A charitable organization enters into an agreement with an artist-run centre in Quebec (registered to charge sales tax) for an exchange of services of equal value. The charitable organization will lend one of its spaces to the centre in exchange for the use of the artist-run centre’s equipment. The value of the exchanged services is established at $1,000. No money is exchanged.

The provision of space by the charitable organization is an exempt supply. As a result, no taxes should be collected by the charity. However, the rental of equipment by the artist-run centre is considered a taxable service, and as the centre is registered for taxes, it must collect and remit taxes on the fair market value of the exchanged services, which, in this example, equals $50 for GST (5% of $1,000) and $99.75 for QST (9.975% of $1,000). For the charity, since it is only entitled to a 50% rebate on the GST and QST, this will result in a cost of $74.88, or 50% of the GST ($50) and QST (99.75).

A theatre company in Ontario that is a charity, and not registered for HST, agrees to an exchange with an artist-run centre. The artist-run centre is a non-profit and an HST registrant filing on the commercial method. The theatre will provide an advertisement in its program, worth $500, in exchange for the rental of the artist-run centre’s projection equipment, also worth $500. The artist-run centre has to charge 13% HST on the $500 value of the rental. So, in addition to the exchanged value, the theatre must pay the artist-run centre $65 HST (13% of $500) in cash. The artist-run centre will remit that HST to the Canadian Revenu Agency (CRA). As a registered charity, the theatre can claim back a portion of the HST by filing a Public Service Bodies Rebate. They can claim back 82% of the 8% provincial portion of the HST ($32.80) and 50% of the 5% federal portion of the HST ($12.50), for a total rebate of $45.30. The remaining $19.70 in HST is an expense for the theatre company.