The HST regime provides rebates of the 5% Federal portion and the 8% Ontario portion of HST paid by the Public Service Body.  The amount of rebate depends on the type of Public Service Body as follows:

A qualifying non-profit organization is defined in the Excise Tax Act ("the Act") for the purpose of the rebate as a non-profit organization and the percentage of government funding of the person for the year is at least 40%. 

Although this appears to be straight forward on the face, there are some nuances to this definition. Non-profit organizations should ensure that they do not disqualify themselves from claiming the rebate without understanding the details of the qualification.   The rebates can be an important source of cash flow for an NPO, so organizations should be sure to understand the rules for qualification to ensure they do not miss out on the rebates.

Calculating the Percentage of Government Funding

The term "percentage of government funding" is actually a defined term in the Act and is defined as a percentage determined in prescribed manner, as defined by the Public Service Body Rebate Regulations, which is summarized as follows:

                                                                      A                 x 100
                                                           A + B + C – D

A – the total of government funding received or receivable in the year, net of any repayments or amounts receivable in the prior year which were not received in the year.

B – the total of all monetary gift other than government funding received in the year, as well as certain other specified amounts such as financial instrument, real or capital property and other specified items.

C – the total of other income such as interest, dividends, distributions from a trust and other like amounts

D – the total of 25% of the total for B in the formula and 100% of any repayment of amounts included in B and C

The amount determined by the formula may be significantly different than the amount that might otherwise be determined from an ordinary calculation from an organizations financial statements since:   

• the factor D in the calculation subtracts 25% of all monetary gifts, effectively including only ¾ of monetary gift received in the calculation

• the factor A includes government funding received or receivable, where the other factors typically (but not exclusively) use a received basis, which may be different from the financial statement reporting which generally uses an accrual basis or cash basis to recognize all items

And finally, the calculation is a greater of three possible amounts. The first is the formula calculated based on the current year information. The second is, where is it second year of the organization, the prior fiscal year of the organization. And the third is, where the organization has been operating for more than two years, the formula calculated with the totals of the two immediate preceding fiscal periods.

Therefore an NPO which may not qualify in the current period may qualify by virtue of the prior periods. 

Form GST523-1 Non-Profit Organizations – Government Funding must be completed in order to claim the PSB GST Rebate. This form contains an abbreviated form of this calculation. 

Understanding government funding

And of course, the term "government funding" is a prescribed term. This includes amounts received by a government or municipality, a corporation controlled by a government or municipality, a trust, board or commission established by a government, municipality or government controlled corporation and an Indian band.

Further, government funding includes an amount received by an intermediary, which received government funding. Amounts received by an NPO by another NPO or foundation could be considered government funding, although it may not appear to be so on the face. The NPO should obtain form GST322 from the intermediary which certifies the amount of government funds flowing through the intermediary to the NPO.