Do Charities Pay GST/HST? – A Complete Guide by a Montreal CPA Firm Near You

Introduction

Many Canadians assume that registered charities are completely tax-exempt, but this is not entirely true. While charities do not pay income tax, they are still very much part of Canada’s GST/HST system. In fact, most charities must navigate a mix of exempt supplies, taxable supplies, rebates, and complex rules depending on their activities. Some supplies are fully exempt from GST/HST, some require charging tax, and many charities are eligible for substantial GST/HST rebates. Understanding these rules is essential for compliance, avoiding CRA penalties, and maximizing the financial resources available for charitable programs.

Legal and Regulatory Framework

GST/HST rules for charities come from the Excise Tax Act, specifically the sections governing exempt supplies, public service bodies (PSBs), and rebates. A charity is a “public service body” for GST/HST purposes and is eligible for a 50% rebate of the GST paid on purchases used in its activities. In HST provinces, a rebate also applies to the provincial portion at varying rates. Many supplies made by charities are exempt, meaning the charity does not charge GST/HST, but also cannot claim input tax credits (ITCs). Instead, they receive rebates. Certain fundraising, sales, memberships, and commercial activities may be taxable.

Key Court Decisions

In Calgary Young Men's Christian Association v. Canada, the court examined the distinction between exempt and commercial supplies. In Westmount Golf and Country Club v. Canada, the court ruled that certain membership fees were taxable and not exempt as charitable services. In Children’s Hospital Foundation v. Canada, CRA denied ITCs because the organization’s activities were exempt, reinforcing the rule that exempt supplies do not generate ITCs. These cases illustrate CRA’s strict interpretation of GST/HST rules for charities.

Are Charities Exempt From Charging GST/HST?

Not entirely. GST/HST does not apply to many charitable activities, including: charitable programs offered free or for nominal fees, most membership fees that are tied to charitable purposes, many goods sold by volunteers, and certain fundraising events. However, GST/HST must be charged when charities supply: taxable goods, commercial services unrelated to their charitable purpose, advertising, commercial rentals, cafeteria operations, or goods sold in a business-like manner. If the charity exceeds the $50,000 small supplier threshold, or engages in taxable activities, it must register for GST/HST.

GST/HST Rebates for Charities

Instead of claiming ITCs, charities are eligible for a PSB rebate of 50% of the GST paid on purchases related to their activities. In HST provinces, additional rebates apply to the provincial portion. Charities in Ontario receive 82% of the provincial portion, while Nova Scotia, New Brunswick, PEI, and Newfoundland & Labrador apply different percentages. Rebate claims must be filed annually or quarterly, depending on registration status. Failure to file prevents recovery of significant amounts of tax.

When Charities Must Charge GST/HST

Charities must charge tax when they supply taxable goods or services, such as: gift shop merchandise, conference registrations, advertising sales, commercial rental spaces, educational programs not qualifying for exemption, tournament fees, catering services, restaurant/cafeteria operations, and sales not considered exempt charitable activities. If these exceed $50,000 in annual taxable revenues, GST/HST registration is mandatory.

Exempt Supplies for Charities

Common exempt supplies include: child care services, most health and educational services, many membership fees, property provided for free or nominal amounts, volunteer-run fundraising events, and certain recreational or community programs. Exempt supplies do not require tax collection but also do not allow ITCs, making the PSB rebate critical.

Fundraising and GST/HST

Fundraising events are generally exempt if they meet specific CRA conditions: they must be volunteer-run, occur no more than twice per year, and not resemble commercial business operations. Otherwise, the event may be fully taxable. Careful planning is required to avoid accidentally triggering GST/HST obligations.

Common GST/HST Issues for Charities

Charities often run into problems when: they conduct both exempt and taxable activities, fail to register for GST/HST despite taxable revenue, incorrectly classify fundraising as exempt, misunderstand membership fee rules, miscalculate PSB rebates, lose documentation needed for rebate claims, or fail to charge GST on commercial rentals. CRA audits charities regularly for GST/HST compliance.

Mackisen Strategy

At Mackisen CPA Montreal, we help charities navigate GST/HST rules by reviewing activities, determining which are exempt vs taxable, analyzing the need for GST/HST registration, filing PSB rebate applications, reconciling GST/HST accounts, designing compliant fundraising structures, and defending charities during CRA audits. Our expertise ensures that your charity avoids penalties and maximizes available rebates.

Real Client Experience

A charity operating a community cafeteria owed GST/HST on meals sold; we registered them properly and filed rebates. A foundation with volunteer-run fundraising avoided GST/HST after we documented compliance with exempt event rules. A charity that misclassified advertising revenue as exempt corrected filings and avoided penalties after our intervention. A large charity recovered thousands in unclaimed PSB rebates once we reviewed their expenses.

Common Questions

Do all charities get a GST/HST rebate? Yes—most qualify for a 50% rebate federally. Are charities required to register for GST/HST? Only if taxable revenues exceed $50,000. Do fundraising events automatically qualify as exempt? No—they must meet specific conditions. Do charities pay GST/HST on purchases? Yes, but rebates recover a large portion.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps charities remain compliant with GST/HST rules while maximizing rebates. Whether you operate a small local charity or a national organization, we ensure tax efficiency, regulatory compliance, and financial clarity.