If you are associated with a charitable organization in Canada, do read on. Share this information with Board members, other appropriate volunteers, and staff.
If yours is a non-profit organization considering charitable status, do take the contents of this paper into consideration as you move forward.
Beginning in 2009, our Centre was granted support by the Canada Revenue Agency (CRA) to create and deliver a workshop curriculum to small and rural charities, one that demystified the language of CRA, and clearly explained issues related to charity governance and compliance.
This information is a compendium of the items that represented the most ‘a-ha!’ moments for the 1,100 non-profit and charity representatives who participated in one of the 29 workshops that we convened across Western Canada over that year.
The contents of this blog were reviewed and updated in 2015.
Charities versus non-profits
First, a brief explanation of the differences between charities and non-profits. An organization must first establish itself as a non-profit before it applies to CRA’s Charities Directorate to obtain charitable status.
It is estimated that there are about as many non-profit organizations in Canada as there are charitable organizations (over 85,000 in each group).
Being a charitable organization means that the group can issue official receipts for income tax purposes, to donors. Donors can then receive (personal and corporate) income tax credits for their donations. Being a charity also means that the organization can accept grants from other registered charities (charitable organizations and foundations: both public and private), and other ‘qualified donees’.
Especially if an organization doesn’t view itself as needing to approach the public for donations, and if it does not require project / operating grants from charities and foundations, there is less reason to apply for charitable status. Certainly, the administrative burden is heavier for charities, and there are more restrictions with respect to how they can make use of their resources (political and social activities being examples of items that are limited).
For an in-depth comparison of registered charities versus non-profit organizations, see CRA’s excellent web page on the topic.
Charitable registration is a one-way street. If a charity decides to dissolve (or revert back to status as a non-profit organization), or if its registration is revoked by the CRA, the charity must either pay the CRA a 100% tax on its assets (referred to as a ‘revocation tax’), or transfer those assets to another charity. So, the decision to register as a charity must be made carefully.
1. One way to jeopardize your charity:
GIVE GRANTS TO NON-PROFITS
Two practices that are offside with CRA are the ‘lending’ of a charitable number to non-charities, or acting as a ‘flow-through’ for non-charities. These actions seem to be undertaken often, in some cases in return for an ‘admin fee’ back to the charity.
Related to this activity is the