Registering a Charity in Canada

Charities provide immense public benefit in Canada. Whether providing education for women and girls around the world, quality access to healthcare services, environmental efforts, or housing initiatives, charities have far reaching positive impacts on those individuals and groups that need support. As the owner of an organization that provides or intends to operate for a charitable purpose, it is important to understand the various advantages and obligations that registering your charity will bring. A charitable organization is defined by the Canadian Revenue Agency as an organization established and operated exclusively for charitable purposes[1]. Registering as a charity in Canada incorporates several advantages including an income tax exemption, goods and services tax/harmonized sales tax exemptions, while providing charitable benefit to the community[2]. To qualify for charity registration, your organization must have three key factors in place. First, the organization must be established and reside in Canada. Second, it must be established and operated for charitable purposes. Finally, the organization must devote its resources, including funds, personnel, and property to charitable activities.

1. Deciding to become a Registered Charity

Registered charity versus a non-profit

Charities and non-profit organizations seem to be similar, however they are quite different in actuality. Charities must operate for a charitable purpose, which falls under one or more of the four heads of charity that will be outlined in detail below. A non-profit, on the other hand, is a lot less limited in its purposes. It may operate for social welfare, civic improvement, pleasure, recreation, etc. The only purpose it may not have is that of profit. There are other differences between these two types of organizations that relate to the various obligations and advantages that each organization carries. The Government of Canada website provides a thorough overview of the differences between the two organizations here.

Advantages and obligations of becoming a registered charity

There are several advantages and obligations that come with registered charity status. As a charity you are exempt from paying income tax, GST and HST, you are able to receive gifts from other registered charities, you can issue official donation receipts, and you gain credibility and legitimacy in the neighbourhood. Your obligations as a charity on the other hand are to devote your resources to charitable purposes, maintain direction and control the use of all your resources, keep complete and accurate books and records, issue complete and accurate donation receipts, maintain your status as a Canadian legal entity, meet your annual spending requirement, file your annual Form T3010: Registered Charity Information Return within six months of your fiscal year-end, etc.

Factors that prevent an organization from becoming a charity

There may be many reasons why organizations fail to obtain their charity registration. The Government of Canada website outlines, for example, eight such factors including:

• your organization resides outside of Canada
• your organization does not have charitable purposes
• your organization is gifting to other organizations that are not qualified donees
• your organization is providing personal benefits either to members, shareholders, directors, or trustees
• your organization is providing private benefit to a particular individual or private group
• your organization is carrying on activities that support or oppose a political party or candidate
• your organization is conducting business activities with a view to profit, or
• your organization is participating in illegal activities or activities that are contrary to public policy in Canada.

2. Steps before Applying

Charitable purposes

Registration will only be granted to those organizations who have charitable purposes. There are four heads of charity in Canada including the relief of poverty, advancement of education, advancement of religion, and certain other purposes that benefit the community (a head that is determined by the courts to be charitable at law). Some examples of what charitable purposes may fall under this final category includes providing facilities for the care and rehabilitation of the elderly, preventing or relieving sickness and disability, etc. An organization’s purpose, and the activities that support this purpose, must likewise pass the public benefit test. You must be able to show that your organization’s purposes and activities provide a measurable benefit to the public, and the people who are eligible for benefits are either the public as a whole or a significant section of it.

Preparing your governing document

The registration process will require that you submit your organization’s governing documents, which may take the form of letters patent, articles of incorporation, a constitution, or a trust document. Governing documents identify the organization, and provide a description of its purpose, structure, and internal processes. The type of governing document required will depend largely on your organization, and whether you will run as a charitable organization, public foundation, or private foundation (each type will be elaborated on in the next section, including an identification of the governing documents necessary for each).

Types of registered charities

There are three types of charities in Canada, charitable organizations, public foundations, and private foundations.

            Charitable Organizations: A charitable organization is established as a corporation, trust, or through a constitution. Its purposes are restricted to charitable purposes, primarily conducts its own charitable activities, and receives most of its funding from multiple arm’s length donors. Likewise, charitable organizations are required to have more than 50% of its directors, trustees, or other officials at arms-length, meaning they are not related to each other by blood, marriage, common law partnership, or adoption. Governing documents: articles of incorporation, trust document, or constitution.

            Public Foundations: A public foundation likewise has a more than 50% arms-length requirement, has only charitable purposes, and receives its funding from a variety of donors. However, a public foundation is established as a corporation or trust, and it generally will give more than 50% of their income to other registered charities or qualified donees to carry out charitable purposes while likewise carrying out some of their own charitable activities. Governing documents: articles of incorporation or, trust document.

