Almost every Non-For-Profit Organization (NFP) pays the GST/HST on purchase in Canada (except certain Indians groups and organizations). Some NFP organizations charge a fee on goods and service, while others provide free access to their service and supplies. Therefore how GST/HST rule applies to NFP organization is important, because some organization paid large amount of GST/HST on purchase.
If NFP organization charged a fee on taxable goods and service such as selling memberships and educational seminars, and they are GST/HST registrant, the organizations have to file regular GST/HST return to report GST/HST collected and claim ITC for GST/HST paid on purchases.
When NFP organizations provide exempt goods or service such as health and child care, no GST/HST will be charged on supplies. If the NFP only provides exempt goods and service in Canada, they cannot register GST/HST and no ITC could be claimed for the GST/HST paid on purchases. Unless the NFP is a qualifying non-profit organization for the fiscal year, they can file public service rebate (PBS) to recover 50% of GST/HST paid on purchased. To be a qualifying non-profit organization, at least 40% of its total revenue must come from government’s funding in the fiscal year.
If supplies of property and services are provided free of charge, they are considered exempt goods and service. Additionally, if the sales of goods are for fund-raining purpose instead of regular course of business activities, and all the salespersons are volunteers, the sales are exempt from GST/HST. The organization can recover 50% of ITC only if they are qualifying non-profit organization.
If the NFP organizations provide combined taxable and exempt goods or service, they have to collect GST/HST on taxable goods or service, and no GST/HST will be charged on exempt activities. For claiming ITC, the NFP organization can claim ITCs on the purchases related to commercial activities, but they cannot claim ITCs for the GST/HST paid or payable on property and service on exempt activities, unless they are qualifying NFP organization, who can recover 50% of ITC on exempt activities from PSB rebate.