Although charitable and nonprofit organizations (NPOs) are exempt from paying income tax, they are still required to pay and collect GST/HST for many of the taxable supplies they purchase and provide within Canada.
Understanding GST/HST information for nonprofit organizations can be challenging—especially if your NPO or charity is staffed by volunteers with little to no exposure to tax requirements.
Some of the challenges we explore here include:
- Knowing when to register for GST/HST for your organization
- Knowing which supplies are taxable and which are exempt
- Knowing who can claim an input tax credit (ITC) or public service bodies rebate (PSB)
We’ll also offer guidance for keeping your organization compliant with GST/HST regulations.
What is GST / HST?
A Goods and Services Tax (GST) of 5% applies to the sale of most supplies in Canada. Taxable supplies are typically provided during profit-generating commercial activities and include zero-rated supplies (supplies taxed at a rate of 0%). In lay terms, T=the GST is a federal value-added tax applied to most goods and services sold for domestic consumption in Canada.
Applicability of the Federal GST
- Taxable Goods and Services: The GST applies to most products and services, including electronics, clothing, professional services, and dining out.
- Zero-Rated Supplies: Some items are taxed at 0%, meaning GST is technically charged but at a zero rate. Examples include basic groceries, prescription medications, and medical devices.
- Exempt Supplies: Certain goods and services are exempt from GST altogether. These include residential rent, most health and dental care services, educational services, and financial services.
Some provinces combine the GST with their provincial sales tax (PST) to create a harmonized sales tax (HST). Once your organization is registered for GST, you are also registered for HST. The HST simplifies the taxation process by having one combined tax rate.
- HST Rates: Rates vary by province, typically ranging from 13% to 15%.
- Provinces Using HST: Ontario, Nova Scotia, New Brunswick, Newfoundland and Labrador, and Prince Edward Island.
- Non-HST Provinces and Territories: British Columbia, Saskatchewan, Manitoba, and Quebec.
- No Provincial or Territorial Sales Tax: Alberta, Yukon, Northwest Territories, and Nunavut.
Every GST/HST registrant (including charities and NPOs) is required to collect the taxes owing on the taxable supplies they provide and remit them to the Canada Revenue Agency (CRA).
When to register for GST / HST
To minimize the compliance burden for the not-for-profit sector, some goods and “non-commercial-like” activities have been made exempt from GST/HST taxation.
As a result, one of the key pieces of GST/HST information for nonprofit organizations you may be missing is whether—and when—you need to register.
NPOs are required to register for GST/HST when they provide taxable supplies in Canada, and they’re not a “small” supplier.
- You’re considered a small supplier if the total revenue before expenses from your worldwide taxable supplies is $50,000 or less in any single calendar quarter and in the last four consecutive calendar quarters.
Charities are required to register for GST/HST when they’re not a small supplier, and their annual gross revenue exceeds $250,000.
- That means even if your charity’s total revenue before expenses from worldwide taxable supplies is more than $50,000—but your annual gross revenue is less than $250,000—your organization is considered a small supplier, and you’re not required to register for GST/HST.
Whether NPO or charity, if you meet the criteria as a small supplier, your organization:
- Is not required to register for or charge GST/HST on taxable supplies
- Is not entitled to claim input tax credits (more about ITCs to follow)
- May still qualify to claim a public service bodies rebate (more about PSBs later as well)
If, on the other hand, your organization grows to the point where you’re no longer a small supplier, you’ll have one month (from the date your status changes) to register for and start charging GST/HST—and must remain registered for at least one year.
Which supplies are exempt from GST / HST?
Different rules govern NPOs and charities regarding which supplies are taxable and which are exempt from GST/HST.
In general, while most supplied goods and services are taxable for NPOs (including membership fees, sponsorships, subscriptions, and registration fees for trade shows, seminars, and conferences), most are exempt for charities (including memberships, recreation programs, supplies of used or donated goods, and most goods or services sold in the course of fundraising).
