Sept 2018 Charity & NFP Law Update
On May 18, 2018, the CRA released GST/HST Interpretation 183321 (“Interpretation”), which reviews a number of questions involving the application of the goods and services tax (“GST”) and harmonized sales tax (“HST”) to reimbursements and allowances that a charity pays to its volunteers. Specifically, in the Interpretation, the CRA addresses questions regarding whether a registered charity can claim a public service bodies’ rebate (“PSB Rebate”), (being a rebate of a portion of GST/HST paid on eligible purchases and expenses by charities, qualifying non-profit organizations, and other organizations, including school authorities, hospital authorities, public colleges and universities), in the following contexts: (1) when the charity reimburses a volunteer for their expenses; (2) when the charity pays an allowance to a volunteer (such as an allowance for mileage travelled); (3) when a charity pays a reimbursement or an allowance to a volunteer, but the volunteer later returns the payment to the charity (for example, by exchange of cheques); and (4) when a volunteer donates their expenses to the charity (which would be as a gift-in-kind) rather than receiving a reimbursement, and the charity issues an official donation receipt. For further general information regarding GST/HST issues for charities, reference can be made to The ABC’s of GST/HST for Charities & NPOs, as well as the CRA’s RC4082(E), GST/HST Information for Charities.
With respect to question #1 concerning whether a charity can claim a PSB Rebate when the charity reimburses a volunteer for their expenses, the CRA stated that section 175 of the Excise Tax Act (“ETA”) permits a charity to claim a PSB Rebate in relation to a reimbursement where three conditions have been met: (1) the charity reimbursed a volunteer who provided services to the charity; (2) the property or service acquired, imported, or brought into a participating province by the volunteer was for “consumption or use in relation to the charity’s activities”; and (3) the volunteer paid GST/HST on the acquisition of property or services. Where these conditions are met, the charity may claim the PSB Rebate for the reimbursed expense. However, where the volunteer was acting as an agent for the charity, section 175 would not apply. The charity would instead be considered a recipient of the supply, and what the CRA referred to as the “usual routes” for determining the charity’s eligibility for the PSB Rebate would apply.
With respect to question #2, the CRA noted that section 174 of the ETA applies to allowances paid to volunteers, such as mileage allowances for the volunteer’s use of their car. To meet the requirements of section 174, a charity must pay an allowance to a volunteer who provides services to the charity. The allowance can only be paid for “supplies of property or services all or substantially (90% or more) of which are taxable supplies […] acquired in Canada by the volunteer in relation to the charity’s activities” or for a mileage allowance that is reasonable for income tax purposes and that is in relation to the charity’s activities.
The allowance amount must also be deductible by the charity for income tax purposes, or otherwise deductible if the charity were a taxpayer under the ITA and if the activity was considered a business. Where available, a PSB Rebate could be claimed to the extent as if the charity had incurred that expense directly.
In relation to question #3, the CRA confirmed that when a charity reimburses or pays an allowance to a volunteer, and the volunteer later returns the payment to the charity, the CRA considers this to be two separate transactions for GST/HST purposes. In such instances, and where the conditions for allowances or reimbursements under sections 174 or 175 of the ETA have been met, the charity would be eligible to claim the PSB Rebate for the reimbursement or allowance. The volunteer’s subsequent donation would not impact the charity’s entitlement to the PSB Rebate.
Finally, with respect to question #4, the CRA considered whether a charity would be eligible for the PSB Rebate where a volunteer foregoes a reimbursement, and chooses instead to donate their expenses as a gift-in-kind to the charity, and the charity provides a donation receipt to the volunteer. Section 175 of the ETA requires an “amount” to be paid to the volunteer as a reimbursement. As such, the CRA states that section 175 would not apply and the charity could not claim the PSB Rebate in such a situation, as “the volunteer donates their right to reimbursement to the charity as a gift-in-kind.” However, where the volunteer acquired a taxable supply as the charity’s agent, the charity would be considered the recipient of the supply and may be eligible to claim the PSB Rebate of the GST/HST paid or payable on that supply in accordance with the usual rules.