31 May 2002 GST/HST Interpretation 36713 - Calculation of GST for a Charity Applying for Designated Status Pursuant to Section 178.7 of the ETA

Dear XXXXX:

Thank you for your facsimile of June 4, 2001, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a charity that has been designated pursuant to section 178.7 of the Excise Tax Act (ETA). We apologize for the delay in our response.

We understand that some of your clients are charities that qualify for designated charity status. These charities currently make both taxable and exempt supplies.

Interpretation Requested

If a charity is designated pursuant to section 178.7 of the ETA so that any specified services it supplies become taxable, can it continue to use the net tax calculation method for its other taxable sales or does it have to opt out of the net tax calculation entirely?

Interpretation Given

Generally, charities must use the net tax calculation method, as described in section 225.1 of the ETA, when calculating and reporting their net tax. However, pursuant to subsection 225.1(11), these rules do not apply to charities that are designated under section 178.7. Any charity that becomes designated under section 178.7 of the ETA must use the regular method to calculate and report its net tax. This applies to all the operations of a designated charity, not just those specified services that have become taxable due to the designation.

Thus, using the example you gave in your letter, a designated charity would have to report the full amount of GST on its sales of furniture and on its supplies of maintenance and janitorial services to registrants. It would, however, be able to claim input tax credits (ITC) for the GST paid or payable on expenses connected to its taxable activities.

A charity that has been designated under section 178.7 can, however, if it so wishes, elect under section 227 of the ETA to use a different streamlined accounting method, the Special Quick Method. It would do this by filing form GST 287, Public Service Bodies' Election for Special Quick Method of Accounting.

Under this method, a charity would remit 5% of the tax-included value for most taxable sales (excluding zero-rated sales); it must still remit the full 7% GST on each sale of capital property or eligible property with a fair market value of $10,000 or more, or real property that was used primarily (more than 50%) for taxable activities immediately prior to the sale. The charity would not claim any ITCs except for on purchases of capital property or eligible capital property of at least $10,000 value, or on purchases of real property that is to be used primarily for taxable activities. The charity would claim the 50% public service bodies' rebate for eligible purchases and expenses for which it cannot claim ITCs.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, 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/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency 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) 952-9592.

Yours truly,

Helena Ingr
Charities, NPOs and Educational Services Unit
PSBs and Governments Division
Excise and GST/HST Rulings Directorate