Atlantic Canada Opportunities Agency (ACOA)-Goods and
Services Tax and Harmonized Sales Tax-grants and contributions
2031 (C) GST/HST - Grants and Contributions
Table of Contents
OVERVIEW
POLICY AND GUIDELINES
GOODS AND SERVICES TAX & HARMONIZED SALES TAX - ON GRANTS
AND CONTRIBUTIONS
The Goods and Services Tax (GST) took effect on January 1,
1991 and is a multi-stage tax. Businesses throughout the
production and distribution chain charge GST on their domestic
sales. These businesses were to claim a credit for any GST paid
on purchases of goods and services used in the course of doing
business and were to remit, to Canada Customs and Revenue Agency
(CCRA), the difference between GST charged on sales and GST paid
on purchases. Provincial Sales Tax (PST) was to be applied at the
point of sale to a retail customer (any purchaser who did not
have a provincial PST Number) and was collected by a provincial
organization.
The Harmonized Sales Tax (HST) became effective on April 1,
1997 for transactions, which take place in the provinces of New
Brunswick, Nova Scotia and Newfoundland. It has two parts - a 7%
federal GST component and an 8% provincial PST component. It is
administered by the CCRA and operates very much the same as the
earlier GST system, which continues to apply in Prince Edward
Island and elsewhere in Canada.
As a matter of policy, when a recipient of a grant or
contribution pays a non-refundable tax in the process of
acquiring an eligible asset, that tax may be included as part of
the eligible project costs. However, in circumstances where
the recipient is entitled to claim an input tax credit or a
partial rebate of tax from the CCRA, the Agency would disallow
that tax as part of the eligible costs. This principle governs
both the treatment of GST in Prince Edward Island and the HST in
the remainder of Atlantic Canada.
- Excise Tax Act and Regulations
- Financial Administration Policy and Guidelines for the
Application of the Goods and Services Tax in Departments and
Agencies-OCG 4001-029 (Various documents and drafts)
- Various CCRA publications
- Financial Administration Act.
- GST/HST on Grants and Contributions
Generally, program payments which are made for a public
purpose and for which no good or service is provided to the
grantor are considered grants for GST/HST purposes and are not
subject to tax. Therefore, the grants and contributions provided
by ACOA will not normally be liable to the GST/HST. However, a
review of the contribution agreement and the Technical
Information Bulletin B067-GST (Treatment of Grants and Subsidies
by the CCRA Aug 24, 1992) may be necessary in some isolated
cases. The CCRA is able to provide GST/HST rulings on the
application of B-067 to any specific contribution agreement.
Similarly a contribution repayment, including interest (where
applicable), will not be subject to GST/HST.
- GST/HST as an Eligible Project Cost
Applicants will normally pay GST/HST on purchases of goods and
services that are part of the eligible costs under a contribution agreement.
ACOA will approve, as part of the eligible costs, the GST/HST
paid on goods and services that are eligible costs when the
amount of tax will not, or will likely not, be refunded or
credited to the recipient by the CCRA.
Furthermore, recipients who are only entitled to a CCRA refund
or credit on a portion of the GST/HST paid on goods and services
that are eligible will be allowed to claim only the portion of
tax not refunded by the CCRA.
- Responsibilities
Account managers are responsible to ensure, as for all
eligible costs claimed, that the GST/HST claimed by recipients is
a valid eligible cost.
Account managers should inform applicants about the
non-admissibility of GST/HST, where applicable, as an eligible
cost and advise them that:
- persons who are GST/HST registrants may be entitled to claim
input tax credits; or
- certain public service bodies may be entitled to claim
partial rebates.
Applicants may obtain further information about their
eligibility for input tax credits or rebates from their nearest
CCRA Tax Services Office - TIS Section.
- General
In order to guide ACOA personnel on the general application of
GST/HST to the various types of businesses or organizations that
receive financial assistance from ACOA the following is intended
to provide general information.
- ACOA Recipients
Normally, the GST/HST will not be an eligible cost when
verifying contribution claims because the large majority of
commercial operations (including Crown corporations, partnerships
and individuals in business) will be able to claim an input tax
credit from the CCRA for all GST/HST paid on purchases used in
the course of doing business. In those cases the GST/HST will not
be allowed as part of the eligible costs.
- Exception
There are some exceptions to the foregoing and the most common
exception is the enterprise with gross sales of $30,000 or less
in any consecutive four quarters ($50,000 or less for public
service bodies) which is not registered with the CCRA. Businesses
in this sales category have the option of registering for the
GST/HST and if they choose not to register they may not charge
GST/HST on their sales and they receive no input tax credits. In
those cases the GST/HST will be allowed as part of the eligible costs.
