HST for Charities..It begins

By Adam Aptowitzer

The advent of the HST system in Ontario and British Columbia is not simply a matter of concern for charities in those provinces, but for organizations across the country. From a legal perspective, the authority to apply HST rules (but not necessarily the HST) stems from the fact that the law which administers the HST is federal and not provincial in nature. And so, it is incumbent upon everyone in the country to know their obligations whether or not they live in an HST province.

As the HST system is based on the GST regime some may feel comfortable with HST as simply being an extension of the GST (the only problem is that the GST is an enigma to most). On the other hand, the consequences to directors and charities for misunderstanding the law are actually greater now under the HST. Below are several pointers for charities as they consider their obligations.

Most charities are aware by now there is a different rebate system in place for the GST and the HST. Most Charities (and some not for profits) are entitled to a 50% rebate of the 5% federal portion of the tax (which is standard across the country). However, charities resident in Ontario are entitled to a rebate of 82% of HST paid while charities in BC will receive a rebate of 57% of the HST they pay and organizations in the Maritimes (except PEI) are entitled to a rebate of 50%. Note that some charities such as schools and hospitals have a different rebate structure altogether.

While all of this sounds complicated (because it is), it gets worse when you consider that different rules apply when an organization in one province buys something in another province for delivery in its home province. Unfortunately, as of the date of writing we do not yet have the regulations in place to know how this will be treated.

Another interesting aspect of the HST is that the collecting entity charges the relevant HST rate for that province (so for example 8% in Ontario and 0% in Alberta). So some knowledge of the locale of your customers is necessary.

For directors the major issue lies with not properly collecting or remitting taxes. Of course, inherent in this is an understanding of what is a taxable and what is an exempt supply. It would also require some understanding of the minimal thresholds for GST/HST registration. While this is not the forum for a detailed explanation of those rules, directors should understand the consequences of not even exploring the issue. Generally, in circumstances where an organization (including a charity) should charge GST/HST and do not, the CRA will assess the organization for that amount. In some circumstances, the directors of a charity can also become personally liable for those amounts. 

When the amount in issue was 'only' 5% of the price the amount (tax, penalty and interest) owing could be high, but now it is a full 8% higher. So charities (and others) have a significantly higher incentive to ensure that they are in full compliance with the law.