GST/HST is a complicated enough topic in general, but for charities the rules are different again. This means that even if you have someone on the board who is familiar with the GST/HST basics, your charity may still not be navigating the system correctly or to its maximum advantage. This article lays out the general principles of GST/HST as it relates to charities, but because the subject is convoluted and situation-dependent, we recommend individualized professional advice for charities that deal in anything more than the simplest financial transactions.
Keep in mind that there are two sides to GST/HST: the consumer side (where you pay the tax on a good or service that you are purchasing) and the supplier side (where you collect and remit the tax on a good or service that you are supplying). Both sides may be relevant to a charity.
Consumer Side: Paying GST/HST
The GST/HST system is structured so that the tax is paid by the final consumer. This means that if you buy something and pay tax on it, but then turn around and re-sell it, you can get the tax back in the form of an input tax credit (ITC). It is only the person at the end of the line who is ultimately out-of-pocket for the amount of the tax. If the item is exempt from tax, no ITC is available. There are also items that are ‘zero-rated’, which means they are taxed at 0% but not considered tax-exempt, so they do produce an ITC.
In the case of registered charities and registered Canadian amateur athletic associations, the federal government helps offset the amount of GST/HST paid by providing a rebate of 50% of the amount of GST (or federal part of the HST) paid. For provinces with HST, the level of rebate provided on the provincial portion varies, from 35% in PEI to 82% in Ontario.
Supplier Side: Collecting GST/HST
Charities get a hand up on this side of the equation as well. Most supplies made by charities are exempt, even if in many cases they would be taxable if supplied by a for-profit business, such as the supply of used or donated goods, and most property or services sold essentially at cost.
Even if a charity does supply some taxable goods, it may fall below the threshold of required GST/HST registration; non-registrants do not need to collect GST/HST even on taxable goods (with the exception of certain sales of real property). The general matrix looks like this:
- You must register if you provide taxable supplies and are not a small supplier.
- You may register if your provide taxable supplies and are a small supplier.
- You cannot register if you only provide exempt supplies.
A small supplier is one that meets either of two tests: the gross revenue test, or the $50,000 taxable supplies test.
Gross Revenue Test
- If the charity is in its first fiscal year, it does not have to register.
- If the charity is in its second fiscal year, and its gross revenue from the first fiscal year is $250,000 or less, it does not have to register.
- If the charity is in its third or later fiscal year, and its gross revenue in either of its two previous years if $250,000 or less, it does not have to register.
$50,000 Taxable Supplies Test
With all worldwide revenues included, if the charity’s total revenue from taxable supplies has been $50,000 or less in each of the current quarter and the last four quarters, the charity is not required to become a GST/HST registrant. This is the case even if it does not meet the gross revenue test above.
As should be fairly obvious from the nature of the small supplier tests and the supplies considered specially exempt for charities, most registered charities will never need to worry about being compelled to register for (and therefore collect) GST/HST.