Tax Reform Stage II: Some Implications for Charities As part of its tax reform package, on June 17, 1987 the federal government announced a proposal to replace the existing federal sales tax with a broad-based multi-stage sales tax (MSST), to be implemented only after extensive consultation with the provinces and the private sector.
Although the MSST proposal exempts most activities of charities and nonprofit organizations, they will not be eligible for any credit for the tax paid on purchases made in order to provide the tax-exempt services.
The government also proposes to tax certain commercial activities of charitable and non-profit organizations including: sales of goods in a retail store; sales of food or drink in a restaurant. cafeteria, or pub; admissions to a professional theatrical, musical, or other such performance, film presentation, slide show, or professional athletic event; and any sale of land to a private individual for purposes of residential construction or personal use.
To the extent that these activities will be taxable, charitable and non-profit organizations will be elgibible to claim a sales tax credit for purchases related to these taxable activities. Unfortunately, as it stands, the proposal does not clearly distinguish “taxable” and “tax-exempt” activities and therefore cannot fail to give rise to uncertainty and dispute.
Consultation is now taking place and charities and non-profit organizations should immediately consult their tax advisors to assess the implications for their particular operations. Those who would be interested in participating in a co-ordinated response from the charitable sector should write: Mary Louise Dickson, Q.C., McCarthy & McCarthy, Barristers and Solicitors, P.O. Box 48, Toronto-Dominion Bank Tower, TorontoDominion Centre, Toronto, M5K 1E6, for further information.
MARY LOUISE DICKSON
McCarthy McCarthy, Barristers and Solicitors, Toronto
LAURENCE C. MURRAY
Thome, Ernst Whinney, Chartered Accountants, Toronto