On April 19, 2010 the Ontario Ministry of Revenue issued Tax Tip #5 "Public Service Bodies" to give guidance to public service bodies about how harmonized sales tax implementation will affect them. It is important to note that the document itself says it was issued in "April 2010", which is technically correct - but it may be misleading in 2 years or more when an auditor wishes to use this document against a PSB in the context of an audit. I am looking into my crystal ball and see an auditor telling a PSB that they had an entire month before the May 1, 2010 transition rule date to read the document.
This tax tip is for PSBs, which includes charities, municipalities, universities, public colleges, school authorities, hospital authorities and non-profit organizations. These entities provide exempt supplies (at least in part) and are not entitled to claim full input tax credits to recover goods and services tax (GST) and harmonized sales tax (to the extent that it is applicable on their purchases). That being said, these entities may be entitled to claim certain public service body rebates:
|Type of PSB||Federal Rebate Percentage (of GST)||Ontario Rebate Percentage (of HST)|
|Universities and Public Colleges established and operated on a non-profit basis||67%||93%|
|School Authorities established and operated on a non-profit basis||68%||93%|
|Hospital Authorities (only for activities of operating a public hospital), Hospitals (for eligible activities other than the operations of a public hospital) and facility operators and external providers (for eligible activities)||83%||87%|
|Charities and Qualifying Non-profit Organizations||50%||82%|
It is important to note that the provincial rebate percentage in other provinces in the HST Zone (e.g., British Columbia) are different.
What this chart means is that if a charity makes a purchase for $100, it will pay $5 in GST and $8 in HST. The charity is entitled to a PSB rebate of $2.50 of the GST and $6.56 of the HST. The charity does not recover $3.94, which is an unrecoverable expense. When the charity completes its GST/HST return, it must claim the rebate amounts and fill out all the necessary paperwork to recover the $2.50 and $6.56. While recovery of otherwise unrecoverable amounts is good - there are administrative costs that need to be acknowledged (for which compensation is not available).
Tax Tip #5 covers the mere basics regarding (1) registration (including the small supplier threshold), (2) charging HST, (3) self-assessment (including the transition period between October 14, 2009 and May 1, 2010 - but does not give much assistance), (4) rebates, (5) quick method accounting, (6) special net tax calculation for charities, etc.
Tax Tip #5 is a missed opportunity for the Government of Ontario to provide useful and helpful examples to PSBs in Ontario to help them comply (get it right). PSBs are involved in the provision of key and critical services to Ontarians (such as patients in hospitals, low income families and children who rely heavily on charities, children and the next generation who are being educated in schools, colleges and universities, etc.). This is the group of supplier who does not have resources to spend on hiring legal advisors and consultants to assist with important compliance matters. This is the group that can least afford a costly audit or assessment in 1, 2, 3, 4 years plus interest and penalties. This is a group that is affected by transition rules placing self-assessment obligations going back to October 14, 2009.
I would have liked to have seen a number of examples that would provide guidance. The Ontario Government should have dealt with various typical scenarios. For example, the Ontario Government should have covered various scenarios where municipalities had entered into annual contracts for goods and/or services.
My example #1: A charity enters into an annual lump sum contract on January 1, 2010 for the commercial rent relating to real property located in the Province of Ontario. The annual rent is $12,000 (12 installments of $1,000 per month). The amount is paid in January 2010 to the landlord. The landlord collects GST, but does not charge and collect HST. The charity must self assess HST in the amount of $480 ($6,000 x 8%) and remit the HST with its GST/HST return for the period including July 1, 2010.
In the future, we will provide additional examples on The HST Blog over time - please sign up and watch for the additional examples.