Some supplies that are considered taxable for charities however, include:
- Memberships that entitle members to benefits
- Admission fees over $1 to places of amusement
- Sales of new goods for profit
Since none of the taxable and exempt supplies lists noted here are exhaustive, you should check with your controller or accounting professional for recent GST/HST information for nonprofit organizations.
Tax credits for NPOs and charities
Both nonprofit and charitable organizations may claim ITCs (input tax credits) and PSBs (public service bodies rebates) for GST/HST amounts they pay.
ITCs: GST/HST registrants can use ITCs to recover the GST/HST paid (or payable) on eligible purchases and operating expenses.
For example,
- Your NPO can claim ITCs for the purchase of any real or capital property where more than 50% will be used for commercial activity
- Your NPO cannot claim ITCs on expenses incurred to earn exempt revenue where earnings are from a mix of taxable and exempt supplies
Since most charities and QNPOs (qualifying NPOs whose government funding is at least 40% of their total revenue) don’t engage in profit-generating activity, they don’t typically claim ITCs.
PSBs: Even if you’re not a GST/HST registrant, you can use the PSB rebate to get back a portion of the GST (or HST under certain conditions) paid (or payable) on certain purchases and expenses—so long as your organization is a charity, QNPO, or select public service body (like a university, municipality, or school or hospital authority). PSB rebate rates are specific to the province in which the organization operates and the nature of their operations. NPOs are not eligible for PSBs.
How to comply with GST / HST rules and obligations
Here's how NPOs and charities can stay GST/HST tax compliant.
1. Understand Your Organization's Classification
- Non-Profit Organization (NPO): An entity organized solely for purposes other than profit, such as social welfare, civic improvement, pleasure, or recreation.
- Registered Charity: A charitable organization registered under the Income Tax Act, which may have different GST obligations.
Note: GST/HST rules can vary between registered charities and other NPOs.
2. Determine GST/HST Registration Requirements
- Small Supplier Threshold:
- For NPOs and charities, the small supplier threshold is $50,000 in gross revenue from taxable supplies over four consecutive calendar quarters.
- If your organization's taxable supplies exceed this threshold, you must register for GST/HST.
- Voluntary Registration:
- Organizations below the threshold can choose to register voluntarily. Benefits include the ability to claim Input Tax Credits (ITCs) for GST/HST paid on purchases related to taxable activities.
3. Identify Taxable, Exempt, and Zero-Rated Supplies
- Taxable Supplies:
- Goods and services on which GST/HST must be charged.
- Examples:
- Sales of new merchandise
- Commercial rentals
- Certain event admissions
- Exempt Supplies:
- No GST/HST is charged, and you cannot claim ITCs for related expenses.
- Examples:
- Membership fees (when main benefits are participation in activities)
- Most fundraising activities
- Educational services
- Zero-Rated Supplies:
- GST/HST is charged at 0%, and you can claim ITCs.
- Examples:
- Basic groceries
- Prescription drugs
4. Collecting and Remitting GST/HST
- Charging GST/HST:
- Charge the appropriate GST/HST rate on taxable supplies, which varies by province.
- Remitting Tax:
- Calculate net tax by subtracting ITCs from the GST/HST collected.
- Remit the net tax to the Canada Revenue Agency (CRA) by the due date.
5. Claiming Input Tax Credits (ITCs)
- Eligibility:
- Registered NPOs can claim ITCs for GST/HST paid on purchases used in making taxable supplies.
- Apportionment:
- If purchases relate to both taxable and exempt activities, you must apportion the GST/HST accordingly.
- Simplified Methods:
- Simplified Method for ITCs:
- Calculate ITCs using a percentage of taxable sales.
- Quick Method of Accounting:
- Remit tax based on a fixed percentage of taxable supplies, simplifying calculations.
- Simplified Method for ITCs:
6. Public Service Bodies' Rebate
- Purpose:
- Allows charities and qualifying NPOs to recover a portion of GST/HST paid on expenses related to exempt activities.
- Rebate Rates:
- Charities: 50% of GST or the federal portion of HST paid.
