Miller Thomson

LawNow June / July 2001

Charitable and Non-Profit Organizations: What is the difference?

Charitable and non-profit organizations share many characteristics. They are non-profit and direct their resources to furthering their objects. There are however critical differences between a non-profit organization (NPO) and a charitable organization. NPOs do not have the right to be registered under the Income Tax Act (Canada) (the ITA) with the Canadian Customs and Revenue Agency (CCRA) as registered charities. The ITA recognizes two categories of charities eligible for exemption from income taxation and issuance of charitable receipts, a charitable organization and a charitable foundation.

NPOs are not entitled to issue receipts for donations received by them, whereas charities, if registered, are permitted to issue receipts for income tax purposes. A tax credit, up to a maximum allowable credit, may be claimed by individuals in respect of their charitable donations. A tax deduction, also subject to a limit, may be deducted by a corporation in respect of its charitable donations. The ITA treats donations from individuals differently than donations from corporations.

A charity is not required to register with Revenue Canada as a "registered charity." There are, however, a number of advantages to registration. These advantages are as follows:

a) the organization may issue tax receipts;

b) the organization is exempt from taxation;

c) the organization may more readily qualify for other benefits.

Some of the disadvantages of registration include the following:

a) the organization must devote all of its resources to its charitable activities;

b) the organization must make annual filings with CCRA;

c) none of the property of the organization may be distributed to the members on dissolution or winding up of the organization.

Registered charities are automatically exempt from tax on their income.

An NPO may be exempt from the payment of tax on its income if the following conditions are met:

a) it must not, in the opinion of the Minister, be a charity;

b) it must be organized exclusively for social welfare, civic improvement, pleasure, recreation or any other purpose except profit;

c) it must in fact be operated exclusively for one of the purposes mentioned in (b); and

d) no part of its income may be paid, payable or otherwise made available for the personal benefit of any proprietor, member or shareholder.

NPOs may, however, be subject to tax on their property income and on certain taxable capital gains.

An NPO is not required to file an information return under the ITA unless it has certain types of income, such as:

a) if it receives more than $10,000 in interest, rentals or royalties;

b) if it has more than $200,000 in assets at th end of the preceding fiscal year; or

c) if it has filed an information return in a preceding fiscal year.

Registered charities must, within six months after the charity's fiscal period, file a Registered Charity Information Return and Public Information Return with applicable schedule.

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