GST/HST on Donations to Charities
The GST/HST does not apply to a donation if the donor does not receive anything in return. However, if the donor receives property or services in exchange for the donation, even if the value of the donation exceeds the value of the offered property or services, the GST/HST generally applies on the full value of the donation. (A number of exceptions to this treatment apply, including where the service or property offered by the charity relates to a special fundraising event, such as a gala dinner, annual cookie sale or charity auction, or where the charity provides the donor goods that were previously gifted to the charity. Such supplies are exempt from GST/HST. In addition, a charity that qualifies as a “small supplier” (e.g., makes under $50,000 of taxable sales annually) is not required to collect GST/HST.)
Special rules are provided under the Income Tax Act to deal with transactions where property or services are supplied in exchange for or in recognition of a donation to a charity. Under the Income Tax Act “split-receipting” rules, where a charity encourages or recognizes a donation by supplying property or services in exchange, the charity generally may issue a donation receipt for the amount paid by the donor less the value of any property or service that the donor receives. Consequently, such donations are treated less favourably under the GST/HST than under the Income Tax Act.
To bring the GST/HST treatment of this type of exchange into line with the treatment under the Income Tax Act split-receipting rules, Budget 2016 proposes a relieving change to provide that when a charity supplies property or services in exchange for a donation and when an income tax receipt may be issued for a portion of the donation, only the value of the property or services supplied will be subject to GST/HST. The proposal will apply to supplies that are not already exempt from GST/HST. It will ensure that the portion of the donation that exceeds the value of the property or services supplied is not subject to the GST/HST.
This measure will apply to supplies made after Budget Day.
In addition, where a charity did not collect GST/HST on the full value of donations made in exchange for an inducement, for supplies made between December 21, 2002 (when the income tax split-receipting rules came into effect) and Budget Day, the following transitional relief will be provided:
- If GST/HST was charged on only the value of the inducement, consistent with the income tax split-receipting rules, or if the value of the inducement was less than $500, the donors’ and charities’ GST/HST obligations will effectively be satisfied, resulting in no further GST/HST owing.
- In other cases, the charity will be required to remit GST/HST on the value of the inducement only (i.e., the relieving split-receipting rules will apply).
Source: Government Budget Document
The Minister of Finance tabled the Government’s 2016 Federal Budget on March 22, 2016. There are few tax measures in Budget 2016 that impact registered charities, which are highlighted below, and none for non-profit organizations (NPOs).
- Investments by Registered Charities in Limited Partnerships: Budget 2016 confirms the Government’s intention to proceed with the measure announced in Budget 2015 which allows registered charities to acquire or hold passive investments in limited partnerships.
- Donations Involving Private Company Shares or Real Estate: Budget 2016 announces the Government’s intention not to proceed with the measure announced in Budget 2015 that would provide an exemption from capital gains tax for certain dispositions of private company shares or real estate where cash proceeds from the disposition are donated to a registered charity within 30 days. The removal of this capital gains exemption will come as a disappointment for some in the charitable sector.
- GST/HST on Donations to Charities: In addition to the exemptions available for many goods and services provided by charities, Budget 2016 proposes a relieving change to provide that when a charity supplies property or services in exchange for a donation and when an income tax receipt may be issued for a portion of the donation, only the value of the property or services supplied will be subject to GST/HST. The proposal will ensure that the portion of the donation that exceeds the value of the property or services supplied is not subject to GST/HST. It also brings the GST/HST treatment of this type of exchange into line with the split-receipting rules under the Income Tax Act.
- Political Activities: Budget 2016 also confirms the Government’s commitment to review and clarify the rules governing political activities of charities. The Canada Revenue Agency, in consultation with the Department of Finance, will engage with charities through discussions with stakeholder groups and an online consultation.
Source: BLG Commentary