GST and HST tips, tricks and traps
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Agenda― • • • • • •
Charities vs. NPOs Accounting for GST/HST Taxable supplies by NPOs Recovering GST/HST by NPOs Dealing with CRA Grants, subsidies and sponsorships
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Charities vs. Not-for-Profit Organizations (NPOs) Charities
NPOs
Registered with Canada Revenue Agency
Not registered in the same way
Approximately 86,000 Registered Charities
No clear number of NPOs in Canada
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What is an NPO, according to CRA? Policy P-215 sets out three criteria to be an NPO: 1. Must be organized solely for non-profit purposes 2. Must be operated solely for non-profit purposes 3. No personal benefit to any member
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Charities vs. NPOs Charities
NPOs
Generally, all supplies made by a charity are exempt from GST/HST, unless a specific provision taxes them
Generally, all supplies made by an NPO are subject to GST/HST, unless a specific provision exempts them
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Qualifying Not-for-Profit Organizations ("QNPO") • Must have at least 40% "government funding" (federal, provincial, municipal, or Indian band) • Funding may flow through an intermediary • Threshold may be met in previous two fiscal years, or in current year • QNPOs are eligible to claim rebates of part of the GST/HST paid to carry out exempt activities © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd
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Accounting for GST/HST: NPOs • If registered, file GST/HST returns like any for-profit business, claim ITCs, etc. • If not registered, but a QNPO, claim rebates as applicable • If not registered and not a QNPO, no recovery of GST/HST is available
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Taxable vs. Exempt Supplies by NPOs • Recall, general rule for NPOs is that supplies are taxable unless specifically exempted under the legislation • Schedule V, Part VI lists supplies made by NPOs that are exempt from GST/HST • If not listed there, the supply is taxable (or, at least, subject to the other rules in the Excise Tax Act)
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Taxable vs. Exempt Supplies by NPOs Common NPO exemptions: • Supplies made for less than direct cost • Recreational programs to children • Supplies made by volunteers • Amateur artistic or athletic performances • Certain supplies of real property
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Taxable vs. Exempt Supplies by NPOs Common concerns to watch out for: • memberships • grants and subsidies • sponsorships
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Registering for GST/HST • If taxable supplies exceed $50,000 in four consecutive calendar quarters, NPO must register • If below the threshold, registration is voluntary as long as NPO is making taxable supplies • If QNPO, still eligible for rebates where ITC cannot be claimed
Registering for GST/HST • NPO can elect to have branches or divisions be separate for purposes of the $50,000 threshold • Only branches that exceed the threshold need to be registered • For example, a school board could have each school be a branch; only the largest schools might exceed threshold and require registration for GST/HST
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Filing GST/HST Returns and Rebates • If registered for GST/HST, file periodic returns reporting GST/HST collected, and claiming ITCs for GST/HST paid to make taxable supplies • Claim rebates (if available) for portion of GST/HST not claimed as an ITC • If not registered, claim rebates for portion of GST/HST paid, but only if QNPO © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd
Business Numbers for Rebates • Nine-digit BN with RT suffix is "GST/HST number" • Same number used for rebate processing • NPOs may think they are registered for GST/HST when they are not • NPOs register for GST/HST to "get a number", when they should not do so © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd
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Rebates of GST/HST • Different percentages depending on type of entity • "GST rebate" is separate from "HST rebate" – Form GST66 for GST (federal portion of HST) – Form RC7066 for provincial portion of HST • Different percentages depending on residency of entity • Can only claim provincial rebate if resident in that province
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Rebates of GST/HST Type of Entity Charity
GST 50%
Residency of Public Service Body ON NB PEI NS NL 82% 50% 35% 50% 50%
Qualifying NPO
50%
82%
50%
35%
50%
50%
University or College
67%
78%
-
-
67%
-
School authority
68%
93%
-
-
68%
-
Hospital
83%
87%
-
-
83%
-
Municipality
100%
78%
57.14%
-
57.14%
-
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Maximizing ITCs and Rebates for NPOs • ITCs available when making taxable supplies • Allocation may be required if making both taxable and exempt supplies • Different threshold of ITC depending on whether expenditure is "capital purchase" or "operating expense"
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Maximizing ITCs and Rebates for NPOs • • • •
Proper tracking of expenditure will allow easier allocation May indicate that ITCs are not being recovered in full ITCs will increase if there are more taxable supplies NPO may be able to change tax status of supplies
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Maximizing ITCs and Rebates for NPOs Certain exempting provisions are based on factors within the NPO's control. For example: • Supplies made for no more than direct cost are exempt from GST/HST; if NPO raises price, the supply becomes taxable and ITCs become available • Goods sold by volunteers may be exempt; using paid salespeople would be taxable and ITCs become available
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Maximizing ITCs and Rebates for NPOs • If NPO owns real property (i.e., land and/or buildings), the supply of the real property is generally exempt • An election may be made to make the supply taxable instead • This election, under section 211 of the Excise Tax Act, may have significant implications for GST/HST © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd
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Dealing with CRA on audit "Documentation" may be one or more pieces of paper, or pieces of information such as: • • • • •
Name of supplier and GST/HST number Date of transaction Amount of GST/HST paid Description of purchase Name of purchaser
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Dealing with CRA • If ITC is not claimed, may be claimed within certain time limits (either two years or four years) by claiming on future return • If rebate is not claimed, must amend previously filed rebate claim – For example, if a Sept/14 invoice is posted into Oct/14, CRA will deny the rebate if claimed on Oct/Nov/Dec quarterly claim – Must amend Jul/Aug/Sept claim to include it – Alternately, delay filing July/Aug/Sept until all invoices received, which will delay any refund as well © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd
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Dealing with CRA • If CRA asks questions on returns or rebate application, ensure that responses are accurate • However, we would always caution to not answer questions CRA hasn't asked, as too much information could lead them down the wrong path
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Grants and Subsidies • Grants and subsidies have no • GST/HST implications where collection of tax is required • However, what appears to be • a "grant" may, in fact, be a "supply" of goods or services by the NPO
If it is a supply of goods or services, may be either taxable or exempt Be careful with respect to grants and subsidies
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Sponsorships • NPO receives sponsorship funding, and allows sponsor to use trademark of NPO • Example: sponsor funds NPO's annual fundraising dinner; for GST/HST, sponsorship is not a supply and is not subject to tax • Taxable if supply is primarily print or media advertising © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd
Summary / take aways Current CRA audit issues: • Registration status • Tax status of sponsorships • Tax status of supplies in general • Recovery of tax – rebates vs ITCs • Other
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Questions?
Sarah Noftell, CPA, CA Sales Tax Manager E
[email protected] T +1 506 858-2553 © Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd
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