How a Charity Completes Its GST/HST Return

GST/HST Info Sheet GI-066
February 2019

This version updates and replaces the one dated May 2015. It incorporates revisions under the heading “Step 2 - Determine the total ITCs and adjustments” to clarify the information presented, and to reflect the repeal of the GST/HST rebate for the accommodation portion of eligible tour packages in section 252.1 of the Excise Tax Act, and a change to the formula in subsection 225.1(2) of the Act, which allows a charity to include a deduction in respect of a tax adjustment note issued to a pension entity in its net tax calculation.

All legislative references in this publication are to the Excise Tax Act unless otherwise specified. The information in this publication does not replace the law found in the Act and its regulations.

If this information does not completely address your particular situation, you may wish to refer to the Act or relevant regulation, or call GST/HST Rulings at 1-800-959-8287 for additional information. If you require certainty with respect to any particular GST/HST matter, you may request a ruling. GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service explains how to obtain a ruling or an interpretation and lists the GST/HST rulings centres.

If you are located in Quebec and wish to request a ruling related to the GST/HST, please call Revenu Québec at 1‑800‑567‑4692. You may also visit the Revenu Québec website at revenuquebec.ca to obtain general information.

For listed financial institutions that are selected listed financial institutions (SLFIs) for GST/HST or Quebec sales tax (QST) purposes or both, whether or not they are located in Quebec, the CRA administers the GST/HST and the QST. If you wish to make a technical GST/HST or QST enquiry related to SLFIs, please call 1‑855‑666‑5166.

GST/HST rates

Reference in this publication is made to supplies that are subject to the GST or the HST. The HST applies in the participating provinces at the following rates: 13% in Ontario and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%. If you are uncertain as to whether a supply is made in a participating province, see GST/HST Technical Information Bulletin B‑103, Harmonized Sales Tax – Place of Supply Rules for Determining Whether a Supply is Made in a Province.

Meaning of significant terms

Charity means a registered charity or registered Canadian amateur athletic association for income tax purposes, but does not include a public institution. A charity can issue official donation receipts for income tax purposes.

Exempt supplies are supplies of property and services that are not subject to the GST/HST. GST/HST registrants cannot claim input tax credits (ITCs) to recover the GST/HST paid or payable on purchases and expenses related to making such supplies. However, a charity may be eligible to claim a public service bodies' (PSB) rebate for such expenses.

Participating province means a province that has harmonized its provincial sales tax with the GST to implement the HST. Participating provinces include New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island, but do not include the Nova Scotia offshore area or the Newfoundland offshore area except to the extent that offshore activities, as defined in subsection 123(1) are carried on in that area.

Public institution means a registered charity for income tax purposes that is also a school authority, a public college, a university, a hospital authority, or a local authority determined to be a municipality by the Minister of National Revenue. Information on how the GST/HST applies to public institutions is available in GST/HST Info Sheet GI‑068, Basic GST/HST Guidelines for Public Institutions.

Registrant means a person who is registered or has to be registered for GST/HST purposes.

Supply means the provision of property or a service in any way, including sale, transfer, barter, exchange, licence, rental, lease, gift, and disposition.

Taxable supplies are supplies of property and services that are made in the course of a commercial activity and are subject to the GST/HST (including zero‑rated supplies).

Zero‑rated supplies are supplies of property and services that are taxable at the rate of 0%. This means there is no GST/HST charged on these supplies, but registrants can claim ITCs for the GST/HST paid or payable on purchases made and expenses incurred to provide them (other than most purchases made and expenses incurred by charities using the net tax calculation for charities).

Net tax calculation for charities

For registrants, other than charities, net tax is generally any GST/HST collected or collectible by a person less any ITCs that the person is entitled to recover for the GST/HST paid or payable on its purchases and expenses. However, there is a different net tax calculation method specifically for charities that are registrants.

The net tax calculation for charities simplifies the way charities calculate their net tax as it generally removes the need for charities to allocate their purchases and expenses in relation to their taxable supplies and exempt supplies. A charity must use the net tax calculation for charities to determine its net tax unless it meets one of the exceptions listed under the heading, “Exceptions to using the net tax calculation for charities”.

To calculate its net tax for a reporting period using the net tax calculation for charities, a charity must follow the steps below.

Step 1 – Determine the total GST/HST and adjustments for the reporting period

The total of the GST/HST and adjustments for the period is reported on line 105 of the GST/HST return and includes:

• 60% of the GST/HST the charity was required to charge, whether the charity collected it or not, on most taxable supplies, including taxable supplies for which point‑of‑sale rebates and Ontario First Nations point‑of‑sale relief were given by the charity in the reporting period.

For most charities that are registrants, this is the only amount to be entered on line 105.

