Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Date:
March 16, 2011
To:
[Client]
From:
Philippe Nault
Case Number:
126985
Subject:
GST/HST INTERPRETATION
Public service body rebate claim periods when a charity's status is revoked
This is in response to your e-mail of July 26, 2010, enquiring on a charity's eligibility to claim a public service body (PSB) rebate under the Excise Tax Act (ETA) up to the date its status as a registered charity is revoked under the Income Tax Act (ITA). We apologize for the delay in responding to your enquiry.
When a Notice of Intention to Revoke a Charity's Registration is issued, this has the effect of deeming a taxation year end for the charity for ITA purposes which, in turn, may effect the charity's claim periods for PSB rebates for ETA purposes. As a result, it will be a question of fact, on a case-by-case basis, whether any particular charity is eligible to claim a PSB rebate up to the date its registered charity status is revoked.
Legislative references
In part, subsection 259(3) of the ETA provides that if a person is a charity on the last day of a claim period of the person or on the last day of the person's fiscal year that includes that claim period, then the Minister shall, subject to certain conditions, pay a rebate to the person for the claim period. In general, under subsection 259(1) of the ETA, the claim period of a charity that is a registrant is its reporting period. For a charity that is not a registrant, its claim period consists of either the first and second fiscal quarters in the charity's fiscal year or the third and fourth fiscal quarters in its fiscal year.
Subject to certain provisions, subparagraph 245(2)(a)(iii) of the ETA sets out that the reporting period of a registrant that is a charity is its fiscal year unless the charity has made an election to have reporting periods that are fiscal months under section 246 of the ETA, or fiscal quarters under section 247 of the ETA, that are based on the charity's fiscal year.
Subsection 123(1) of the ETA provides definitions for "fiscal month", "fiscal quarter" and "fiscal year". Under current legislation, the "fiscal year" of a person is defined to mean either the period elected by the person to be its fiscal year under section 244 of the ETA or, in all other cases, the taxation year of the person. Under subsection 244(1) of the ETA, where the taxation year of a person is not a calendar year, the person may elect to have fiscal years that are calendar years.
Please note that draft legislation announced by Finance Canada on January 28, 2011, proposes to amend the ETA definition of "fiscal year". Under the proposed amendment to the definition, if proposed section 244.1 of the ETA applies to the person, then the person's fiscal year will be the period determined under that section. This proposed new section will only apply to persons that are certain selected listed financial institutions and, as such, we have not discussed its implications in this memorandum as a charity is not likely to be a selected listed financial institution. Where proposed section 244.1 of the ETA does not apply to the person, then the person's fiscal year will be its taxation year unless the person has made an election under section 244 of the ETA for a different fiscal year.
"Taxation year" is defined under subsection 123(1) of the ETA and it refers to the meaning of that term in the ITA. Under subsection 149.1 of the ITA, a taxation year, in the case of a registered charity, means a fiscal period. Under subsection 249.1(1) of the ITA, a "fiscal period" of a charity means the 12-month period or, for incorporated charities a period of up to 53 weeks, for which the charity's accounts of its activities (in other words, its financial statements) are made up for ITA purposes.
However, under 188(1) of the ITA, a charity's taxation year is deemed to end on the day the Minister issues a notice of intention to revoke its registration as a registered charity under any of subsections 149.1(2) to (4.1) and 168(1) of the ITA or, on the day it is determined, under subsection 7(1) of the Charities Registration (Security Information) Act (CRSIA), that a certificate served under subsection 5(1) of the CRSIA is reasonable. A new taxation year of the charity is deemed to begin immediately after that day and, for the purpose of determining the charity's fiscal period after that day, the charity is deemed not to have established a fiscal period before that day.
Therefore, where a charity's fiscal year for ETA purposes is based on its taxation year for ITA purposes, and the Minister issues a notice of intention to revoke its registered charity status, then the charity's deemed taxation year end on the day the notice was issued under subsection 188(1) of the ITA will result in the charity also having a fiscal year end on that day for ETA purposes which will impact its claim periods for the PSB rebate under section 259 of the ETA. Where a charity elected to have a fiscal year that is a calendar year for ETA purposes and its taxation year for ITA purposes is not a calendar year, then the charity will not have a deemed fiscal year end on the day the charity is issued a notice of intention to revoke its registered charity status.
