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Chargeback Costs Between Departments

Chargebacks occur when a faculty or department provides products or services to another university department and then recovers the cost. This guideline outlines how to establish a chargeback fee at TMU.

Qualifying as a chargeback

For a fee to qualify as a chargeback, your faculty or department must:

  • demonstrate that the service provided for a fee is discretionary to the receiving department;
  • clearly define what the charges are for, including the methodology for how fees were calculated and where the rates can be found;
  • have rates available for users to reference (e.g. posted on the TMU website);
  • charge all departments on the same basis, with consistency in estimating, accumulating and reporting costs;
  • consistently apply costs to units for the same product, service or purpose; and
  • calculate costs on a break-even basis only, with no markup or profit included for the charging department.

To illustrate an appropriate chargeback scenario, consider this example:

A department maintains a lab for academic purposes but also allows TMU departments to use the lab services on a per-usage basis, based on the cost of providing the service. In order to keep the lab operational, the department creates a chargeback fee to cover materials, salaries and other indirect costs.

The guidelines are applicable when facilitating chargebacks with internal TMU units.

Note, the guidelines are not applicable to TMU retail units, such as University Business Services or The Image Centre, as these units are covered by TMU’s Commercial Activities Policy. If you are charging organizations external to the university, please review the Accounts Receivable Policy for guidance on invoicing external entities.

What chargeback costs can include

While chargeback costs are defined in two categories with both direct and indirect costs, a chargeback can also have both components.

Direct costs are generally variable and incrementally incurred. They are specifically identified with a good or service being requested, including:

  • salaries and benefits of university faculty and staff who are directly involved in providing the goods or service;
  • materials, supplies or equipment rental.

Indirect costs, or overhead, are generally fixed costs that support the infrastructure and the activity, including:

  • administrative, custodial and maintenance support;
  • facilities, communications and systems;
  • machinery maintenance.

Note that various tasks can be considered administrative support. An allocation method must be used to determine the portion of administrative costs that relate to the chargeback.

HST is not applicable to internal chargebacks as the goods or services are provided by TMU. However, the chargeback rate may include non-recoverable taxes such as HST rebates incurred by the department on non-salary costs.

Roles and responsibilities

Faculties or departments providing services to other departments must ensure that chargebacks are:

When submitting for chargebacks to be issued, faculties or departments must ensure that:

  • Journal entry request templates are completed and submitted for entry into the university’s Financial Information System at clientadvisory@torontomu.ca. Supporting documentation must accompany the request, including sales documents that cite:
    • cost centre of the receiving department;
    • costs per good or service; and
    • description of goods or services provided.
  • Submit both the journal entry request and supporting documentation within 30 days following the month in which the goods are received or service is completed. For year-end journal requests, please follow critical year-end deadlines.
  • Chargeback transactions are monitored for discrepancies.
  • A process is established for resolving charge disputes with the departments impacted.

For record keeping protocol related to chargebacks, please refer to the university’s records retention schedule.

The Macro Planning Committee is responsible for:

  • approving the introduction of new chargebacks; or 
  • approving modifications to existing chargebacks for goods and services, including annual rate changes.

Financial Services is responsible for:

  • timely posting of all chargebacks to the university’s Financial Information System; and
  • facilitating the completed chargeback request form via the Office of the Chief Financial Officer for Macro approval.

How to establish a new chargeback or modify an existing one

Step 1

Complete the Chargeback Request Form in collaboration with your financial advisor. Your advisor can provide guidance on completing the form.

Step 2

Submit the completed form to your unit leader (e.g. dean or associate/assistant vice-president, vice-provost) for approval after the chargeback criteria are met.

Step 3

Submit the form after approval from your unit leader to your financial advisor in Financial Services. for subsequent approval by the Macro Planning Committee. Financial Services will forward your form to the Office of the Chief Financial Officer for Macro approval.

Step 4

Macro Planning Committee reviews. Once approval is gained, you will be notified by your financial advisor via email.

Step 5

Upon notification of the approval, please contact clientadvisory@torontomu.ca with a request to process the chargeback via journal entry in TMU’s Financial Information System. The chargeback will be entered on behalf of the school or department providing the goods or services.

Questions

If you have any questions, please contact your faculty or departmental financial advisor.