Auctions are a popular fundraising tool for organizations and businesses. They are often held at galas, benefit dinners or golf tournaments. Many of us have taken part in such an event for a good cause…
The fund-raising tool
Whether silent or shouted, an auction is an interesting and popular way to raise funds for a cause, or, if you’re a non-profit organization (“NPO”), to finance activities by auctioning off goods.
Generally, the organization or company receives goods from donors or acquires goods. It then puts these goods up for auction as part of its fundraising activity. The bidder with the highest amount will obtain the good in exchange for the amount bid on it.
The auction: a sales transaction in itself!
What about the application of consumption taxes to this transaction? Surprisingly, this transaction involves the sale of tangible personal property.
Consequently, unless an exemption or zero-rating applies to the transaction, the price paid by the winning bidder will be subject to GST and QST, if the company or NPO is registered for sales tax purposes.
Therefore, in the event that no mention is made of taxes in the auction documents, GST and QST should be added to the winning bid and remitted to Revenu Québec. For example, if an item is sold for $100, the organization will have to add $5 GST and $9.98 QST, for a total of $114.98.
On the other hand, if the auction documents state that taxes are included in the winning bid, the selling price of a $100 item will be $86.98 plus $4.35 GST and $8.68 QST.
However, the conclusion may be different if the NPO has the status of a registered charity. Separate rules apply to this type of organization.
In conclusion
It is important for an organization to consult the specific rules applicable to this type of financing method, in order to avoid any tax risk with regard to consumption taxes on revenues generated by the auction.
An activity that was originally intended to generate pleasure and income could turn into a tax headache. To avoid this inconvenience, don’t hesitate to contact a member of our team for assistance with the necessary formalities.
An article from our consumption tax team