Occasionally, a charity will have to include additional amounts if it is involved in certain transactions. The additional amounts to be included in the total reported on line 105 are:

• 100% of the GST/HST collected or collectable on taxable sales of capital and real property (land or buildings), including deemed taxable sales of capital and real property;
• 100% of the GST/HST deemed collected on property (other than capital property) or services appropriated to, or for the benefit of, a member or relative of a member of the charity (for example, an inventory item given to this person);
• 100% of the GST/HST deemed collected on any property or service that the charity provided to an employee that is a taxable benefit for income tax purposes;
• 100% of the GST/HST collected or collectible on supplies of goods the charity made while acting as an agent (including a billing agent), or auctioneer and agent, of a person where the charity has to account for the tax;
• 100% of any GST/HST collected in error;
• 100% of all amounts required to be taken into account as GST/HST by the charity because of the recovery of a bad debt for a taxable sale of capital property or real property;
• the amount of GST/HST adjusted, refunded, or credited to the charity by the seller of capital property or real property to the extent that the amount was previously claimed by the charity as an ITC; and
• any amount that the charity carried forward from designated reporting periods for which the charity received approval from the Canada Revenue Agency (CRA) to temporarily stop filing GST/HST returns for those periods in which it had $1,000 or less of net GST/HST to report.

In general, charities using the net tax calculation for charities are not required to account for the GST/HST in respect of amounts that they receive under warranty claims or as rebates from manufacturers or other vendors.

Charities will also not have to account for the GST/HST if, as creditors, they seize personal property and take it for their own use.

Step 2 – Determine the total ITCs and adjustments

Charities that use the net tax calculation for charities cannot claim as ITCs most of the GST/HST paid or payable on their purchases and expenses (even if they relate to taxable supplies). Therefore, in most cases, line 108 of the GST/HST return will be zero.

Nevertheless, there are some particular situations where the amount reported on line 108 may include the following:

• 100% ITCs for the GST/HST paid or payable on the charity’s purchases of, or improvements to, capital property or real property for use primarily (more than 50%) in the charity’s commercial activities, including the deemed GST/HST payable when capital property is brought into a participating province for use primarily in its commercial activities;
• any ITC for the GST/HST paid or payable on the charity’s purchase of, or improvement to, real property based on the percentage of use of the real property in the charity’s commercial activities (must be more than 10%) and for which it filed Form GST26, Election or Revocation of an Election by a Public Service Body to Have an Exempt Supply of Real Property Treated as a Taxable Supply, that is effective the day the property is acquired;
• any ITC for the GST/HST considered paid on the deemed purchase of real property based on the percentage of use of the property in the charity’s commercial activities (must be more than 10%), where the election (Form GST26) takes effect on a day other than the day the property was acquired by the charity or the day the charity becomes a registrant;
• 100% ITCs for the GST/HST paid or payable on goods that the charity acquired, imported, or brought into a participating province that will be sold by a person acting as an agent (including a billing agent), or an auctioneer and agent, for the charity;
• 100% ITCs for the GST/HST paid on goods imported by the charity on behalf of a non‑resident person for use exclusively in the charity’s commercial activities and sold when the charity was acting as an agent, or auctioneer and agent, for the non‑resident person;
• 60% of the total of the GST/HST adjustments (for example, for price reductions and rebates for foreign conventions and for artistic works produced for export) or of point‑of‑sale rebates for the provincial part of the HST that the charity gave in the reporting period (no amount should be included for any Ontario First Nations point‑of‑sale relief credited in the reporting period as the charity may claim this amount by filing Form GST189, General Application for Rebate of GST/HST, using code 23);
• 60% of the total tax amount of a tax adjustment note issued by the charity in the reporting period to a pension entity;
• the GST/HST adjusted, refunded, or credited in a credit note issued by the charity in the reporting period for tax charged in excess of the GST/HST collectible on certain supplies of property or services;
• GST/HST adjustments relating to bad debts written off during the reporting period in respect of sales of capital property or real property;
• the GST/HST adjusted, refunded, or credited in a credit note issued by the charity in the reporting period in respect of sales of capital property or real property;
• GST/HST adjustments relating to the GST/HST new housing rebate where the charity is a builder and paid or credited the rebate to an individual purchasing new housing; and
• 100% ITCs that the charity was entitled to claim and that it carried forward from a reporting period when it did not have to use the net tax calculation for charities.

Step 3 – Determine the net tax

Subtract the total in Step 2 (line 108) from the total in Step 1 (line 105). The result is the charity’s net tax. The amount should be entered on line 109 of the charity’s GST/HST return.

Line 111 - Offset of GST/HST rebate

A charity that is a registrant can offset the net tax it owes on its GST/HST return, or increase any refund, with certain GST/HST rebates to which it is entitled. For example, a charity is entitled to claim a public service bodies’ rebate to recover a percentage of the GST/HST paid or payable on eligible purchases and expenses. For more information, see Guide RC4034, GST/HST Public Service Bodies’ Rebate.

If a charity that is a registrant wants to use its PSB rebate to reduce any amount it owes on a GST/HST return, or to increase any refund, it must file its PSB rebate application along with the return. For more information on offsetting the amount of a rebate on a GST/HST return, see Guide RC4022, General Information for GST/HST Registrants.

