Partial rebate and quick method of accounting for public service bodies

Partial GST/HST and QST rebates

Public service bodies (PSB) include municipalities, colleges and universities, hospital and school authorities, non-profit organizations and charities. PSBs usually make a significant amount of exempt supplies, and, as a result, are not entitled to input tax credits or input tax refunds on these supplies. Some PSBs may qualify for a partial rebate of the GST/HST and QST paid on eligible capital expenditures and current expenditures, though the rates can vary from one PSB to another. In participating provinces, the partial rebate for the provincial component of the HST varies by province and by PSB.

The purpose of this article is to provide information about some recent developments or clarifications on the conditions for claiming a partial rebate.

Rebate application frequency

Under the Excise Tax Act (ETA) and the Act respecting the Québec sales tax (QSTA), a PSB that is not a GST/QST registrant may submit two partial GST/QST rebate applications per year, covering the first six months and the last six months of the fiscal year.¹

Despite this clear guidance in the tax laws, the tax authorities could accept, in the past, rebate applications that covered more than a six-month period. In the June 2015 Excise and GST/HST News, the CRA indicated that it had explained to PSBs their proper rebate claim period. In 2016, Revenu Québec (RQ) began denying rebate applications covering more than a six-month period of a fiscal year. Therefore, do not be surprised if you meet this situation.

Tax amounts that can be claimed

It is important to note that only amounts of taxes payable or paid during a (rebate) claim period can be claimed for that period. As a result, if a PSB omits to claim a GST or QST amount when filing its partial rebate application for a given claim period, it may not claim this amount in a subsequent claim period. The PSB must therefore amend the previously filed return to obtain the amount that it omitted to claim.

Non-creditable tax charged

In January 2017, the CRA published GST/HST memorandum 13.5 Non-creditable Tax Charged. This publication provides several clarifications on the partial rebate, and on what may or may not be included in a rebate claim. Among other things, the memorandum specifies that, for a PSB to be entitled to the partial rebate for the provincial part of the HST it paid, it must have an establishment in the participating province.

Partial QST rebate – New residency criteria

As mentioned above, a PSB is entitled to a partial rebate of the provincial part of the HST paid in a participating province if it has a permanent establishment in the province (tax residency).

For purposes of the partial QST rebate granted to PSBs, an organization located outside Quebec was not required to also have an establishment in Quebec. A technical amendment was made in 2016 to impose this condition to allow an organization that has establishments outside Quebec to claim the partial QST rebate for PSBs.

The change applies to any rebate application related to a period beginning after June 30, 2016.

Quick method for PSBs

Some PSBs² can use the special quick method of accounting to calculate the GST and QST to remit for taxable supplies. Under this method, PSBs calculate and collect the taxes on their taxable supplies but remit an amount determined according to a prescribed rate applied to their sales (including GST or QST, as the case may be). Unlike the method applicable to small businesses, PSBs can use the special quick method of accounting regardless of the amount of their taxable supplies. Specific rules also apply to their capital property purchases. The table below provides the rates, for GST and QST purposes, applicable to the various types of PSBs since July 1, 2016.

* Including facility operators and external suppliers.
**Note that the rate of 7.3% has only applied to municipalities since July 1, 2016. For all periods beginning on or before June 30, 2016, the applicable rate was 5.7%.
*** The term applies to certain charities that work with individuals with disabilities to provide them with employment or training, and that have made an election to be designated for a special tax treatment.

Jean Lanoue, FCPA, FCA
Lanoue Taillefer Audet

Member of the Technical working group on taxation and commodity taxes

¹ For registrants, the claim period is the same as their GST/QST filing period.
² PSBs that may use this method are schools and hospital authorities, public colleges, universities, and qualifying non-profit organizations (whose government funding for that year, as defined, is at least 40% of its total revenue).