Tax Returns and Other Tax Filings for NPOs
Non-profit organizations (NPOs) in Canada are generally required to file a tax return even though they are exempt from tax on all or parts of its taxable income under the Income Tax Act.
Income Tax Return
NPOs can be either incorporated or unincorporated. Unincorporated NPOs are generally not required to file income tax returns, while incorporated NPOs are required to file a T2 Corporation Income Tax Return.
An NPO that is a trust may be required to file a T3 Trust Income Tax Return. Also, any unincorporated or incorporated NPO with a club, society or association which has the main purpose to provide dining, recreational or sporting facilities for its members is deemed to be a trust and may be required to file a T3 Trust Income Tax Return and pay tax on property income and taxable capital gains in excess of $2,000.
Information Return
NPOs may also be required to file form T1044 - Non-Profit Organization Information Return for a fiscal period only if:
- the NPO received or was entitled to receive taxable dividends, interest, rentals, or royalties totalling more than $10,000 in the fiscal period;
- the book value of total assets of the organization were more than $200,000 at the end of the immediately preceding fiscal period; or
- if the NPO filed an information return for a previous fiscal period.
Once an NPO files a T1044 information return, it must continue to file the T1044 information return form for all subsequent periods as long as it continues to operate as an NPO. Please note that NPOs are not required to include financial statements with their NPO information return.
Filing Deadlines
The T1044 NPO Information Return and T2 Corporation Income Tax Return must be filed no later than six months after the end of the organization’s fiscal period. If an NPO is required to file a T3 Trust Income Tax Return, it must be filed no later than 90 days after the NPO’s fiscal year end.
NPOs that are required to file a T1044 NPO Information Return but fail to do so on time are subject to penalty fees. The basic penalty is $25 per day late. There is also a minimum penalty of $100 and a maximum of $2,500 for each failure to file. To find more information on how to complete the NPO Information Return, visit the Canada Revenue Agency (CRA) website.
Visit McCay Duff LLP’s website to learn more about tax filing for NPOs.
Looking for more tax information for your NPO? Reach out to our team at npo.consulting@uwaterloo.ca.
Tax Differences: Not-for-Profit Organization (NPO) vs. Charity
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.
Ontario Property Tax Exemption for NPOs
In Ontario, all real property is subject to municipal property tax. Ontario’s Assessment Act provides exemptions for certain organizations. Eligible organizations are not subject to Ontario property tax on land used and occupied by the organization.
Eligibility
Eligible organizations include childcare centres, house of refuge organizations, care homes, non-profit hospices, and non-profit philanthropic or charitable organizations organized for the relief of the poor if the organization is partially supported by public funds. Please see Section 3 of the Assessment Act for a more comprehensive list of organizations eligible for the exemption.
Property Tax Rebate
Aside from the property tax exemption, registered charities may be eligible for a minimum of 40% rebate on property tax paid. The rebate encompasses property taxes paid directly or indirectly by tenants. Non-profit organizations that are not registered charities may also qualify for a rebate from individual municipalities. Please contact your local municipality for questions about assessments and exemptions.
Visit the Ontario government website for more information on not-for-profits, taxes and exemptions or about the Assessment Act 1990.
Looking for more tax information for your NPO? Reach out to our team at npo.consulting@uwaterloo.ca.
GST/HST Considerations for Ontario NPOs
In general, GST/HST applies to most properties and services that non-profit organizations (NPOs) supply. As a result, most NPOs must charge GST/HST on the goods and services that they supply, and remit collected amounts to the Canada Revenue Agency (CRA).
Organizations that sell exempt supplies of property and services do not need to charge GST/HST and thus cannot claim input tax credits (ITCs) on purchases of taxable supplies of property and services. However, these organizations may be eligible for the Public Service Body (PSB) rebate. These topics are discussed in more detail below.
Organizations that sell taxable supplies of property and services that are zero-rated supplies do not need to charge GST/HST but can claim ITCs on purchases of taxable supplies of property and services.
GST/HST Registration
An organization should register for the GST/HST account if taxable supplies are provided in Canada unless if the organization is a small supplier. In general, most property and services supplied in Canada are considered taxable supplies and are subject to GST/HST. However, there are exemptions for various supplies made by NPOs including free supplies, fund-raising activities, memberships sold by an NPO or professional organization, and supplies of food, beverages, or short-term accommodation for relief of poverty, suffering, or distress. There supplies may be exempt from GST/HST when made under specific conditions. More information on taxable supplies can be found here and more information on the exemptions can be found here.
An NPO would be considered a small supplier if worldwide annual GST/HST taxable supplies (including zero-rated supplies) are less than $50,000 in a 12-month period. When the $50,000 limit is exceeded in any calendar quarter, an organization is no longer considered a small supplier and must register for GST/HST. Please note that small suppliers may choose to register voluntarily even if the NPO’s revenue is below the threshold. This can be beneficial to obtain ITCs for expenditures where eligible.
After Registration for GST/HST
Organizations must charge GST/HST on taxable supplies of property and services sold (other than zero-rated supplies). GST/HST collected must be remitted to the CRA with a GST/HST return.
Generally, an ITC can be claimed on the GST/HST return to recover GST/HST paid or payable on purchases and expenses utilized or consumed in commercial activity (business in the nature of trade with a reasonable expectation of profit) unless the purchase/expense relates to an exempt supply. More information on ITCs can be found here.
NPOs providing exempt supplies generally cannot claim ITCs to recover GST/HST paid on expenses. However, NPOs may be eligible to claim a GST/HST public service bodies’ rebate to recover some of the tax, as discussed below.
Filing Frequency
The frequency in which NPOs should file a GST/HST return depends on the revenue earned in the year. Please note that GST/HST returns can be elected to be filed more frequently if desired.
- Organizations with $1.5 million or less revenue from taxable supplies in the previous fiscal year must file annually.
- Organizations with more than $1.5 million and up to $6 million revenue from taxable supplies in the previous fiscal year must file quarterly.
- Organizations with over $6 million revenue from taxable supplies in the previous fiscal year must file monthly.
PSB Rebate
A public service body (PSB) which includes both charities and NPOs may be able to claim a PSB rebate. The rebate allows qualifying NPOs to recover:
- 50% of GST;
- the federal part of HST paid on eligible purchases and expenses for which ITCs cannot be claimed; and
- a portion of the provincial part of HST paid for residents in participating provinces
PSB Rebate Eligibility
To be eligible for the PSB rebate, the NPO must either be a qualifying NPO or a registered charity. Generally, an NPO would be considered a qualifying NPO if at least 40% of revenue for the fiscal year is government funding. Form GST523-1 NPO Government Funding must be completed for qualifying NPOs.
NPOs do not need to be registered for the GST/HST to claim the PSB rebate. More information on how to apply for the PSB rebate can be found here.
Visit the CRA website to read a more information about reporting periods for GST/HST Registrants, exemptions for non-profit organizations, or about public service bodies’ rebate.
Looking for more tax information for your NPO? Reach out to our team at npo.consulting@uwaterloo.ca.
