age or under and does not involve overnight supervision throughout a substantial amount of the program, or unless it is provided primarily to individuals who are underprivileged or who have a disability.

What are taxable supplies?

• Examples of taxable supplies (cont’d):

– Restaurant operations

– Professional theatre subscriptions

What are exempt supplies?

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

• Special exemptions for charities include: – Supplies of used or donated goods

– Meals-on-wheels programs

– Parking space and facility rentals (eg. Halls for weddings)

– Catering services for private functions (eg. Wedding receptions)

Exempt Admissions

• Admissions to places of amusement, such as museums, recreational complexes, and theatre are exempt if the maximum admission charged is $1 or less.

• Admissions to a fund-raising dinner, ball, concert, show or like fund-raising event where part of the admission qualifies for a charitable donation receipt for income tax purposes.

Exempt Admissions (cont’d)

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

• Note that the admissions will not be exempt if they are for events specifically advertised as featuring paid participants or for events at which professional athletes compete for cash prizes.

Direct cost exemption

• Tangible personal property (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.

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.

Determining your net tax as a charity

• If your charity is a GST/HST registrant, you have to use a 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

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.

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

Claiming Input Tax Credits

• If you elect not to use the net tax calculation for charities and are an GST/HST registrant, you are eligible to claim ITC’s (GST/HST paid or payable on the purchases and expenses related to your commercial activities).

• You cannot claim ITC’s for the GST/HST paid or payable on property and services you resell, use or consume in the course of your exempt activities.

Claiming Input Tax Credits (cont’d)

• If an expense relates to a specific activity, then you can claim the ITC if it relates to a taxable supply. If it relates to an exempt supply, then you cannot claim the ITC.

• For general operating and overhead expenses such as occupancy costs, equipment rentals, professional fees and office supplies, then you must allocate the expenses 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 metres of space used in commercial activities relative to the total space occupied

– Time allocation

– Cost

– Revenue earned

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.

Public Service Bodies Rebate

• Eligible purchases and expenses for the public services bodies rebate include: – General operating expenses (such as rent,

utilities, and administrative expenses) for which you cannot claim an ITC.

– Most allowances and reimbursements that you pay to employees involved in your exempt activities.

– Property and services used, consumed or supplied in your exempt activities.

Calculating the Rebate

• The HST consists of a federal portion (5%) and a provincial portion (8% in Ontario)

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

• This reduces the net HST from 13% to less than 4%.

How to apply for the rebate

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

• You can either apply for the rebate on an annual basis or twice a year

• If you are eligible for the rebate and have not applied, you have up to four years from the last day of the claim period in which you incur the expense to file a rebate application.

CRA Resources

• 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

Expert help is available…

Contact: Lorne Lebow Non Profit Specialist, Partner CPA, CA, LPA, CBV, DIFA Stern Cohen Accountants Tel. 416-967-5100 x243 Email: lebow@sterncohen.com www.sterncohen.com

General Disclaimer

Please note this handout is provided as an information service by Stern Cohen LLP. It is current only as of the date of the handout and does not reflect subsequent changes in legislation. The contents are intended for general information purposes only and readers are advised to consult with a qualified professional concerning the specifics of their particular situation.

Stern Cohen LLP, November 2014