Non-Profit & Charity Law
 

The following questions and answers are distilled from Registering a Charity for Income Tax Purposes, a publication of the Canada Customs and Revenue Agency, Charities Division.

What are the basic advantages of being a registered charity?
Registration allows an organization to issue official receipts for gifts received. This reduces the individual donor's income tax payable and reduces the taxable income of a corporate donor. Once the organization is registered, it is exempt from paying income tax (under Part I of the Income Tax Act).

What are the obligations of a registered charity?
Once it is registered, an organization must: (a) devote its resources to charity, (b) continue to meet the other requirements of registration, and (c) file a Registered Charity Information Return within six months of the organization's year-end.

Does an organization need to be registered?
An organization may not need to be registered in the following situations: (a) it does not need to be exempt from income tax and it does not anticipate receiving gifts for which it will issue official receipts for income tax purposes, or (b) it is a branch or agent of a Canadian municipality, or is raising funds for a municipal project. Organizations should keep in mind that some provinces and municipalities will only grant certain licences or provide relief from provincial and municipal taxes to organizations that are registered charities under the Income Tax Act. Special provisions are available for registered charities under the goods and services tax rules.

If an organization cannot meet the requirements for becoming a registered charity, it may qualify as a non-profit organization under the Income Tax Act. An organization with non-profit status does not have to pay tax on most types of income, but it cannot issue official receipts for income tax purposes.

Are charities subject to other federal and provincial requirements?
The Income Tax Act is not the only law that applies to charities. Charities can also be subject to other federal or provincial legislation that is associated with their operations, such as provincial or municipal standards for a nursing home, hospital, school board or housing project. At the federal level, registered charities also have to meet the requirements of the Goods and Services Tax (GST) or the Harmonized Sales Tax (HST), and may need to register with the Canada Customs and Revenue Agency (CCRA) for GST/HST purposes. An organization may be able to claim a rebate for a part of the GST and HST it paid or owes on goods and services it purchased for use in its activities. However, an organization is eligible for the rebate only after it is registered as a charity.

If a charity is federally or provincially incorporated, it has to meet certain requirements under the incorporating law. These may include the requirement that corporations send returns to the appropriate incorporating authority.

What standards does CCRA use to register charities?
To qualify for registration, an organization must be established and operated for charitable purposes, and it must devote its resources to charitable activities. The charity must be resident in Canada, and cannot use its income to benefit its members. A charity also has to meet a public benefit test. To qualify under this test, an organization must show that: its activities and purposes provide a tangible benefit to the public; those people who are eligible for benefits are either the public as a whole, or a significant section of it, in that they are not a restricted group or one where members share a private connection, such as social clubs or professional associations with specific membership; and the charity's activities must be legal and must not be contrary to public policy.

What forms of organizations can be registered? 
For purposes of registration as a charity, the organization has to be either incorporated or governed by a legal document called a trust or a constitution. This document must explain the organization's purposes and structure.

What are charitable purposes? 
The courts have identified four general categories of charitable purposes. For an organization to be registered, its purposes have to fall within one or more of the following categories: the relief of poverty, the advancement of education, the advancement of religion, or certain other purposes that benefit the community in a way the courts have said are charitable. The following are examples of the types of organizations that may qualify as charitable under each of the four categories:

• Organizations established for the relief of poverty include food banks, soup kitchens, and enterprises that supply low-cost rental housing, clothing, furniture and appliances to the poor.
   
• An organization established for the advancement of education is charitable if it involves formal training of the mind or formal instruction, if it prepares a person for a career or if it improves a useful branch of human knowledge. Only providing information is not accepted by the courts as educational, training or instruction also have to be offered. The advancement of education includes: establishing and operating schools, colleges, universities and other similar institutions, establishing academic chairs and lectureships, providing scholarships, bursaries and prizes for scholastic achievement, undertaking research in a recognized field of knowledge (and the research must be carried out for educational purposes and the results must be made available to the public), advancing science and scientific institutions, including maintaining learned societies (however, professional associations or other societies that primarily provide benefits to members are not considered charitable), and providing and maintaining museums and public art galleries. The courts have ruled that an activity which advances education should involve a full and fair presentation of the facts so people can draw their own conclusions. If an organization intends to influence the opinion or actions of the public toward one side of a controversial issue, it is not advancing education in the charitable sense. For this reason, an advocacy group would not qualify as a charity.
   
• The advancement of religion refers to promoting the spiritual teachings of a religious body, and maintaining the doctrines and spiritual observances on which those teachings are based. There has to be an element of theistic worship, which means the worship of a deity or deities in the spiritual sense. To foster a belief in proper morals or ethics alone is not enough to qualify as a charity under this category. A religious body is considered charitable when its activities serve religious purposes for the public good. The beliefs and practices cannot be what the courts consider subversive or immoral. Other activities that advance religion include: organizing and providing religious instruction, and performing pastoral and missionary work, and establishing and maintaining buildings for worship and other religious use.
   
