“The hardest thing to understand in the world is the income tax” - Albert Einstein.
You’re not alone if you feel that the taxation system is complex. You’re in good company. Fortunately, I don’t intend to examine the complex Canadian Income Tax Act or Canadian Excise Tax Act (“Excise Act”) in this article.
This article is focused on the Public Service Body Rebate (GST/HST) Regulations (“PSB Rebate”) within the Excise Act. The purpose of this article is to provide some basic understanding about the PSB Rebate and its related compliance requirements/issues; however, the discussion is without any technical confusing tax jargons, everything is laid out in simple plain English.
Interestingly, the PSB Rebate is often overlooked or misunderstood by charities and qualifying non-profit organizations (collectively, “Organizations” for this article). This results in leaving money on the table and a lost opportunity to get additional cash to support valuable social mandates.
The PSB Rebate is available on the Goods and Services Tax (“GST”) or the federal part of the Harmonized Sales Tax (“HST”) paid or payable on eligible purchases and expenses. In addition, the provincial part of the HST for residents in participating provinces (like Ontario) is eligible for a PSB Rebate as well.
In Canada, there are over 170,000 charitable and non-profit organizations and approximately 85,000 of these are registered charities with Canada Revenue Agency(1). The majority of these organizations would likely qualify for a PSB Rebate. It’s important to note that GST/HST registration is not required for a PSB Rebate claim.
What’s PSB Rebate?
Subject to certain exceptions, PSB Rebate can be claimed on eligible purchases and expenses(2), for which no Input Tax Credits (“ITCs”) are claimed or any other rebate, refund or remission. Normally, eligible purchases and expenses include, but are not limited to, general operating expenses (i.e. rent, utilities, and administration expenses) and property and services used, consumed or supplied in Organizations’ exempt activities.
In Ontario, for charities and qualified non-profit organizations, a PSB Rebate for the federal and provincial portion is 50% and 82%, respectively.
What’s the timing of filing a PSB Rebate?
GST/HST registrants can complete one rebate application for each reporting period with an option to file electronically, subject to certain conditions. For non-GST/HST registrants, there are two claim periods based on an Organization’s fiscal year - for the first six months and the last six months, with an electronic filing option. PSB Rebate on eligible purchases and expenses may be claimed in the rebate application for a subsequent claim period, subject to certain conditions and time period restrictions (notable, claim period ends after September 7, 2017, and within two years or two years and three months for GST/HST registrants and GST/HST non-registrants, respectively).
Is There an Option to Catch-Up on Claims?
Yes. GST/HST registrants have up to four years from the due date of GST/ HST return for the claim period in which the expense is incurred. A non- GST/HST registrant has up to four years from the last day of the claim period in which the expense is incurred.
It’s important to note the difference between four years to file a claim versus conditions and time period restrictions to claim a rebate after an eligible expense is paid or becomes payable (discussed above).
Supporting Documents should be Accurate and Complete Prior to Filing the PSB Rebate Form
The Organization should separately track with the appropriate level of details the federal and provincial parts of the HST paid or payable for eligible purchases and expenses to claim both the federal and the provincial parts for a PSB Rebate. Generally, from a CRA stand-point, failure to keep adequate books and records (for any other filings) may result in the suspension of a registered charity's tax receipting privileges, or the loss of its registered status.
In my experience, the lack of proper record keeping in one area, may (not always) point to a broader issue within the accounting, bookkeeping and tax function that may potentially result in errors and inaccuracies in financial statements and financial information prepared and reported to donors and various stakeholders.
Are you ready to put your PSB Rebate Claim now?
As always, the discussion above is generic in nature - I expect readers to connect with a qualified professional to discuss the tax implication based on their circumstances.
Mayur Gadhia, CPA, CA is the Founder of CloudAct CPA Professional Corporation, a professional services firm providing taxation, accounting, and business advisory services. Mayur can be reach at firstname.lastname@example.org."
1 Source Imagine Canada - http://sectorsource.ca/research-and-impact/sector-impact
2 Eligible purchases and expenses are defined in CRA’s RC 4034 - GST/HST Public Service Bodies’ Rebate.