- Zero-Rated Supplies
There will be businesses that have sales which are taxable at
0% known as "zero-rated supplies." These businesses charge no tax
on the zero rated supplies which they provide but will pay
GST/HST on all their purchases of goods and services and will
obtain a full refund for the 7% GST or 15% HST paid on goods and
services used in the course of providing the zero-rated supplies.
Examples of zero-rated supplies include:
- basic groceries
- most medical devices
- prescription drugs and eyeglasses
- exports
- transportation services to points outside Canada (except the
7% federal part will apply to air transportation to continental USA)
Normally, an applicant which is in the business of providing
zero-rated supplies would not be permitted to include the GST/HST
in the eligible costs.
- Exempt Supplies
Exempt supplies are not subject to GST/HST. However, the
business which provides an exempt supply is not eligible to claim
an input tax credit. Normally an applicant which provides exempt
supplies will be entitled to include the GST/HST in the eligible
costs. However, public service bodies may be entitled to claim
the rebates as discussed below.
Some examples of exempt supplies include:
- most financial services
- most health and dental care services
- education services (including tuition fees)
- legal aid services
- child and personal care services
- many services provided by charities, non-profit
organizations, government and other public sector bodies.
- Public Service Bodies (Municipalities, Universities,
Schools, Hospitals, Non Profit Organizations and Charities)
These Public Service Bodies, like all other enterprises and
consumers, will pay GST/HST on most of their purchases. If they
are engaged in activities that compete with or are similar to
private sector enterprises, their sales will be subject to
GST/HST as applicable.
These organizations which are resident in the participating
provinces and are eligible to claim public service body rebates,
will usually be able to claim a predetermined portion of the 7%
federal part of the HST. That predetermined portion is:
- Municipalities 57.14 %
- Universities 67 %
- Schools 67 %
- Hospitals 83 %
- Charities 50 %
- Qualifying NPOs %
Some may also be able to claim partial rebates for the 8%
provincial part of the HST but that eligibility is complicated
and varies with the type of organization and the province.
If any of these organizations undertake commercial activities
and are registered for GST/HST, they will receive full tax credit
for the amount of HST paid on purchases of goods and services
used in the course of doing this business.
The account manager should question any applicant in this
category regarding any GST/HST included in the eligible costs but
will normally accept any reasonable assurances that the tax will
not be credited or refunded to the applicant.
- Disclaimer
The treatment of the GST and the 7% federal portion of the HST
is fairly consistent. However, there are subtle differences in
the treatment and conditions relating to the 8% provincial
component. Account Managers should be prepared to discuss any GST
or HST included in applicant's claims and where satisfied that
the tax will not be refunded, it should be allowed as a part of
the eligible costs.
- Indians and Indian Bands
Goods acquired by Indian individuals and Indian bands are
relieved of GST/HST if those goods are sold on reserve or
delivered to a reserve by the vender or the vender's agent. A
service acquired by an Indian individual is relieved of tax if
the service is performed totally on reserve. A band may acquire
services, on or off reserve, relieved of tax where those services
are acquired for band management activities or for real property
on reserve.
Incorporated business, whether on or off reserve, will pay
GST/HST. All businesses may register or be required to register
for GST/HST and may be eligible to claim back tax paid as input
tax credits.
Indian bands will pay GST/HST on the off reserve acquisition
of transportation, short term accommodations, meals and
entertainment. However, where these supplies are acquired by the
band for band management activities or for real property on
reserve, the band will be eligible for 100% rebate of the GST/HST
paid. Note that Indian bands may also qualify for other rebates
such as those available to non-profit organizations and
municipalities.
The policy guidelines are found in the Technical Information
Bulletin B-039R, GST Administrative Policy, Application
of GST to Indians, issued by the CCRA and dated November
1993
Several booklets and bulletins which cover specific provisions
of the tax are available and can be obtained from the local CCRA office.
Particularly where the contribution is repayable, the
eligibility of the GST/HST is not of sufficient material
importance to warrant an in-depth study of the applicable rules.
The judgement of the Account Manager based on the explanations of
the applicant will be considered sufficient.
For further information on this subject you may contact:
Stephane Lagacé
A/Chief, Corporate Accounting
Atlantic Canada Opportunities Agency
Head Office
P. O. Box 6051,
Moncton, New Brunswick
E1C 9J8 Phone: (506) 851-2270
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