• Purposes beneficial to the community include various purposes that do not fall within the other categories, but which the courts have decided are charitable. However, not all purposes that benefit the public are charitable. For example, a property owners' association or community association might not qualify. Organizations that normally qualify as charitable include those with the following purposes: providing immediate relief to victims of natural disasters or sudden catastrophes (e.g., floods, earthquakes and tornadoes), relieving suffering or disability caused by old age, which includes providing facilities for the care, maintenance and rehabilitation of the elderly, preventing and relieving sickness and disability, both physical and mental (e.g., services performed by hospitals, clinics, nursing and convalescent homes, the provision of home care services and the establishment of workshops or other centres for disabled people), providing rental housing and related facilities for people with special needs (e.g., homes for disabled people), preserving the environment, protecting the welfare of children (e.g., societies for the prevention of child abuse), providing counselling services for people in distress, rehabilitating victims of substance abuse and preventing substance abuse, providing certain public amenities to benefit the community, establishing safety rescue operations or a volunteer fire department, and establishing humane societies, animal shelters and similar institutions to prevent cruelty to animals.

What factors will disqualify an organization from registration? 
The Income Tax Act stipulates that no part of a registered charity's income can be payable or otherwise available to personally benefit any proprietor, member, shareholder, trustee or settler of the organization. However, this does not prevent an organization from paying for services rendered, or incurring and paying other expenses that are associated with the normal operation of the charity.

Under Common Law, political purposes are not charitable and an organization will not qualify for charitable registration if at least one of its purposes is political. In this regard, the courts have decided that organizations seeking to achieve political objects, in whole or in part, cannot be recognized as charities. Examples of purposes of a political nature include: furthering the aims of a political party, promoting a political doctrine, persuading the public to adopt a particular view on a broad social question, and attempting to bring about or oppose changes in the law or government policy. As well, purposes that are so broad as to allow for unlimited political activity are not acceptable.

Under the Income Tax Act, a registered charity that is established exclusively for charitable purposes can engage to a limited extent (i.e., devote no more than 10% of the charity's resources) in non-partisan political "activities" which directly help accomplish the charity's purposes. This includes, for example, distributing publications or holding conferences, workshops or other forms of communication intended primarily to sway public opinion to the charity's point of view. However, the Act specifically prohibits a registered charity from engaging in any partisan political activity. Partisan political activity usually means supporting or opposing, monetarily or otherwise, a political party or candidate for public office.

What types of organizations or activities are not "charitable at law"? 
The public supports and benefits from a number of worthwhile organizations and activities. However, the courts may not consider all of these as "charitable" in the legal sense. Many service clubs and fraternal lodges devote their resources to a mix of charitable and non-charitable activities.

For example, many clubs provide services for needy members of the community, but also hold regular social events for their members. Therefore, they cannot be registered as charities under the Income Tax Act. However, these groups could establish a separate organization to handle their charitable activities (e.g., a trust established to purchase wheelchairs for physically challenged children) and then apply for charitable registration on its behalf.

Further examples include organizations or endeavours established to provide assistance to a single identified individual or to a group of specifically named individuals that is established for private benevolence. The courts do not accept the act of private benevolence as charitable, since it lacks the necessary element of public benefit.

What types of charities are identified by the Income Tax Act? 
There are three types of charity. The designation of a charity depends on its structure, its source of funding and the charity's mode of operation. The Income Tax Act requirements are different, depending on the type of charity:

• A charitable organization (e.g., a hospital) primarily carries on its own charitable activities. It can be a corporation, or it can be established by a constitution or a trust document. Less than 50% of its directors/trustees are related persons and at least 50% of the funds it receives are from donors who are not related persons.
   
• A public foundation (e.g., a hospital foundation) gives more than 50% of its income annually to other qualified donees, usually other registered charities. It must be established either as a corporation or a trust. Less than 50% of its directors/trustees are related persons and at least 50% of the funds it receives are from donors who are not related persons. A public foundation may carry on some of its own charitable activities.
   
• A private foundation may either carry on its own charitable activities, or it may give funds to other qualified donees, usually other registered charities. It must be established either as a corporation or a trust. Fifty percent or more of its directors/trustees are related persons or otherwise do not deal at arm's length, and more than 50% of its funds are received from one person or from a group of persons who do not deal with each other at arm's length.
   
• Public foundations and charitable organizations can only operate businesses that are related to their mandate or that are run substantially by volunteers. Private foundations are not allowed to engage in any business activity.