Your community group is fired up and ready to make an impact. Now the question is, how can you get the resources you need? For many organizations, charitable giving is the fuel for their fire. When people know you are not seeking a profit but are fulfilling charitable objectives in the community, people may decide to donate money to support your work.
Moreover, when a person makes a donation to a “registered charity” they are eligible for tax credits. This can be a big incentive for potential donors. To be registered means to apply for and receive charitable status from the Canada Revenue Agency (CRA). There is helpful guidance from the federal government on how to apply to become a registered charity.
To be a charity, you must not operate on a for-profit basis and the organization does not pay income tax. But this is also true for many incorporated non-profit organizations (NPOs) that are not charities. So, what is the difference between a charity and an NPO? What are the advantages and obligations?
To be a charity your organization must be created in and operating in Canada, and must use its resources to carry out charitable activities and have charitable purposes. The government of Canada defines these purposes and gives some examples:
- relief of poverty (for example food banks, social services, and low-cost housing units)
- advancement of education (colleges, universities, and research institutes)
- advancement of religion (places of worship and missionary organizations)
- purposes beneficial to the community (such as animal shelters, libraries, and volunteer fire departments)
However, there are a wide range of NPOs that are not charities but carry out a diverse array of community activities. They do not pay income tax, but cannot issue tax receipts for donations. The CRA states these may be “organized and operated exclusively for social welfare, civic improvement, pleasure, recreation, or any other purpose except profit.” These include:
- social, recreational, or hobby groups (garden clubs, hiking groups, vintage car clubs)
- certain amateur sports organizations (hockey associations, baseball leagues, and soccer leagues)
- certain festival organizations (parades and seasonal celebrations)
In Canada, your group can be a registered charity or you can be incorporated as an NPO, but not both (a group can also be an unincorporated non-profit). As a registered charity you enjoy certain advantages but you have some additional rules and reporting requirements:
- You receive a charitable registration number from the CRA. This is your proof to donors that you are indeed a registered charity.
- You can issue official donation receipts for income tax purposes.
- You must file an information return (Form T3010) every year with the CRA.
Remember that whether you are a registered charity or incorporated as an NPO, your organization cannot use its income to personally benefit its members. You can hire staff and pay them wages, fees for service or a salary. This income is then treated the same for tax purposes as employment income from a for-profit organization.
The Government of Canada provides further information about registered charities.