Obtaining status as a registered charity with the Canada Revenue Agency comes with many rights and obligations. However, registered charity status does not fit or work for all non-profit organizations.
What is the difference between a Non-Profit Organization (NPO) and a registered charity?
Registered charities and non-profit organizations both operate on a non-profit basis; however, there are differences between them. Non-profit organizations are organized and operate exclusively for social welfare, civic improvement, recreation or any other purpose except for profit. While registered charities also operate for purposes other than for profit, registered charities must use their resources for charitable activities and have charitable purposes that fall into one or more of the four heads of charity:
- the relief of poverty
- the advancement of education
- the advancement of religion
- other purposes that benefit the community
The last category is limited to purposes that have been determined by the courts to be charitable at law.
Registered charities must be registered with the Canada Revenue Agency in order to obtain registered charity status, the benefits of which are set out below. Therefore, not all non-profit organizations qualify as registered charities; however, all registered charities are non-profit organizations.
Types of registered charities
There are three types of registered charities: charitable organizations, public foundations and private foundations. The designation a charity receives depends on its structure, its source of funding and its mode of operation. The Canada Revenue Agency notifies a registered charity of its designation when it receives a Notice of Registration.
Benefits of registered charity status
Once an organization becomes a registered charity it may issue tax receipts to an individual donor, can apply for funding from qualified donees such as charitable foundations, is exempt from paying income tax under Part 1 of the Income Tax Act and is exempt from charging GST/HST on many goods and services it may provide. In many situations, registered charities may also claim a partial rebate for the GST/HST it pays.
Qualifying to be a registered charity
To qualify for registration as a registered charity an organization must have purposes that are exclusively charitable and also have charitable activities that support those purposes. The purposes (also called objects) of a charity describe the aim or main intent of the organization. The activities describe how the organization will accomplish its purposes. The objects must fall under one or more of the four heads of charity set out above.
In addition to having exclusively charitable purposes and activities, the organization's purposes and activities must also meet a public benefit test. To qualify under this test, the organization must show that:
- its purposes and activities provide a measurable benefit to the public; and
- the people who are eligible for benefits are either the public as a whole or a significant section of it.
Applying for registration
In order to qualify as a registered charity an application along with supporting documentation must be submitted to the Charities Directorate of the Canada Revenue Agency.
The organization must include copies of its governing documents including Certificates and Articles of Incorporation, any Certificates and Articles of Amendment and a Certificate of Status if incorporated over five years ago. Alternatively, organizations may submit any trust or constitution documents that establish its existence, if it is not incorporated.
To qualify as a registered charity, an organization must demonstrate in its application that it devotes all of its resources to charitable activities that directly further its charitable purposes. A detailed description of each of the activities carried out should be included in the application. Any supporting documentation related to each activity should also be included in the application. This can include minutes of meetings, newspaper articles, website information, videos, fundraising materials, pamphlets or brochures.
It is expected that charities engage in fundraising activities as a means to collect donations to fund their charitable activities. In its application, the organization must provide a detailed description of each income generating activity. For organizations engaging in activities outside Canada, information on these activities and how the organization maintains control will need to be provided. Organizations that own real property will also need to provide sufficient details with respect to the title-holder arrangements. All organizations will also need to include a proposed budget covering a 12-month period. Organizations that have been in operation for more than a year will also need to provide a copy of the organization's most recent financial statements.
These are only a few of the most common sections in the charity application. The information and supporting documentation to be included ultimately depends on the organization's governance structure, purposes and activities.
Applying to be a registered charity can be daunting, but it doesn't have to be, Soloway Wright LLP's experienced legal team is ready to help.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
