GST/HST Information for Not-for-Profit Organizations
This article summarizes some important details on the goods and services tax/harmonized sales tax (GST/HST) and how it applies to certain parts of a not-for-profit organization’s (NPO) operations.
Fundraising events are a great way to promote organizational programs or projects while also raising funds for those programs. Sales of goods (except alcohol or tobacco) at fundraising events are exempt from GST/HST when your entity is not in the business of selling the goods you are selling at the fundraiser, all the salespeople are volunteers, the sale price of the items are $5 or less, and the goods are not sold at an event where similar goods are sold by persons in the business of selling such goods. For example, selling chocolate bars door-to-door for a youth sports team, for some price under $5, would be exempt from GST/HST.
The GST/HST is exempt from membership fees and recreational pursuits (supervised instructional classes or activities involving athletics, outdoor recreation, music, dance, crafts, arts, hobbies, or other related recreational activities) operated by not-for-profit organizations if services are:
- Provided primarily to children 14 years of age or under, and it does not involve overnight supervision throughout a large part of the program; or
- Provided primarily to individuals who are underprivileged or who have a disability.
GST/HST does not apply to donations and gifts, which are defined as a voluntary transfer of money or property for which the donor receives no benefit in return, even if the donor receives nominal property such as a pin or key ring in thanks for their donation. However, if a benefit of more than nominal value is received in exchange for the donation or gift, the payment may be subject to the GST/HST, unless the property or service is an exempt or zero-rated supply.
Not-for-profit organizations are often sponsored by businesses, and in return, may promote the business or allow the business to use their trademarks, logo, or other intellectual property.
However, if the payment from the sponsor is primarily (greater than 50%) for promotional or advertising purposes through television, radio, newspaper, magazines, or another periodically issued publication, this is considered a payment received for advertising purposes, as opposed to sponsorship. Advertising services are subject to the GST/HST. The 50% test is applied to these situations. This means that the sponsorship will be analyzed to see if 50% or more of the sponsorship amount is actually returned as a benefit through the value received in ‘free’ advertising. If the sponsorship will be communicated in any of the aforementioned media, a separate analysis should be performed.
Grants & Subsidies
Not-for-profit organizations may receive transfer payments, which include grants, contributions, subsidies, and similar payments. These types of payment are not subject to the GST/HST if made in the public’s interest or for not-for-profit purposes, as they are not regarded as payment for a supply. In other words, there must be no direct link between a payment received and supply provided to the grantor or specified third party, otherwise, the transfer payment may be subject to GST/HST.
Receiving donations, sponsorships, grants, and subsidies do not affect your not-for-profit organization’s entitlement to the GST/HST rebates or Input Tax Credits (ITCs). For more information, see Public service bodies’ rebate.
For more information, visit the Government of Canada’s website. If you have any questions or concerns, myself and the NPO Team at RLB will be happy to assist you! Contact us at 1-866-822-9992.
Brenden Bellai, CPA, CA is a manager at RLB Chartered Professional Accountants. Brenden specializes in not-for-profit and charitable organizations. Brenden can be reached at 519-822-9933 x299 or via email at firstname.lastname@example.org