Organizations will be impacted differently by the Harmonized Sales Tax (HST) depending on the features of their GST status, according to a new study on the impact of the HST on the nonprofit sector.

The Ontario Nonprofit Network (ONN) said the sector is very diverse and various sectors and organizations are impacted differently by harmonization depending on the features of their GST status.

Organizations in the nonprofit sector fall into one of four different classes of sales tax status: Charities registered under the Income Tax Act; qualifiying nonprofits with 40 per cent government funding; nonqualifying nonprofits without 40 per cent government funding; and nonprofits that provide GST/HST taxable services.

The Ontario government intended the impact of the HST (that will replace the GST in July 2010) on the nonprofit sector to be revenue neutral by establishing an 82 per cent rebate rate for the PST portion of the HST.

“The government, however, did not have all the information to truly understand the full impact of HST on the sector, nor did we,” said ONN. “ONN convened a cross-sectoral work group, which included a tax expert and lawyer, to examine the potential impact of the harmonization of the PST/GST on the sector and its public.”

The HST will significantly impact nonprofits themselves as well as the public’s ability to afford their services with a 13 per cent HST, said the ONN.

In the past, the provincial government has been able to support the nonprofit sector through 100 per cent rebates.

“With the move to harmonize with the GST, the province’s capacity to support the sector in this way appears to be lost (or is at least severely restricted)”, said the ONN.

“The loss of 100% rebate on PST for nonprofit and charitable capital construction, the loss of the reduction in PST charged on ticket sales of performing arts organizations in venues under 3200 seats, and the loss of other exemptions of charities from provincial sales tax will have serious impact on the sector.”

Nonqualifying profits, who now pay 5 per cent GST and 8 per cent HST with no rebates, will be hit even harder.

“Many of these organizations are providing exempt services in their communities and are commonly non-registrants, and therefore do not receive sales tax refunds via Input Tax Credits (ITCs),” said the ONN.

“These organizations will see their costs rise by 8% on items for which they currently pay GST only. This increase will have to be passed on to the end users at a time when enrollment in community programs is already falling from the economic downturn.”

With government grants and charitable donations down, the ONN said, “these organizations have no ability to absorb HST cost increases.”

Performing arts groups are concerned that the HST will add 8 per cent to their ticket prices, which will adversely affect sales.

In their study, the ONN recommended that government grants should be increased where the impact of the HST is not revenue neutral. They also want “nonqualifying profits” to be eligible for HST rebates in cases where they provide “exempt public benefit services in their community.” 

To encourage nonprofits to enter the social housing market the ONN said, “An HST rebate of 100% should be provided for nonprofit housing projects deemed a municipality….or else the tax will be catastrophic on nonprofit housing providers’ ability to build social housing.”

John Bonnar

John Bonnar is an independent journalist producing print, photo, video and audio stories about social justice issues in and around Toronto.