GST/HST Rulings and Interpretations Directorate
Place Vanier, Tower C, 9th Floor
25 McArthur Road
Vanier, Ontario
XXXXX K1A 0L5
XXXXX Case: HQR 0000643
XXXXX Acct. 132256090
July 18, 1997
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Subject:
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GST/HST INTERPRETATION
Simplified Net Tax Calculation For Charities
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Dear XXXXX
Thank you for your letter of April 7, 1997, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your operations, specifically with respect to the simplified net tax calculation for charities.
Interpretation Requested
You have requested clarification regarding the application of the simplified net tax calculation to taxable sales by a charity of books, audio tapes and videos. Further, you have requested clarification regarding the application of the simplified net tax calculation on acquisitions of real property (e.g., land, buildings) and capital property (e.g., vehicles, equipment) and on repairs and improvements to such property.
Interpretation Given
First, I will outline the circumstances where charities must use the simplified net tax calculation. Pursuant to section 225.1 of the Excise Tax Act ("ETA"), effective for reporting periods beginning after 1996, charities that are GST registrants are required to use the simplified net tax calculation to calculate their net tax. However, charities that make supplies outside Canada, or zero-rated supplies, in the ordinary course of a business, or whose supplies are all or substantially all taxable, may elect not to use the simplified net tax calculation.
As correctly stated in your letter, under the simplified net tax calculation, a charity
• will remit only 60% of the GST collectible or collected on most taxable supplies (given that the charity does not claim input tax credits on those purchases). Therefore, when a charity sells books, audio tapes and videos, it should collect 7% GST on the sales but remit only 60% of the tax collected; and
• will remit 100% of the GST collected, on various items but most importantly, on sales of real and capital property. Therefore, when it sells vehicles or equipment that is capital property or land and buildings, it is required to remit 7% GST charged in respect of those sales.
With respect to deductions, when a charity is using the simplified net tax calculation, the general rules of the ETA, relating to real and capital personal property, apply. That is, a charity registered for GST purposes is entitled to claim input tax credits on purchases of real property and capital personal property and on all improvements to real or capital property provided that the property is used primarily (more than 50%) in commercial activities. Therefore, a charity using the simplified net tax calculation will be entitled to input tax credits on purchases of vehicles or equipment that is capital property or land and buildings, provided that the acquisition of such property is for use primarily (more than 50%) in commercial activities. The charity would also be entitled to an input tax credit for an improvement to any such property that is used primarily (more than 50%) in commercial activities.
"Capital property" is defined in subsection 123(1) of the ETA to mean "in respect of a person, means property that is, or would be if the person were a taxpayer under the Income Tax Act, capital property of the person within the meaning of that Act, other than property described in Class 12, 14, or 44 of Schedule II to the Income Tax Regulations".
"Improvement" is defined in subsection 123(1) to the ETA to mean: "in respect of property of a person, means any property or service supplied to or goods imported by, the person for the purpose of improving the property, to the extent that the consideration paid or payable by the person for the property or service of the value of the goods is, or would be if the person were a taxpayer under the Income Tax Act, included in determining the cost or, in the case of property that is capital property of the person, the adjusted cost base to the person of the property for the purposes of that Act."
Lastly, a charity using the simplified net tax calculation will be entitled to claim a rebate in respect of its non-creditable tax charged. A charity using the simplified net tax calculation would be entitled to claim 50% of the GST paid on the acquisition of the books, audio tapes and videos that it is not able to recover as an input tax credit. A GST/HST Public Service Bodies Rebate guide is available at your local Tax Services Office.
It is important to note that a 100% rebate is available to a specified person (e.g. a charity whose primary purpose is the promotion of literacy and who is prescribed by the government, or a charity that operates a public lending library) upon the acquisition or importation of a printed book or an update of such a book, an audio recording all or substantially all of which is a spoken reading of a printed book, and a bound or unbound printed version of scripture of any religion. However, these materials cannot have been acquired for resale purposes.
The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST Memoranda Series, do not bind the Department with respect to a particular situation.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-0420.
Yours truly,
Lorrie Grannary
Charities, Non-profit Organizations & Educational Services
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate
c.c.: J.A. Venne
L. Grannary
Subject File
Legislative References: 225.1, 199, 209, 123(1), 259
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