Learn how the federal GST applies to non-profit housing operations.
On April 1, 2013, British Columbia replaced the Harmonized Sales Tax (HST) with the Goods and Services Tax (GST) and Provincial Sales Tax (PST). The GST is five per cent and the PST is seven per cent, for a total tax of 12 per cent on eligible goods and services.
GST Guide for Non-Profit Housing Providers
BC Housing has prepared a GST Guide to help non-profit, co-op and charitable housing providers understand how the federal GST applies to non-profit housing operations. We also offer a GST Calculation Worksheet to assist you.
Some housing providers may also provide a variety of other services in the community. How the GST applies to these services is beyond the scope of this Guide, although the basic concepts outlined may apply to other operations as well.
Please note that while this Guide provides general guidelines, we cannot guarantee housing providers will correctly apply the GST to their operations as a result. This Guide is based on the legislation (proposed and enacted) and administrative interpretation available as of July 31, 2012. All of the information contained in this guide is subject to change.
You cannot register for the GST if you do not provide any taxable goods and services. For example, if you only provide residential accommodation for periods of a month or more, you cannot register, as this service is GST exempt.
Conversely, if you are registered because you previously provided taxable goods and services, and anticipate doing so again in future, you are not required to deregister.
Does the GST apply to me?
As a housing provider, you must consider three parts of the GST:
- Collecting the tax
- Paying the tax
- Recovering the tax
If your organization's annual revenues from taxable goods and services are above these thresholds, you must register for the GST. Charities with less than $250,000 per year in revenues are an exception and can opt not to register. Your registered organization must charge GST on any taxable goods and services you provide, regardless of the amount of revenues received from such activities. Refer to the GST Guide for Non-Profit Housing Providers for more information on registering for GST.
- Collecting GST – You may have to register for the GST if you provide taxable goods and services, such as commercial leases. Registration is voluntary if your annual revenues from taxable goods and services are less than:
- $50,000 for charities and non-profits
- $30,000 for all other organizations
- Paying GST – Generally, GST applies to most property and services acquired by housing providers. Being a charitable or non-profit housing provider does not provide an exemption from the tax. However, some groups or organizations, such as certain provincial and territorial governments and First Nations, do not always pay GST on their purchases.
- Recovering GST –You can recover the GST in one of two ways: claiming input tax credits and claiming rebates. You can only claim input tax credits to recover the GST paid to acquire taxable goods and services if your organization is registered for the GST. When input tax credits cannot be claimed, either because your organization is not registered or because costs incurred relate to exempt activities, your organization may qualify to claim partial rebates of the GST you pay.
Your organization does not have to be registered for the GST in order to claim rebates. However, if you are not registered, you can only claim rebates semi-annually or annually. If registered, you simply file rebate claims based on your GST reporting period (such as monthly, quarterly or annually). If you file quarterly or annually and are registered, you can elect to file monthly to recover the GST you paid more quickly.
BC Housing requires you to register for the GST as soon as you initiate a new housing project because registering allows you to claim input tax credits for a refund of the GST you pay on construction costs.
For GST purposes, you have charity status only if you are a registered charity, with a registration number issued by the Canada Revenue Agency.
Charities are eligible to claim a 50 per cent rebate of the GST paid on purchases, regardless of whether you are registered or not, when the GST cannot be recovered through input tax credits or larger municipal rebates.
Under GST legislation, the Canada Revenue Agency may grant municipal status to a housing provider who provides rent-geared-to-income housing. This status allows you to claim a rebate of 100 per cent of the GST paid on expenses incurred in providing this housing. You must apply for municipality status, and the Canada Revenue Agency will determine whether your organization meets the criteria for municipal designation.
Qualifying non-profit organization
To be a qualifying non-profit organization, you must receive at least 40 per cent of your total revenues from government funding. A qualifying non-profit organization can claim a rebate of 50 per cent of the GST paid on purchases.
Refer to the GST Guide for Non-Profit Housing Providers for more information.
An input tax credit is a refund of the full amount of the GST you paid on a purchase. If you are registered for the GST, you can claim input tax credits to recover all the GST you pay on purchases related to any taxable goods and services you provide. If you are not registered, you cannot claim any input tax credits.
However, you may be eligible to claim a rebate on some of your purchases if you are a charity, a qualifying non-profit organization or have municipality status. The rebate is a percentage of the GST paid, depending on the status of the housing provider and the nature of the housing provided. You do not have to be registered in order to claim a rebate.
Refer to the GST Guide for Non-Profit Housing Providers for more information on input tax credits and rebates.
The following sources qualify as government funding:
- Federal, provincial or municipal governments
- A corporation controlled by the federal government, a provincial government or a municipality that funds charitable or non-profit endeavours as one of its main purposes
- A trust, board, commission or other body established by the federal government, a provincial government or a municipality that funds charitable or non-profit endeavours as one of its main purposes
- A First Nation, as defined by federal legislation
Consequently, funding from BC Housing, Canada Mortgage and Housing Corporation, a regional health authority or a provincial ministry qualifies as a source of government funding. You must obtain a certificate from a health authority certifying that the payments are government funding.
In the current climate of limited budgets and resources, the amount you recover could be significant to your organization.
If the amount of the rebate does not justify spending considerable time recording the GST transaction by transaction, you can use a simplified approach to save time. Simply add up all the GST paid during your reporting period from your invoices and claim the rebate at the appropriate rate on that amount. If you are not registered, you can file the rebate claim once a year.
If you are entitled to a rebate or an input tax credit, deduct the amount of the rebate or input tax credit from your total purchase cost, and record it as an asset (input tax credit or rebate receivable) on the balance sheet. The amount you record under operating expenses should be the net cost to you.
