October 2017
The ins and outs of the simplified net tax calculation for charities
Daryl Hooley, MBA, CPA, CGA, is a senior manager, indirect tax, in the Toronto office of Collins Barrow Serene Lee is an associate, indirect tax, in the Toronto office of Collins Barrow
Canada has more than 170,000 charitable and not-for-profit organizations, 85,000 of which are registered with the Canada Revenue Agency (CRA). For these registered charities, their supply of property and services is often exempt from GST/HST. Charities that also make taxable supplies of property and services are required to collect GST/HST on those supplies where they are GST/HST registrants (i.e. not small suppliers or small suppliers that have chosen to voluntarily register for GST/HST purposes). Charities are required to pay GST/HST on their taxable inputs acquired to operate their organizations. However, unlike other registrants, charities are restricted in the input tax credits (ITCs) they may claim as they are required to use the simplified net tax calculation (SNTC) to determine their net tax. While the SNTC is generally mandatory, there are circumstances in which a charity may elect not to use this method. This Tax Alert focuses on the conditions for opting out and analyzes the benefits and drawbacks of doing so.
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Collins Barrow periodically publishes Indirect Tax Flash for its clients and associates. It is designed to highlight and summarize the continually changing tax and business scene across Canada with respect to indirect tax issues. While Indirect Tax Flash may suggest general planning ideas, we recommend professional advice always be sought before taking specific planning steps.