While not-for-profit organizations and charities do not pay income tax, they do pay a lot of other types of taxes. For those responsible for the financial statements and all the controls and compliance requirements involved, taxes are always a hot topic.
Ontario Tax – Employer Health Tax (EHT) Exemption
The $400K payroll expense exemption for EHT calculation has been around for a long time. In 2014 this was raised to $450K, effective for the year ends in 2014 and forward. In the future this will only be adjusted for inflation every 5 years.
For large employers with payroll under $5M, the first $450K of payroll expense is exempt from EHT. For employers with payroll over $5M, they do not qualify for the exemption. Registered charities are eligible for the exemption regardless of the size of the payroll.
The current EHT rate of 1.95% equates to a savings of approximately $8,800.
There is an exemption available for registered charities for a second location however the determination of whether a location qualifies is a sometimes a gray area. The benefit of the exemption is the ability to multiply the $450K exemption by the number of locations the organization has.
The second location is sometimes clearly determined if the organization operates in different communities or has separate payrolls. The Ontario government can provide guidance. Supporting evidence such as a lease or deed can help the determination. Where a Charity has different programs under the same roof, the multiple programs do not qualify as separate locations. There must clearly be separate properties. Before you ask, two buildings on the same property will not qualify.
Federal Budget – Fall 2015
There were a number of provisions in the fall 2015 Federal Budget that could represent opportunities or cost savings.
Small Business Job Credit
If you are considered to be a small employer i.e. your EI premiums (Employer share) are $15,000 or less, the EI premium will be reduced from $1.99 to $1.60 per $100 of insurable earnings.
This is a temporary measure to help small businesses but also applies to Charities and NPOs. It is only applicable for 2015-2016. In 2017 the credit will be replaced with an actual reduction in the EI Premiums for all Employers.
In terms of the process to receive the credit, employers will continue to contribute to CRA at normal rates and timing. When the T4s are filed, you will be assessed by CRA for the credit. There are no special forms to file to receive the credit. The credit will be treated as a refund or applied to any balance owing to CRA.
With 20 years of experience, Christa Casey has become an expert in auditing not-for-profit organizations. In January 2010, Christa was appointed as Welch’s Director, Not-for-Profit Sector. Prior to this, Christa was a Quality Assurance Manager. Her previous and current positions require a high level of technical competence while staying informed of all developments in accounting and auditing standards.
Garth Steele, CPA, CA – Audit & Indirect Tax Partner
With over 20 years of experience as a Partner at Welch, Garth has an exhaustive list of Not-for-Profit audit experience. In addition to auditing NPOs, Garth’s forte is Commodity Taxes (GST, HST, PST) and Payroll Taxes (CPP, EI, EHT, WCB). For the past 20 years, Garth has been a tutorial leader and lecturer for the CPA Canada In-Depth GST Course, as well as an instructor for CPA Ontario’s annual Professional Development program.