CharityVillage NewsWeek Archives: Cover Stories

News & Events

Path: Main Street : NewsWeek : Archive : Cover Stories : Article

This is an archive of CharityVillage NewsWeek. To find a word on the page, use your browser's "find" feature (CTRL-F or CMD-F).
To view other articles in the archive, use our Chronological Index.

Please note: While we ensure that all links and e-mail addresses are accurate at their publishing date, the quick-changing nature of the web means that some links to other web sites and e-mail addresses may no longer be accurate.

The GST reduction: How will it affect nonprofits?
June 19, 2006
By Andy Levy-Ajzenkopf

On July 1, 2006, Canadian taxpayers will presumably rejoice as the federal government reduces the GST/HST rate by one percentage point to 6% from 7% (14% from 15% for those paying HST). To paraphrase the Conservative party's philosophy about this move: Canadian citizens deserve to keep more of their hard-earned money where it's most useful, in their own pockets. While economic pundits debate the wisdom of this move, the fact remains that it will happen and it will affect everyone, including the voluntary sector. But ask someone who works in the nonprofit community about the impending change and more often than not what you hear is a tepid response.
Understanding the reduction
Susan Mullin, CFRE, is director of development for the York University Foundation and chair of government relations for the Association of Fundraising Professionals (AFP) Canada Council and AFP Greater Toronto chapter. "It's short-term administrative pain for some long-term gain, but not a whole lot," she says.
In a nutshell, here's how the new GST rate will affect any business or organization that claims GST. Any expense claimed, supplies made available, or invoice submitted prior to the July 1st changeover is taxable at the former 7% (15% HST) rate. Anything done afterward is taxable at the reduced 6% (14% HST) rate. Simple. As background information, the Canada Revenue Agency (CRA) web site reminds nonprofits that, "supplies made by registered charities are generally exempt from the GST/HST. The existing rebate rate of 50% used by charities to calculate rebates (aka: the GST/HST public service bodies' rebate) of the otherwise unrecoverable GST and federal portion of the HST paid on the inputs used to provide exempt supplies will not change."
In the case of charities, it's best if organizations consult their accountants about what they can or cannot claim, as the CRA rules are complex and there are various classes of public service bodies, of which some qualify as charities, that are eligible for rebates in excess of the 50% rule. The layman trying to read through these rules on his own is in for a bit of a headache. Needless to say, the budget contains many exemptions and rules for taxation, all of which can be found under the Budget 2006 Q&A header on the CRA website.
Keeping it simple
In essence, the GST rate reduction will help charities by reducing the tax they pay with respect to their purchases of inputs used in providing exempt supplies. And taxable supplies made by charities will result in their having to charge a lower rate of tax on those supplies. It sounds complicated, but in reality, there's not much to it.
"The folks who pay the bills and view the expenses and monthly statements are the ones who really need to get involved," says Mullin. "Because most [charities] are strapped for infrastructure and operating dollars, the challenge is making sure they have the internal resources to implement this change to their administrative systems. At the end of the day there will be some savings...but because they're already getting half the GST back for their purchases, the reduction won't have that dramatic an impact." Others are just as nonplussed about it.
Plan accordingly
Ashfaq Ahmed is a Toronto chartered accountant who believes charities won't feel much effect either way with this new legislation. "It won't have the same effect as it would have on a [for-profit] business," he says. "The only possibility of any tax planning is to postpone your income to July 1 or after, therefore collecting less GST, and incur all possible business expenses, as much as possible, before July 1 therefore paying 1% more GST." This would allow charities to claim expenses at a higher tax rate before the change. But the savings would be marginal at best according to some.
Malcolm Burrows is a financial consultant in the Charities and Gift Planning division of Scotia Private Client Group and chair of the Government Relations Committee of the Canadian Association of Gift Planners (CAGP). He echoes Mullin's opinion about the reduction. "It will mean a .5% reduction in GST for charities, as they already pay half the normal rate if they remember to file for the exemption," he says. "It's nice, but negligible to most charities." Still, every little bit helps in a sector where assets are at a premium. That is why Burrows urges that charities pay attention to what they can do to minimize a dollar-drain on their organizations.
"The greater risk for most charities is not filing for the rebate; that 50% of the GST, which is much more significant," he states. "Many charities don't do it because of lack of awareness." Charities interested in finding out whether they qualify for this rebate can download the GST/HST Information for Charities document in PDF format from the CRA web site.
Gaining where you can
At the Children's Wish Foundation (CWF), national executive director Chris Kotsopoulos sees some potential gain for his charity. "The direct impact would be on the operating expenses of the CWF," he says. "At the end of the day, this reduction will be positive for us as there will be less money going out for operational expenses." Accountants who work with the voluntary sector agree that this is where charities stand to gain the most. Deanne Metzloff is a chartered accountant who works with charities and nonprofits in Atwood, Ontario. "Many nonprofits that do not receive a significant amount of government funding are not eligible for any sort of rebate or refund of GST paid out, and these organizations will benefit the most from the reduction," she says. Metzloff also advises nonprofit organizations to prepare their administrative systems for the change.
"Organizations will need to change the settings in their accounting software to reflect the reduction in GST calculated when entering operating expenses to track the rebatable portion of GST," she says. " Charities and nonprofits that are registered to collect GST will also need to ensure that their cash registers are set properly as of July 1st to make the change." Sound advice.
Get ready for July
The bottom line seems to be that charities and nonprofits would do well to address the GST rate drop in the way that seems best to the particular organization. They should have a look at the relevant government information, consult with an accountant and accept whatever meagre savings come their way. After all, in the voluntary sector, a little is a lot.

Andy Levy-Ajzenkopf is president of WordLaunch professional writing services in Toronto. He can be reached at andy@wordlaunch.com