Registered charities are largely familiar with their exemption from paying income taxes. However, charities need to be aware of other Canadian taxes lingering in the background since they may not be immune from all, such as the harmonized sale tax (HST). In particular, charities are often unsure whether soliciting and accepting corporate sponsorships requires them to collect and remit HST. The following article discusses how HST affects charities; more specifically, how HST affects charities that participate in sponsorships. It is important to note from the outset that HST treatment for non-profits that are not registered charities, or registered charities that are schools, hospitals or universities may be entirely different and this article may not be applicable.

HST for charities

The HST is the tax that was created by combining the provincial sales tax in New Brunswick, Nova Scotia, Newfoundland and Labrador, Ontario and Prince Edward Island with the federal goods and services tax (GST). Currently, the rate of HST in Ontario is 13 per cent. The general rule for charities is that most goods and services supplies are exempt from HST. A charity must register for the HST and thus becomes an HST registrant if it provides taxable property and services in Canada and it is not a small supplier (charities are small suppliers if either their revenues from worldwide taxable supplies were $50,000 or less, or their gross revenue was $250,000 or less). Otherwise, a charity may choose to voluntarily register for the HST if it is a small supplier but wants to acquire certain tax advantages, such as tax credits. If a charity is an HST registrant, it must collect HST on taxable supplies made in Canada and then report that tax by filing HST returns. If a charity is not an HST registrant, then it does not collect HST. There are exceptions for real estate property but that is beyond the scope of this article. When a charity is involved in sponsorships, its status as an HST registrant or non-registrant is only relevant when the charity is seeking rebates or input tax credits, which will be addressed later in this article. 

Whether or not sponsorships are subject to HST

Corporations that support charities through contributions receive several benefits including an improved reputation, increased brand awareness and tax deductions. Sponsorship is not defined in the Income Tax Act or Excise Tax Act; however, the Canada Revenue Agency (CRA) has indicated that a sponsorship is a donation made by a business to a charity which in turn receives advertising or promotion of its brand, products or services. A sponsorship may not be a taxable supply subject to HST depending on the nature and extent of the promotional benefit that the charity gives to the sponsor. The following are examples of sponsorships that are not subject to HST:

• A business financially supports a charity’s activity and in return, the charity promotes the business. For example, a charity organizes a baseball team and agrees to put a sponsor’s trade name on the team uniform. In a similar vein, a charity organizes a sporting event and publishes an acknowledgment of the sponsor in the sporting event’s program. 
• A charity receives funding and in return gives the sponsor the right to use the charity’s logo. For example, a corporation uses a national charity’s logo in the corporation’s advertising campaign.

The payments in the above examples are not considered to be payments for a property or service and therefore, these payments are not taxable supplies subject to HST. 

When a sponsor’s payments to a charity are primarily (over 50 per cent) given so the sponsor can be advertised on television, radio, magazines, newspapers or other publications published periodically, then the CRA considers these to be payments for advertising services as opposed to payments for sponsorship. Nonetheless, when a charity provides advertising services, the services are generally exempt from HST.

Charities that receive sponsorships from businesses will still be entitled to HST rebates or input tax credits. Tax rebates and input tax credits are complex and will not be fully addressed in this article. However, as a brief explanation, for non-HST registrants there are rebates that allow public service bodies, including charities, to recover a percentage of the HST that was paid on their purchases and expenses. If the charity is an HST registrant, then it can claim a public service bodies’ rebate for a portion of the HST (the federal portion) that was paid on eligible purchases and expenses provided the charity does not simultaneously claim input tax credits.  Input tax credits may be claimed, but these credits have special rules for charities. 

For more information

Corporate sponsorships are a helpful source of funding for the charitable sector and charities may accept these payments, but charities should assess the nature of the payments in order to determine whether the sponsorship payments are subject to HST. The CRA has a helpful guide, GST/HST Information for Charities that explains these issues in detail. As this article has demonstrated, HST can affect a charity and its activities. Registered charities should be familiar with HST and whether they should be registered, HST tax rebates and credits, and any tax implications that may follow.   

Karen J. Cooper, LL.B., LL.L., TEP, is a partner at Carters Professional Corporation practicing charity and not-for-profit law with an emphasis on tax issues, and would like to thank Dianne T. Hajdasz, B.Sc. (Hons.), B.Ed., J.D., Student-At-Law, for her assistance in the preparation of this article.