It should be noted that under subsection 188(2.1) of the ITA, subsections (1) and (1.1) will not apply if the Minister abandons the intention to revoke and so notifies the charity or, within the one-year period that begins immediately after the taxation year of the charity otherwise deemed to have ended, the Minister has re-registered the charity.
As noted above, section 149.1 of the ITA specifies certain circumstances where the Minister may revoke the registration of a charity including for any reason described in subsection 168(1) of the ITA. Paragraphs (a) to (f) of that subsection list the reasons for which the Minister may, by registered mail, give notice to the registered charity that the Minister proposes to revoke its registration. Where the Minister gives such notice, then under subsection 168(2) of the ITA, if the charity had applied in writing for the revocation of its registration, the Minister shall, forthwith after the mailing of the notice, publish a copy of the notice in the Canada Gazette and, in any other case, the Minister may, after the expiration of 30 days from the day of mailing of the notice, or after the expiration of an extended period provided under certain circumstances, publish a copy of the notice in the Canada Gazette. Upon the publication of a copy of the notice in the Canada Gazette, the registration of the charity is revoked.
However, under subsection 168(3) of the ITA, notwithstanding subsections (1), (2) and (4), if a charity is the subject of a certificate that is determined to be reasonable under subsection 7(1) of the CRSIA, the registration of the charity is revoked as of the making of that determination. [...]
On the day an organization's status as a registered charity is revoked, it will no longer meet the definition of a charity under subsection 123(1) of the ETA and it will no longer be eligible to claim PSB rebates under section 259 of the ETA unless the organization meets the definition of a charity under subsection 259(1) of the ETA or continues on as a qualifying non-profit organization or other PSB eligible to claim rebates under that provision.
Summary
In summary, as the deemed year end provision in the ITA may impact the claim periods for the PSB rebate under section 259 of the ETA, a charity may not be eligible to claim a PSB rebate up to the date of revocation. Several factors have to be determined in order to respond to any specific situation involving the revocation of a charity and its eligibility for PSB rebates and they include:
• Is the charity a GST/HST registrant?
• What is the charity's fiscal year end?
• What is the charity's reporting period?
• What is the charity's taxation year end for ITA purposes?
• Has the charity filed any elections regarding its fiscal year or reporting periods?
• What is the date the Notice of Intention to Revoke a Charity's Registration was issued under the ITA or the date a certificate issued under the CRSIA is determined to be reasonable?
• What is the effective date of revocation upon publication in the Canada Gazette?
• After revocation, does the organization continue on as another type of PSB eligible for a rebate under section 259 of the ETA?
When the necessary facts are known, then it will be possible to determine whether an organization was a charity on the last day of its claim period or on the last day of its fiscal year that includes that claim period for the purpose of claiming a PSB rebate under section 259 of the ETA. The other conditions under that provision must also be met in order to claim the PSB rebate.
Examples
Example 1
A charity was sent, by registered mail, a notice of intention to revoke its registration as a charity under the ITA on June 15, 2010. The charity is not registered for GST/HST purposes and its fiscal year is the calendar year. It has not filed any elections to change its fiscal periods (i.e., fiscal year, fiscal quarter or fiscal month). On July 16, 2010, a notice of revocation for the charity was published in the Canada Gazette. The organization is not any other type of PSB eligible for the rebate under section 259 of the ETA.
Before the issuance of the notice of intention to revoke, the charity's claim periods were January to June and July to December of each fiscal year. On the day the Minister issued the notice of intention to revoke, this caused a deemed taxation year end for the charity of June 15, 2010, for both ITA and ETA purposes. A new taxation year (and new fiscal year) began on June 16, 2010. The charity will be eligible to claim a PSB rebate (subject to the conditions set out in section 259 of the ETA) for the period January 1 to June 15, 2010. Although still a charity until July 15, 2010, the day before the notice of revocation was published in the Canada Gazette, the charity will not be eligible for a subsequent PSB rebate under section 259 of the ETA as it will not be a charity on the last day of the first claim period of its new taxation/fiscal year or on the last day of its taxation/fiscal year unless the Minister re-registers the charity within the year or abandons its intention to revoke. (At any rate, the organization would have to wait until this occurred before filing another rebate).
