As announced in the 2009 Budget, under the Harmonized Sales Tax (HST), Ontario's Public Service Bodies (PSBs) will be able to claim proportional rebates of the provincial portion of the HST they pay for inputs used to provide exempt supplies.
The PSB rebates are intended to keep each PSB sector fiscally neutral relative to the Retail Sales Tax (RST) it currently pays. As a result, the aggregate tax burden for each sector will remain unchanged after the transition to the HST.
Public service bodies providing taxable supplies will be eligible for input tax credits.
Public Service Body Rebates
Ontario's PSBs (i.e., municipalities, hospital authorities, universities, public colleges, school authorities, charities and qualifying non-profit organizations) will be able to claim rebates for a percentage of the provincial portion of the HST they pay for their inputs used in their exempt activities. Ontario's PSB rebates were calculated to ensure that, as a whole, each sector will remain fiscally neutral relative to the amount of RST it currently pays.
Table 1 sets out the PSB rebate rates.
A PSB that is a GST registrant could recover the HST paid or payable on purchases made and expenses incurred to make taxable supplies by claiming input tax credits (ITCs). The PSB rebate will be available to partially recover the HST paid or payable by a PSB on eligible purchases that were not recoverable through an ITC. A PSB does not have to be a registrant to be eligible for the rebate. As previously stated, PSBs will not be subject to temporarily restricted ITCs.
Similar to under the GST, Ontario's PSBs will generally be eligible to take advantage of the following simplified rules to further ease their compliance requirements.
Special Quick Method of Accounting for Public Service Bodies (Other Than Charities)
Under the GST, registrants must generally track the tax they pay on inputs for taxable and exempt supplies separately. However, to reduce the compliance requirements, the Special Quick Method (SQM) of accounting is available to most PSBs other than charities, and will be available under the HST.
Public service bodies that qualify and elect to use the SQM do not separately track the tax paid on most inputs for taxable or exempt supplies. Instead, the specified PSB remittance rate will apply to these inputs. The SQM acts as a proxy for the value of ITCs and allows the PSB to retain a portion of HST collected on taxable sales in lieu of claiming ITCs.
When a PSB uses the SQM, the PSB will still collect the 13 per cent HST on its taxable supplies of goods or services. However, to calculate the amount of the HST to remit, the PSB will multiply the amount of HST-included supplies for the reporting period by the remittance rate(s) that apply (see Table 2).
The SQM remittance rates are less than the 13 per cent rate of tax that a PSB collects. This means that the PSB will remit only a part of the tax it collects. The part of the tax that the PSB keeps accounts for the approximate value of the ITCs it normally will have claimed since it cannot claim ITCs on most of its purchases when using this method. The following sets out the Ontario SQM rates:
| Special Quick Method Remittance Rates (Per Cent) |
Table 2 | |
| Supply Made in a Non-HST Province | Supply Made in an HST Province (with an 8% provincial HST rate) | |
|---|---|---|
| PSB location | Ontario | Ontario |
| Specified Facility Operator, Qualifying NPO, Designated Charity[1] | 3.0 | 9.9 |
| Municipalities | 4.3 | 11.1 |
| Universities and Public Colleges[2] | 3.3 | 10.2 |
| Universities and Public Colleges[3] | 3.9 | 10.7 |
| School Authorities | 4.2 | 11.0 |
| Hospital Authority, External Supplier, or Facility Operator | 4.2 | 11.0 |
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[1] "Designated charity" refers to a charity that provides employment assistance to individuals with disabilities, supplies services that are performed by such individuals to clients, and has been approved by the Minister of National Revenue to make its supplies of these services taxable when provided to a GST/HST registrant. [2] These rates must be used if vending-machine sales (and certain other retail sales) are at least 25 per cent of an amount determined by a formula set out in the regulations. [3] These rates must be used if vending-machine sales (and certain other retail sales) are less than 25 per cent of an amount determined by a formula set out in the regulations. |
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Special Net Tax Calculation for Charities
The GST framework provides a separate Special Net Tax Calculation for charities. This method will also be used by charities under the HST. Charities are generally required to use this method, but they may elect not to use it if they make supplies outside Canada or zero-rated supplies in the ordinary course of their business, or if 90 per cent or more of their supplies are taxable.
Under the charity-specific net tax calculation, charities are not required to track the GST paid on inputs to most taxable supplies. The general rule is that charities remit 60 per cent of the tax collected on their taxable supplies and keep the remaining 40 per cent in lieu of claiming ITCs (there are certain exceptions, such as for real property and capital property, where ITCs may be claimed). The GST paid is eligible for the charity-specific PSB rebate (the Ontario charity rate is 82 per cent).
Ontario will adopt the 60 per cent Special Net Tax Calculation rate for use by certain charities.
Public Service Body Rebate for Hospital-Like Services
Ontario will parallel the GST treatment of charities and qualifying non-profit organizations that provide eligible services traditionally performed in hospitals by allowing them to claim a rebate of the provincial part of HST on inputs to these services at the proposed 87 per cent hospital rate, using the same rules and definitions that apply for the GST.
For more information on Public Service Bodies' rebates visit Ontario's Tax Plan for Jobs and Growth or the Canada Revenue Agency.
