In common usage, the word ‘charity’ is often used to refer to any not-for-profit organization. However, legally, registered charities and non-registered not-for-profit organizations are treated differently for tax purposes in important ways.
While not-for-profits are generally exempt from income tax, registered charities have broader tax exemptions including the ability to issue charitable tax receipts to donors. Consequently, the rules governing registered charities are much stricter than those governing non-registered not-for-profits.
To attain charitable status an organization (including not-for-profit corporations, trusts and organizations created by constitution) must file an application with the Canada Revenue Agency (“CRA”) that meets the requirements set out in the Income Tax Act and at common law.
An organization’s purposes must be exclusively charitable and the organization must devote its resources to charitable activities supporting those purposes. “Charitable purposes” are narrowly defined as falling within four categories: relief of poverty, advancement of education, advancement of religion, and certain other purposes that benefit the community in a way that the courts have said is charitable. Political purposes are expressly prohibited, though charities may engage in limited non-partisan political activities to further their charitable objects.
Additionally, an organization must pass the “public benefit” test: the organization’s charitable purposes must be capable of delivering a charitable benefit either to the public or a sufficiently broad section of the public. Thus, charities cannot be used for the benefit of private individuals or private social clubs.
Lastly, the application must possess the requisite amount of detail and clarity to be approved by the CRA. The governing documents for the organization must include the charitable purpose category that the organization falls under, the means of providing the charitable benefit, and the eligible beneficiary group. One must also explain how each activity engaged in, or planned to be engaged in, relates to one or more of the stated charitable purposes in enough detail that the CRA can find a sufficient correlation.
To ensure compliance with CRA standards, it is advisable to have a lawyer experienced in charity law prepare and submit your application for charitable status.
Nick Wright is a Toronto lawyer with extensive experience in not-for-profit and charity law including applying for charitable status. Contact him now at nick[at]wrightbusinesslaw.ca to arrange a time to discuss setting up and registering your charitable organization.
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