- Qualifying NPOs: 50% rebate if at least 40% of funding comes from government sources.
- Claiming the Rebate:
- File Form GST66 or use the online services provided by the CRA.
7. Filing GST/HST Returns
- Reporting Periods:
- Annual: Total annual taxable supplies ≤ $1.5 million.
- Quarterly: Supplies > $1.5 million but ≤ $6 million.
- Monthly: Supplies > $6 million.
- Due Dates:
- Annual Filers: Return and payment due three months after fiscal year-end.
- Quarterly/Monthly Filers: Due one month after the end of the reporting period.
8. Record-Keeping Requirements
- Maintain Accurate Records:
- Keep all invoices, receipts, and documents supporting your GST/HST claims and calculations.
- Retention Period:
- Records must be kept for six years from the end of the last tax year they relate to.
- Accessibility:
- Ensure records are organized and can be provided to the CRA upon request.
9. Special Considerations for Fundraising and Events
- Fundraising Activities:
- Occasional Sales Exemption:
- Sales from occasional fundraising events may be exempt if they meet specific criteria (e.g., not regular business activities).
- Occasional Sales Exemption:
- Admissions and Event Fees:
- May be exempt if the event is primarily a fundraising activity with volunteers performing substantially all the activities.
10. Grants, Donations, and Sponsorships
- Grants and Donations:
- Generally not subject to GST/HST as they are not considered payment for a supply.
- Sponsorships:
- May be taxable if the sponsor receives significant advertising or promotional benefits.
11. Employee and Volunteer Expenses
- Reimbursements and Allowances:
- GST/HST may apply to reimbursements and allowances paid to employees and volunteers.
- ITCs on Expenses:
- Can claim ITCs on reimbursed expenses if they relate to taxable activities.
12. Stay Informed and Seek Professional Advice
- CRA Resources:
- Regularly review updates on the CRA website, especially the GST/HST Information for Non-Profit Organizations guide.
- Professional Consultation:
- Engage a tax professional or accountant experienced with NPOs to navigate complex GST/HST issues.
13. Penalties and Consequences of Non-Compliance
- Failure to Register:
- Penalties and interest from the date you were required to register.
- Late Filing and Payments:
- Financial penalties and accruing interest on outstanding amounts.
- Audit Risks:
- Non-compliance increases the likelihood of a CRA audit, which can lead to further penalties.
14. Tips for Maintaining Compliance
- Regular Reviews:
- Periodically assess your organization's activities to determine if GST/HST obligations have changed.
- Educate Staff and Volunteers:
- Ensure those handling finances are knowledgeable about GST/HST requirements.
- Implement Accounting Systems:
- Use accounting software that tracks GST/HST to simplify reporting and remittance.
Mission-Critical Best Practices for GST Compliance
- Set your bookkeeping up properly. To ensure your GST/HST net tax calculations and remittances are correct, make sure your sales tax codes (including exempt and zero-rated codes) are set up properly in your accounting software. If you’re unsure which supplies are taxable, check with your accountant.
- Review your GST/HST obligations regularly. Many nonprofit organizations engage in a mix of taxable and exempt activities. Separating, tracking, and reviewing your revenue regularly will reveal if and when you should be registering for GST/HST (so you don’t miss the one-month deadline) and can prevent your failing to collect tax where you should be.
- Keep track of filing deadlines. Depending on the size of your organization, the CRA will determine whether you should be filing tax returns quarterly, twice a year, or annually. If you inadvertently file for the wrong length or period of time, your return will be rejected.
- Make sure your bookkeeper has a good understanding of PSBs. Not only are certain organizations not eligible to claim the PSB rebate, it’s also important that those that do use the correct percentage. This rate can vary depending on the type of organization making the claim and the location of their permanent establishment.
If you need help setting up your books and tax codes on a cloud accounting software, Enkel’s experienced accounting pros specialize in helping not-for-profit organizations manage their bookkeeping so they can stay financially organized and compliant.
