Organizations that operate on a non-profit basis can be classified as a charity or non-profit organization (NPO). Organizations operating as a charity cannot be considered an NPO even if the charity is not registered or cannot be registered. Please note there are separate rules for Canadian amateur athletic associations and these rules are not discussed in this article.
Purpose
Registered charities are charitable organizations, public foundations, or private foundations resident in Canada. A registered charity’s resources must be used for charitable activities and have charitable purposes within one of the following categories:
- the relief of poverty,
- the advancement of education,
- the advancement of religion, and/or
- other purposes that benefit the community.
NPOs are associations, clubs or societies that are NOT charities. These organizations must be organized and operated exclusively for one of the following purposes:
- social welfare,
- civic improvement,
- pleasure,
- recreation, or
- any other purpose except profit.
Registration
Charities must apply to the CRA and be approved to be considered a registered charity. NPOs do not have a required registration process for income tax purposes.
Charitable Donation Tax Receipts
Once a charity’s application to become a registered charity is approved, a charity registration number will be issued. Then, the charity can issue official donation receipts for income tax purposes to donors. The tax receipts will allow individuals to claim a tax credit for their donations to the charity and allow corporations to claim a deduction when calculating taxable income.
As NPOs do not need to register with the CRA for income tax purposes, a charitable registration number will not be issued. Thus, NPOs cannot issue official donation receipts for tax purposes.
Tax Exempt Status
Registered charities have a tax-exempt status and so, are exempt from paying income tax. NPOs are generally exempt from paying income tax. However, please note that certain NPOs are deemed to be trusts and may be required to pay tax on property income and capital gains.
Tax Returns
Registered charities are required to file an annual information return - Form T3010 Registered Charity Information Return - within 6 months of its fiscal year-end.
Incorporated NPOs may be required to file a T2 Corporation Income Tax Return. NPOs that are trusts or deemed to be trusts, may be required to file a T3 Trust Return.
All NPOs must file an information return - Form T1044 NPO Information Return - if:
- it received or was entitled to receive taxable dividends, interest, rentals, or royalties totaling $10,000 or more;
- the total assets of the organization exceed $200,000; or
- it had to file a T1044 return for a previous fiscal period.
Note that registered charities do not need to file a T1044. Please see our prior article on tax returns for more details on NPO tax return obligations.
Visit the Canada Revenue Agency (CRA) website for a detailed Income Tax Guide to the Non-Profit Organization (NPO) Information Return or more information about the difference between a registered charity and a non-profit organization.
Looking for more tax information for your NPO? Reach out to our team at npo.consulting@uwaterloo.ca.