Deregistered Charities Face GST/HST Issues
When I say "deregistered charities", I am referring to deregistration as a charity and not deregistration for GST/HST purposes. If a charity that was a registered charity is deregistered as a charity (no longer considered to be a charity by the Canada Revenue Agency (CRA)), that entity will face a number of assessments, including GST/HST, if they do not make changes.
If an entity is deregistered as a charity, it would have to determine if the supplies made by it are exempt or taxable for GST/HST purposes. Many supplies made by charities are exempt pursuant to Part V.1 of Schedule V to the Excise Tax Act (Canada). A key pre-condition to the exemption may not be satisfied after deregistration. If the exemption is no longer available and the entity does not change its invoicing (charging) practices, it may be assessed for failure to collect GST/HST.
If supplies become taxable (when a charity no longer makes exempt supplies), the entity must determine if they may claim input tax credits paid by it on business inputs. The accountants and book-keepers will have to undertake a careful review. If the entity does not claim input tax credits, it may lose its opportunity.
If an entity is deregistered as a charity, it would no longer be entitled to claim public service body rebates to recover otherwise unrecoverable GST/HST paid on business inputs. Charities may claim a public service body rebate of 50% of the GST portion. Depending on the province(s) in which a charity operates, the charity may claim another rebate for the PVAT (provincial) component. If the charity is deregistered, a key pre-condition of entitlement will no longer apply. If the entity does not change the way it completes its GST/HST return, it may be assessed to draw back rebates improperly claimed.
There are many other changes that may be experienced by specific charities. For example, certain charities take advantage of the election in section 211 of the Excise Tax Act (Canada) and that benefit would no longer be available. Certain volunteer reimbursements and allowance rules would not longer be available. Certain charities could deregister for GST/HST if they are below the small supplier threshold for charities.
If the CRA is talking about deregistration of an entity as a charity, that entity needs to address the issues in that discussion. If they ignore the CRA during the deregistration process and do not take steps to revisit all elements of charging GST/HST and taking advantage of entitlements, there may be costly assessments against the former charity and/or the directors of the charity.
Cyndee Todgham Cherniak is the founding lawyer of LexSage, a boutique international trade law and sales tax firm in Toronto,
