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’ll be exploring in this guide 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 some helpful tips 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 in the course of conducting profit-generating commercial activities and include zero-rated supplies (supplies taxed at a rate of 0%).
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.
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?
When it comes to which supplies are taxable and which are exempt from GST/HST, different rules govern NPOs vs charities.
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 is exhaustive, you should check with your controller or accounting professional for the most recent GST/HST information for nonprofit organizations.
Tax credits for NPOs and charities
Both nonprofit and charitable organizations may be able to claim ITCs (input tax credits) and PSBs (public service bodies rebates) for GST/HST amounts that they pay.
ITCs: GST/HST registrants can use ITCs to recover the GST/HST paid (or payable) on eligible purchases and operating expenses.
- 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.
Tips for staying compliant with GST / HST
Following certain best practices will help keep your organization GST/HST tax compliant.
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 not sure which of your 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 both 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.