Guide on Grants, Contributions and Other Transfer Payments
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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
- 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.
POLICY AND GUIDELINES
- 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.
1) 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.
2) 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.
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.
C) General Information
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.
2) 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.
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.
4) 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
- 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.
5) 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.
6) 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.
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.
D) Special Programs
1) 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:
A/Chief, Corporate Accounting
Atlantic Canada Opportunities Agency
P. O. Box 6051,
Moncton, New Brunswick
E1C 9J8 Phone: (506) 851-2270
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