Recent Tax Developments

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