Example 2
A charity was sent, by registered mail, a notice of intention to revoke its registration as a charity under the ITA on June 15, 2010. The charity is registered for GST/HST purposes and has a yearly reporting period based on its fiscal year which is the calendar year. It has not filed any elections to change its fiscal periods. On July 16, 2010, a notice of revocation for the charity was published in the Canada Gazette. The organization is not any other type of PSB eligible for the rebate under section 259 of the ETA.
Before the issuance of the notice to revoke, the charity's reporting period and claim period was its fiscal year - January to December. On the day the Minister issued the notice of intention to revoke, this caused a deemed taxation year end for the charity of June 15, 2010, for both ITA and ETA purposes. A new taxation year (and fiscal year) began on June 16, 2010. The charity will be eligible to claim a PSB rebate (subject to the conditions set out in section 259 of the ETA) for the period January 1 to June 15, 2010. Although still a charity until July 15, 2010, the day before the notice of revocation was published in the Canada Gazette, the charity will not be eligible for a subsequent PSB rebate under section 259 of the ETA as it will not be a charity on the last day of the first claim period of its new taxation/fiscal year or on the last day of its taxation/fiscal year.
Example 3
A charity was sent, by registered mail, a notice of intention to revoke its registration as a charity under the ITA on June 15, 2010. The charity is registered for GST/HST purposes and has a yearly reporting period. It filed an election under subsection 244(1) of the ETA to have a fiscal year that is a calendar year for GST/HST purposes. It reports for ITA purposes with a fiscal year end of
March 31st. On July 16, 2010, a notice of revocation for the charity was published in the Canada Gazette. The organization is not any other type of PSB eligible for the rebate under section 259 of the ETA.
Before the issuance of the notice of intention to revoke, the charity's reporting period and claim period was the calendar year - January to December. On the day the Minister issued the notice of intention to revoke, this caused a deemed taxation year end for the charity of June 15, 2010, for ITA purposes. However, since the charity elected to have the calendar year be its fiscal year for ETA purposes rather than report based on its taxation year for ITA purposes, it will not have a deemed fiscal year end on June 15, 2010 for ETA purposes. As such, the charity will not be eligible to claim a PSB rebate for the period January 1 to June 15th or any other period in 2010 as it will not be a charity on December 31st - the last day of its claim period which is the calendar year end for ETA purposes.
Example 4
A charity was sent, by registered mail, a notice of intention to revoke its registration as a charity under the ITA on September 4, 2007. The charity is registered for GST/HST purposes and has a yearly reporting period based on its fiscal year which is the calendar year. It has not filed any elections to change its fiscal periods. On November 14, 2009, a notice of revocation for the charity was published in the Canada Gazette. The extended period of time until the notice of revocation was published in the Canada Gazette was the result of a lengthy appeals process as the charity objected to the notice of intention to revoke. The organization is not any other type of PSB eligible for the rebate under section 259 of the ETA.
Before the issuance of the notice to revoke, the charity's reporting period and claim period was its fiscal year - January to December. On the day the Minister issued the notice of intention to revoke, this caused a deemed taxation year end for the charity of September 4, 2007. A new taxation year began on September 5, 2007. The charity will be eligible to claim a PSB rebate (subject to the conditions set out in section 259 of the ETA) for the period January 1 to September 4, 2007. Its subsequent PSB rebate claim periods will be September 5, 2007 to September 4, 2008, and September 5, 2008 to September 4, 2009. Although still a charity until November 13, 2009, the day before the notice of revocation was published in the Canada Gazette, the charity will not be eligible to claim a PSB rebate for September 5, 2009 to November 13, 2009, as it will not be a charity on the last day of the first claim period of its new taxation/fiscal year or on the last day of its taxation/fiscal year.
Should you have additional queries with respect to the information provided above, please contact Carol Gaudet (613-954-4206) or Nadine Kennedy (613-952-9592).
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