Section 225.1

Subsection 225.1(2)

Administrative Policy

RC4082 "GST/HST Information for Charities," p. 14

Summary of s. 225.1(2) computation

To calculate your net tax remittance for a reporting period using the net tax calculation for charities, follow these steps:

Step 1 - Determine the total of:

  • 60% of the GST/HST you charged, whether you have collected it or not, on most taxable supplies;
  • all of the GST/HST you charged on taxable sales of capital and real property, including deemed taxable sales of capital and real property;
  • all of the GST/HST deemed collected on property or services you appropriated to, or for the benefit of, a member or relative of a member of the charity (for example, an inventory item or other asset you gave to this person);
  • all of the GST/HST deemed collected on any property or service you provided to an employee that is a taxable benefit for income tax purposes;
  • all of the GST/HST collected or collectible on supplies of goods you made as acting as an agent, or auctioneer and agent where you have to account for the tax;
  • all of the GST/HST collected from a person by mistake;
  • all amounts you have to consider as GST/HST because of the recovery of a bad debt for a taxable sale of real property or capital property;
  • the total GST/HST adjustments for the reporting period on acquisitions of real property or capital property for which you previously claimed ITCs; and
  • if you received approval from the Canada Revenue Agency to temporarily stop filing GST/HST returns for specific reporting periods in which you had $1,000 or less of net GST/HST to report, add any amount you carried forward from those periods.

Enter this total on line 105 if you are filing your return electronically or on line 103 if you are filing a paper GST/HST return.

Step 2 - Determine the total of:

  • all ITCs you are claiming for purchases of, or improvements to, real property and capital property for use more than 50% in commercial activities, including the deemed tax payable when capital property is brought into a participating province to use in your commercial activities;
  • any ITC on your acquisition of, or improvement to, real property based on its percentage of use in your commercial activity (must be more than 10%) and for which you 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 you acquired the property;
  • any ITC equal to the basic tax content of real property just before an election (Form GST26) filed by you takes effect to treat that property as a taxable supply and any ITC on the deemed purchase of that property based on its percentage of use in your commercial activity (must be more than 10%), where the election takes effect on a day other than the day you acquired the property or became a registrant;
  • all ITCs for goods you bought, imported or brought into a participating province that are sold by an agent or an auctioneer acting as your agent;
  • all ITCs for goods you imported on behalf of a non-resident for use exclusively in your commercial activities and sold when you are 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, for short-term accommodation in tour packages, 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 a the charity may claim this amount by filing Form GST189, General Application for Rebate of the GST/HST, using code 23).
  • all amounts for GST/HST adjustments you gave for tax charged in excess of the GST/HST collectible on certain supplies of property and services;
  • all GST/HST adjustments you gave for tax collected in error or bad debts you wrote off during the period for the sale of real property or capital property;
  • all GST/HST adjustments for new housing rebates you credited during the period; and
  • all ITCs that you were entitled to claim and that you carried forward from a reporting period when you did not have to use this net tax calculation for charities.

RC4082 "GST/HST Information for Charities" Rev. 13

Example

You are a charity resident in Alberta, and you are registered for the GST/HST. You operate an art gallery and use the net tax calculation for charities. Your main revenue is taxable gallery admissions.

During your reporting period, you earned revenues from exempt supplies of parking and admissions to a fund-raising dinner. In addition, you purchased computer equipment for use more than 50% in your commercial activities. You also purchased and installed a ventilation system in a building that you own and use more than 50% in commercial activities.

Your taxable revenues and expenses are as follows:

Taxable revenues:
Gallery admissions $20,000
Sales from gift shop $5,000
Total $25,000
GST collected ($25,000 × 5%) $1,250
Taxable purchases:
Contracted services (maintenance) $3,000
Utilities $1,500
Ventilation system $9,200
Computer equipment $2,000
Gift shop inventory purchases $2,500
Catering services for fundraising dinner $3,500
Total $21,700
GST paid on purchases ($21,700 × 5%) $1,085
Net tax calculation
Step 1

Enter $750 on line 105 of your GST/HST return (60% of the $1,250 GST collected).

Step 2

You can claim ITCs for the GST you paid for the ventilation system (improvement to real property) and for the computer equipment (capital property purchase) that you intend to use more than 50% in your commercial activities.

ITC 5% × ($9,200 + $2,000) = $560

Step 3

The amount you calculate in Step 1 less the amount you calculated in Step 2 equals your net tax before any rebates.

Net tax $750 – $560 = $190

Enter this amount on line 109.

You would also be entitled to claim a PSB rebate of the remaining GST/HST paid. For more information, see Rebate information for charities that are GST/HST registrants.

B

Administrative Policy

13 December 2017 Interpretation 187306

s. 16.1 election does not cause a leased property to be a capital property

Under the net tax calculation for charities under s. 225.1, the charity is only eligible to claim ITCs for the GST/HST paid or payable in certain circumstances, such as when personal property is acquired, imported, or brought into a participating province by the charity primarily for use as capital property in a commercial activity of the charity. Would an election made under subsection 16.1(1) of the ITA in respect of leased property also result in that property being treated as capital property of the lessee for GST/HST purposes? CRA responded:

In general, in order for property to have been acquired by a person, there must have been a sale of the property to the person. … If there is no transfer of ownership of a particular property, we do not consider a supplier to have sold, and a recipient to have purchased, the property. …

Accordingly, property leased from a lessor is generally not considered to have been acquired for income tax purposes and, as such, is not treated as capital property for purposes of the ITA or, by extension, the ETA.

…[T]he deeming provisions under that subsection [16.1(1)] apply only for specific purposes of the ITA (for example, claiming capital cost allowance) and do not extend to the definition of capital property in subsection 123(1) of the ETA. Therefore, property leased from a third party will not be considered to be capital property for GST/HST purposes, regardless of whether the lessee and the lessor have made an election under subsection 16.1(1) … .

CRA noted the general principle in this regard that generally a registrant is not considered to have acquired property for ITC purposes unless ownership of the property has been transferred to it.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1) acquisition of property entails ownership transfer 120
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Capital Property s. 16.1 election did not deem leased property to be capital property 50