Re-assessing Sales Tax Remittance Nets Charity a Windfall | GGFL Chartered Professional Accountants

When Josh Engel took a look at the books for Camp B’Nai Brith of Ottawa Inc., he knew that they had likely been remitting too much of the sales tax they collected every year from camper registrations.

Registered charities that are registered for and collect sales tax are required to use the Net Tax Calculation for Charities whereby they are required to remit only 60% of the sales tax they collect, unless they file an election not to use this method.

Knowing that Canada Revenue Agency (“CRA”) and Revenu Quebec would likely want to audit any new filing, Josh reviewed the camp’s records to ensure they could support their application for a refund. He then submitted requests to CRA and Revenu Quebec for refunds from the previous four years of operations. The camp was audited and, in the end, CRA agreed that they had over-remitted and returned over $30,000 in GST, and Revenu Quebec returned over $80,000 in Quebec provincial sales tax.

The Net Tax Calculation for Charities (remitting 60% of the sales tax collected) is not the right option for every charity. Charities using the Net Tax Calculation for Charities are able to claim back all the sales tax incurred on capital expenditures, but are only able to claim a rebate for a portion of the sales tax expenses incurred on operating expenditures. Charities that elect out of this method, and opt to remit 100% of the sales tax they collect, are able to claim back all the sales tax they incur on all of their expenses, both operating and capital.

Deciding which option is best for a charity requires a careful examination of the organization’s revenue and outgoing expenses to determine which option best meets the organization’s financial best interests.

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