GST/HST and Fundraising Activities

Charities and other not-for-profit organizations (NPO’s) rely on fundraising to generate significant dollars towards their annual operating budgets.  Often, the application of GST/HST to these events is overlooked or improperly executed.  Risks involve not collecting GST/HST on taxable revenue sources and/or over claiming input tax credits (ITC’s) for GST/HST paid on expenses related to tax-exempt fundraising activities.

Fundraising could include admissions to events like concerts, dinners or golf tournaments as well as the sale of goods, like chocolate bars, or rain barrels.  Determining whether you should be collecting GST/HST on your revenues depends first and foremost on whether you are a registered charity.  GST/HST legislation provides a broader range of exemptions for fund raising events carried on by a charity than for other NPO’s.

A charity hosting a golf tournament, for example, would not have to charge GST/HST on the admission as long as the charity is able to issue a charitable donation receipt in respect of at least a portion of the admission proceeds.  If the admission to the event is exempt of GST/HST, then the charity will not be able to claim ITC’s in respect of GST/HST paid on the underlying expenses, although partial rebates may be available.  The admission price to a concert hosted by an organization that is not a registered charity will, however, likely be taxable with ITC’s available in respect of GST/HST paid on underlying expenses.

The sale by a charity of used goods, or goods being sold on a “break even” basis, as well as the sale of goods that were donated to the charity will be exempt of GST/HST.  The sale of new goods being sold at a profit, that were not donated to the charity will be taxable, as will the sale of most goods sold by other not-for-profit organizations unless, among other factors, the selling price is less than $5, and all the salespersons are volunteers.

Compliance with the GST/HST legislation in this area can be very complex.  Our indirect tax group is glad to help you review the application of the law to your specific situation.

Garth Steele, Partner

Welch LLP

Dalton McGuinty and the 2% Surtax

So, under pressure from the NDP, Dalton McGuinty has added a 2% surtax to taxpayers that have income in excess of $500k…but is it really a 2% increase?

No, it’s not.

There is already in place a 56% surtax on high rate Ontario tax. By increasing the standard top rate from 11.16% to 13.16% (the publicized 2% increase) the net effect is actually to increase the  rate by 3.12% (2% x 1.56). Combined with the top federal rate of 29%, it now means that the highest personal tax rate in Ontario will come very close to 50%! The last time we saw tax rates that high, Bob Rae was the premier – and we know what happened to the economy when he was in charge.

This is not good tax policy when the government should be creating jobs not punishing the successful entrepreneurs.

- Don Scott, FCA
Director of Tax Services
Welch LLP

Other business-related incentive tidbits in the federal budget outside of the SR&ED changes

While the federal budget of last week contained widely anticipated changes to the Scientific Research and Experimental Development (SR&ED) tax credit, it also contained many other aspects of funding and incentives to encourage innovation and commercialization:

• $400 million to help increase private sector investments in early-stage risk capital, and to support the creation of large-scale venture capital funds led by the private sector.
• $110 million per year to the National Research Council to double support to companies through the Industrial Research Assistance Program.
• Western Innovation Program
• $ 14 million over two years to double the Industrial Research and Development Internship (IRDI) program.
• $12 million per year to make the Business-Led Networks of Centres of Excellence program permanent.
• $500 million over five years, starting in 2014–15, to the Canada Foundation for Innovation to support advanced research infrastructure.
• $105 million over two years to support forestry innovation and market development.
• $95 million over three years, starting in 2013–14, and $40 million per year thereafter to make the Canadian Innovation Commercialization Program permanent and to add a military procurement component.

To read Terry’s full article about these changes, please click here.

- Terry Lavineway
Director of Business Incentives
Welch LLP 

Ontario 2012 Budget – Perspectives on Business Incentives

The Ontario 2012 budget was released March 27, 2012. The general theme of the budget is getting efficiency out of the prior investments and government spending and cultivating the growth presumably inspired by previous stimulus budgets. This focus on efficiency carries through to existing programs and business-specific incentives, specifically with regards to research and development incentives and Apprenticeship Training Tax Credits (ATTC). Aside from these two areas, the budget was quiet with regards to specific tax credits and discretionary funding programs for businesses.

The budget references the federal activity regarding the effectiveness of encouraging innovation and R&D in Canada, specifically the Scientific Research and Experimental Development (SR&ED) tax credit program. The Ontario budget indicates that Ontario agrees there are inefficiencies when it comes to the effectiveness of R&D tax credits and cites better efficiency required for provincial-federal collaboration with respect to R&D incentives.

Ontario is not proposing any changes at this time to the provincial R&D tax credits (Ontario Innovation Tax Credit, Ontario Research and Development Tax Credit or Ontario Business Research Institute). Certainly there is recognition that any changes introduced by the federal government to the SR&ED program will directly impact businesses Ontario. And Ontario will need to adjust and respond accordingly.

To read the full article, please click here.

Further insights on the broader Ontario budget can be found at www.welchllp.com.

- Terry Lavineway
Director of Business Incentives
Welch LLP 

Very Few Tax Measures in the Ontario Budget

Finance Minister Dwight Duncan yesterday delivered Ontario’s 2012 Budget. The Budget is projecting a deficit of $15.3 billion in 2011-12, $1 billion lower than projected a year ago, and decreasing to $15.2 billion in 2012-13. The 2010 Budget put forward a plan to cut the deficit in half within five years and to eliminate it in eight years. The government remains on track to meet the fiscal targets outlined in the 2010 Budget beyond 2012-13. This includes steadily declining deficits and a return to a balanced budget by 2017-18.

There are very few tax related measures included in the Budget. There were no changes to personal tax rates or tax credits. However, there was a significant change with respect to corporate tax rates. The “big business” general corporate income tax rate is currently 11.5 per cent. It was to be reduced to 11 per cent July 1, 2012 and to 10 per cent July 1, 2013. The Budget proposes to temporarily freeze the rate at 11.5 per cent until such time as the budget is balanced. There was no change to the “small business” corporate tax rate which remains at 4.5%.

I question the wisdom of the provincial government’s move to postpone the previously promised corporate tax rate reductions. Businesses have relied on the benefit of the tax rate reductions in their planning for the next few years. As such, the rate freeze can really be seen as a rate increase; the tax expense for a business will be higher than what was projected by that business. In what should be a primary goal of the government – to stimulate the economy and get the unemployed back to work – does it really make sense to increase the cost of doing business in Ontario?

For a more detailed review of the Ontario 2012 Budget, click on the link on our website: http://www.welchllp.com/publications/news/Provincial_Budget_March_27__2012.pdf

- Don Scott, FCA
Director of Tax Services
Welch LLP