            Private Foundations: Finally, a private foundation will be established as a corporation or trust and can carry out its own activities or fund other donees. However, a private foundation will have only one director, trustee, or other official, and more than 50% of its funding will come from a person or group that control the charity. Governing documents: articles of incorporation or trust document.

Head body versus internal division

When applying as a head body, a charitable organization that has authority over its internal divisions, your organization can become a registered charity if it meets the requirements outlined by the Income Tax Act and common law. This means that the governing documents must show that the head body has control over the internal divisions through their articles of incorporation and has the authority to create and close internal divisions, own the property of the internal divisions, as well as appoint and control the board, approve the budget, and control the activities of the internal divisions. If registering as an internal division such as a branch, section, or other division of a registered charity that is already established, the internal division must provide a letter of good standing with the head body that outlines the following information:

• Date, name of the internal division, and name of the head body (legal and operating)
• Confirmation that the applicant is an internal division of the head body
• The date the internal division was established
• And the name, position, and signature of a director, trustee, or other official who has authority to sign for the head body.

The internal division must also provide the governing document of the head body.

3. Applying for Registration

Required documents

Since 2019, the Government of Canada has switched from requiring organization to submit Form T2050, Application to Register a Charity under the Income Tax Act, to an online form accessible on the My Business Account site through the Canada Revenue Agency. Depending on the nature of the charity, there are other documents that may need to be submitted together with the governing documents and the application form. See the chart below to determine whether you need to be prepared to submit supplementary documentation or information along with your application.

Describing activities  

As part of the application process, you will be required to provide a detailed description of any and all activities your organization plans to undertake in pursuit of the charitable purpose. When describing these activities you must include the following information:

• The name of the activity
• A description of the activity, including what you want to achieve, how you plan on running the activity, beneficiaries and the selection process for beneficiaries, fees, activity timeline, whether you will have any employees, or volunteers involved, your direction and control over the activity, and other logistics.
• Activity start date
• Any intermediaries or partnerships
• Location of the activity
• Expenditures
• Purpose of the activity (i.e. how it relates to the charitable purpose)

In addition, you can also provide any supporting documents that will help the Charities Directorate determine whether the activities you are planning are charitable, including minutes of meetings, newspaper articles, website information, fundraising materials, etc.

Submitting your application

The process of submitting your application differs depending on whether your organization is applying for registration for the first time, are applying for re-registration after being revoked charity status, or whether you are applying as a head body or an internal division. For a step-by-step overview for navigating the CRA My Business Account website, please refer to the Government of Canada resource here.

4. Application Review Process

Review for Completion

Once you have gathered all the required documents and filled out the online application, the Directorate will first verify that the application is complete.

If it is complete, you will receive a letter acknowledging that the Directorate has received the application and an approximate timeline for your application will be assigned to an officer for review.

If it is incomplete, your application will be rejected and returned. At times, the Directorate may ask for supplementary information or a clarification, and you will have 60 days to respond. If you fail to respond adequately to this request, you may be denied.

Review for Registration Status

The next step in the review process involves an officer reviewing the file to ensure that the purposes and activities of your organization are charitable.

Applications will be denied for those organizations whose activities and purposes are clearly not charitable.

If your application is accepted, you will receive a notice that include your organizations rights and responsibilities as a registered charity, a registration number, and the effective date of registration.

Appeals

If your application is denied, you can appeal the decision by filing a notice of objection to the Appeals Intake Centre within 90 days the original decision was mailed to you. Note that if you fail to respond to a request for clarification within the allotted time, and your file is closed, you cannot appeal as this is not considered a rejection.

5. Revoking your Registration

If you decide to revoke your registration at any point in time, your organization will lose certain privileges such as the ability to issue official donation receipts for gifts and exemption from income tax or GST/HST.  Likewise, your organization will have its name and the reason for revocation posted in the Canada Gazette and online and your organization will have to transfer all remaining property to an eligible donee. 

A special thank you to Julia Nowicki for her help and contributions to this article!

Want assistance to register a charity? Contact us today at 416-238-5527 to schedule an appointment with one of our lawyers.

The content of this article is written for general information purposes only and does not constitute specific legal advice. This article should not be used as a substitute for competent legal advice from a licensed lawyer. 

Citations

[1] François Brouard, NOTE ON NONPROFITS AND CHARITIES TAXATION, Sprott School of Business, Carleton University. Accessed online at: https://carleton.ca/profbrouard/wp-content/uploads/NoteTAXNPOcharitiestaxation.pdf

[2] Canada Revenue Agency, Registering for charitable or other qualified donee status, May21, 2020. Accessed online at: https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/registering-charitable-qualified-donee-status.html. All the subsequent information in the article is provided by this reference.