For example, if you are entitled to claim an input tax credit:
- Your total purchase is $105.
- $5 is the GST.
- Record $100 in operating expenses.
- Record $5 as a GST input tax credit receivable.
If you are entitled to claim a 50 per cent rebate:
- Record $102.50 in operating expenses.
- Record $2.50 as a GST rebate receivable.
The amount of GST you charge should not be recorded as part of your revenues. Record this amount as a payable (GST payable) on the balance sheet. For example:
- You have taxable revenues of $200.
- You must charge $10 in GST.
- You collect a total of $210.
- Record $10 as GST payable.
- Record the net $200 as revenue on the income statement.
Refer to the GST Guide for Non-Profit Housing Providers for more information on GST accounting.
Developing a new building or making a change in your current operations may affect your existing GST status. Consult your accountant or the Canada Revenue Agency about the impact on your status before embarking on any building projects or changes.
Let’s say you currently have municipality status for all of your rent-geared-to-income (RGI) units, and are converting some units to non-RGI units. Municipality status does not apply to these converted non-RGI units, so you would no longer be able to claim a municipal rebate on costs relating to the non-RGI units.
Your charitable status would not be an issue, as long as the purpose of a new building falls within the types of activities included in the purpose of the charity.
In addition, most charities must allocate donated funds in the year the donations are received. If donated funds are being used to finance a project and are a significant portion of the total annual funds you receive, you may have to obtain special permission from the Canada Revenue Agency to allow you to accumulate sufficient funds beyond that year to complete the project.
Funding sources for a new project must be reviewed by non-profit organizations to ensure you continue to meet the 40 per cent government funding test in order to claim a rebate as a qualifying non-profit organization.
Refer to the GST Guide for Non-Profit Housing Providers for more information on GST status.
The Canada Revenue Agency likely assumes your organization no longer has any taxable activities and no intent of engaging in taxable activities in future. If this assumption is accurate, then you are no longer required to be registered, and the Canada Revenue Agency can cancel your GST registration. However, the Canada Revenue Agency’s assumption may not be correct because:
- Your organization may be involved in taxable activities the CRA is not aware of.
- You may be planning some taxable activities in the foreseeable future, such as developing another social housing project, or you may have completed a building but have not yet claimed all the allowable input tax credits.
In these situations, you should remain registered.
During construction, it’s a good idea to file monthly so you can recover the GST you pay on building expenses as soon as possible. When the building is complete, you may opt to file less frequently.
You initially choose your filing period when you register for the GST. Later, you can change your GST reporting period by submitting a GST Form 20, Election for GST Reporting Period.
The change can only take effect at the beginning of your fiscal year. The election must be filed no later than two months after the day it is to take effect. For example, let’s assume you currently file annually using a calendar year, so your fiscal year starts January 1. You are planning to start a new housing project in April of the following year, with completion in October, and want to file monthly during construction:
- You must submit the election form by the end of February in the construction year (two months after your fiscal year starts).
- To return to annual filing the year after construction, you must submit another request by the end of February the following year.
Refer to the GST Guide for Non-Profit Housing Providers for more information on changing your GST filing frequency.
You cannot file a claim to recover the same GST as both an input tax credit and a rebate. However, there may be situations where you can claim part of the GST incurred on a particular expenditure as an input tax credit, and a portion or all of the balance as a rebate. For example:
- You are registered for the GST.
- You operate a four-storey facility where the bottom floor is commercial space and you collect GST on the rent, and the top three floors are residential.
- You incurred a $1,000 expense related to the whole facility with $50 GST.
- You would be entitled to claim an input tax credit for 25 per cent of the GST you paid, since the commercial space uses 25 per cent of the building area ($50 x 25% = $12.50).
- And you could claim either a:
- 50 per cent rebate, as a charity or qualifying non-profit, on the remaining GST: ($50 GST - $12.50 ITC = $37.50 x 50% rebate = $18. 75)
- 100 per cent rebate, if you have municipality status and you provide RGI units, on the remaining GST: ($50 GST - $12.50 ITC = $37.50 x 100% rebate = $37.50)
Refer to GST Guide for Non-Profit Housing Providers for more information on claiming input tax credits and rebates.
Generally, renting meeting space is considered taxable, regardless of whether the space is in a commercial or residential area, and you would have to charge GST. However, there are two exceptions:
- If you are a small supplier and are not registered for the GST, you are not required to charge GST.
- If your organization is a registered charity, meeting room rentals and commercial leases are exempt, unless your organization is registered for the GST and either of the following conditions exist:
- You have elected to make these transactions taxable by filing GST Form 26, Election or Revocation of an Election by a Public Service Body to Have an Exempt Supply of Real Property Treated as a Taxable Supply Form. Choosing to make these transactions taxable means you must charge GST, but are also entitled to claim input tax credits on costs relating to these transactions.
- You have designation as a municipality and the room rentals are in a building with rent-geared-to-income units.
Refer to the GST Guide for Non-Profit Housing Providers for more information on taxable revenues.
The Canada Revenue Agency auditor will usually want to review your operations and test a sample of transactions. A four-year period is open to audit, although the auditor may review a shorter period (typically two years). If you have developed a new housing project during the audit period, the auditor will probably review the GST accounting for the project. When the audit is done, the auditor will give you a copy of the proposed assessment, and give you 30 days to respond with any further information you may have regarding the assessment. Additional time may be granted upon request.
When the audit is complete, a notice of assessment will be issued. Any tax owing, plus interest and penalty, is due and payable upon issuance. You have 90 days to appeal an assessment.
If you are being audited on a new housing project, or you are assessed on a new development, please advise your non-profit portfolio manager.
Refer to the GST Guide for Non-Profit Housing Providers for more information on CRA audits.