The amount reported on line 111 is added to any amount reported on line 110 (instalments and other payments) and totalled on line 112.

To determine a charity’s final GST/HST refund or amount owing, the amount reported on line 112 is subtracted from the amount on line 109. If the difference is negative, the amount is entered on line 114. This is the charity’s refund. If the amount is positive, the amount is entered on line 115. This is the charity’s amount owing.

Exceptions to using the net tax calculation for charities

Public Institutions

A public institution cannot use the net tax calculation for charities.

Designated Charities

A designated charity is a charity that has applied for designation and has been designated by the Minister of National Revenue to have certain exempt services it provides made taxable. To qualify for this designation, a charity must meet the following two conditions:

• one of the main purposes of the charity is to provide employment or employment‑related assistance to individuals with disabilities; and
• the charity supplies, on a regular basis, certain services that are performed, in whole or in part, by individuals with disabilities.

A designated charity cannot use the net tax calculation for charities.

Election not to use the net tax calculation for charities

A charity that meets any of the following conditions can elect not to use the net tax calculation for charities:

• the charity makes supplies outside Canada in the ordinary course of its business;
• the charity makes zero‑rated supplies (for example, basic groceries and certain medical devices) in the ordinary course of its business; or
• 90% or more of the charity’s supplies are taxable supplies.

Once a charity elects not to use the net tax calculation for charities, it will not subsequently be forced to use the net tax calculation for charities if its circumstances change, such as if it were no longer to make zero‑rated supplies, or if it were to begin to make a greater percentage of exempt supplies. Therefore, once a charity has made this election, it does not have to keep track of whether it is still making supplies outside Canada, or zero‑rated supplies in the course of its business, or the extent to which it still makes taxable supplies.

To make the election, the charity must submit a completed Form GST488, Election or Revocation of an Election Not to Use the Net Tax Calculation for Charities. Eligible charities with annual reporting periods have to file this form on or before the first day of the second fiscal quarter of the fiscal year for which the election will be in effect (for example, on or before April 1, if the charity's fiscal year begins on January 1). In other cases, the form must be filed on or before the date a return has to be filed for the first reporting period for which the election is in effect.

The charity’s head office should make this election. Once made, it is binding on the legal entity. All branches that are part of one legal entity are required to use the same method of accounting for net tax.

Form GST488 and other forms are available on the Canada.ca website at canada.ca/gst‑hst‑pub or by calling 1‑800‑959‑5525.

Revoking the election

The election not to use the net tax calculation for charities remains in effect until a request for its revocation is filed. A charity can revoke its election no earlier than one year after the election takes effect by submitting a completed Form GST488. The charity is required to file this form on or before the due date of the GST/HST return for the last reporting period during which the election is in effect. Once a charity revokes the election, it will have to use the net tax calculation for charities.

How often must a charity file a GST/HST return?

A charity that is a registrant is required to complete and file a GST/HST return for each of its reporting periods by using either Form GST34‑2, Goods and Services Tax/Harmonized Sales Tax (GST/HST) Return for Registrants, or Form GST62, which is the non‑personalized version of Form GST34‑2. Once a charity is registered for GST/HST purposes, a personalized GST/HST return (Form GST34‑2) is automatically sent to the charity for each of its reporting periods.

A charity registering for GST/HST purposes is assigned an annual reporting period regardless of its revenues. This means that most charities registered for GST/HST purposes file a GST/HST return once a year to report their net tax.

A charity that wishes to change its reporting period and file monthly or quarterly GST/HST returns can do so by submitting a completed Form GST20, Election for GST/HST Reporting Period, or by calling the CRA at 1‑800‑959‑5525.

Public service bodies’ rebate

A charity is entitled to claim a public service bodies’ rebate to recover a percentage of the GST/HST paid or payable on eligible purchases and expenses for which it cannot claim ITCs or any other rebate, refund, or remission. For more information, refer to the following publications:

• Guide RC4034, GST/HST Public Service Bodies’ Rebate
• Info Sheet GI-172 Public Service Bodies' Rebate for Charities Resident Only in British Columbia
• Info Sheet GI-173 Public Service Bodies' Rebate for Charities Resident Only in New Brunswick
• Info Sheet GI-174 Public Service Bodies' Rebate for Charities Resident Only in Newfoundland and Labrador
• Info Sheet GI-175 Public Service Bodies' Rebate for Charities Resident Only in Nova Scotia
• Info Sheet GI-176 Public Service Bodies' Rebate for Charities Resident Only in Ontario
• Info Sheet GI-177 Public Service Bodies' Rebate for Charities Resident Only in Prince Edward Island
• Info Sheet GI-178 Public Service Bodies' Rebate for Charities Resident in One or More Non-participating Provinces
• Info Sheet GI-179 Public Service Bodies' Rebate for Charities Resident in Two or More Provinces, at Least One of Which Is a Participating Province

For information to assist a charity in determining in which province(s) it is resident, please refer to GI‑121 Determining Whether a Public Service Body is Resident in a Province for Purposes of the Public Service Bodies' Rebate.

Further information