Non-Charitable Not-For-Profit Organizations Tax Return Filing Requirements
Non-charitable not-for-profit organizations have two main tax filing requirements. First, like a standard corporation, an incorporated non-charitable not-for-profit organization must file a T2 corporate tax return annually. In addition, if certain income or property thresholds are passed, the not-for-profit organization is then required to file a T1044 Non-Profit Organization Information Return form. The threshold is met if the not-for-profit organization meets any one of three requirements. Each non-profit organization that: (i) has more than $10,000 of property income in a year; (ii) has more than $200,000 in assets; or (iii) has ever met requirements (i) or (ii) in a prior year must file a tax form T1044. Essentially, once a not-for-profit organization meets the requirements to file a T1044 in one year, they must continue to file a T1044 in each subsequent year thereafter. Call our top Toronto tax lawyers and make sure you are meeting your non-charitable not-for-profit tax return filing requirements.
Consequences of Late Tax Filing by Non-Charitable Not-For-Profit Organizations
Like the standard corporation, the penalty for late filing a T2 corporate tax return for a not-for-profit organization is generally based on a percentage of the tax payable. However, not-for-profit organizations are tax-exempt, so they do not owe tax, meaning that there is effectively no penalty for an incorporated not-for-profit organization that late files or does not file a T2 corporate tax return.
On the other hand, the penalty for late filing a T1044 information return when required is a flat penalty of $25 per day late with a maximum penalty of $2,500 per T1044 information return. However, the CRA has an administrative policy not to apply the penalty if it the first time the not-for-profit organization has late filed the T1044 form.
CRA Voluntary Disclosure Program (VDP or Tax Amnesty)
Unlike registered charities, the Canada Revenue Agency (the “CRA”) does not have or maintain a registry for not-for-profit organizations and the CRA has limited resources to monitor tax return filing for not-for-profit organizations. As such, it is not uncommon for a not-for-profit organization to have never filed a tax return or information return. However, there is still a real risk of the CRA discovering that a not-for-profit organization has not been filing as required and that could lead to a hefty tax bill, especially if T1044 forms needed to be filed and this has been going on for a number of years. Fortunately, where the CRA has not yet discovered the unfiled tax return situation, the not-for-profit organization can rectify their filing situation through the CRA Voluntary Disclosure Program (VDP). The CRA Voluntary Disclosure Program is a discretionary program where the CRA can waive all penalties and provide partial interest relief for taxpayers who take the initiate and come forward and disclose their tax return filing or reporting deficiencies. In the context of not-for-profit organizations, as they are tax-exempt, a successful voluntary disclosure application likely means that the penalty for unfiled or late filed T1044 tax forms will be waived and no tax will be owing on the T2 tax return for the not-for-profit organization. If you would like to learn more about the voluntary disclosure program and how you can take advantage of this program, contact one of our experienced and dedicated Toronto tax lawyers.