By now almost all not-for-profit childcare centres are aware of whether or not they are eligible for a partial refund of HST paid. All centres with registered charitable status are automatically entitled to a 70% refund of HST paid. Not-for-profit organizations without registered charitable status are eligible provided they have at least 40% of their revenue from government sources. Most childcare centres with municipal purchase of service agreements are eligible for the HST refund as municipal fees received qualify as revenue from government sources.
Classification of revenue can make a significant difference if you are not a registered charity and if your revenue from government sources is below the 40% mark. If you currently net direct operating grants against salaries in your financial statements then you may not meet the 40% threshold. For example:
In scenario A, the government grant (DOG/WEG) revenue is disclosed in the financial statements as revenue and comprises 40% of total revenue. This not-for-profit centre is therefore eligible for a 70% refund of HST paid. In scenario B, the same grants have been netted against salary costs and therefore, in the absence of other government grant revenue, the 40% does not appear to have been met in the financial statements. The 70% HST refund could be lost.
In summary, if you are at or close to the 40% threshold of government revenue to total revenue and you are a not-for-profit centre then you should carefully review your financial statement disclosure of revenue from government sources to ensure that you will be eligible for the refund of 70% of HST paid.