Charitable organizations in Canada are regulated under the Canadian Income Tax Act through the Charities Directorate of the Canada Revenue Agency.
Contents
- Definition of charity in Canada
- Charitable activities
- Federal regulator of charities
- Advantages of registered charity status
- Basic requirements for maintaining registered charity status in Canada
- Strengthening of regulatory powers
- Other regulators of Canadian charities
- References
There are more than 85,600 registered charities in Canada. TGDP of Canada. Registered charities are registered under the Income Tax Act as either a "charitable organization", "public foundation" or "private foundation". Although these distinctions were more important in the past, there are now few practical differences between the three types of registered charities.
Definition of charity in Canada
The Income Tax Act does not define "charity" and Canada uses a common law definition, namely purposes that fall within the four "heads" of charity: the relief of poverty, the advancement of education, the advancement of religion, or other purposes that benefit the community in a way the courts have said are charitable.
This definition comes from the English case Commissioners for Special Purposes of Income Tax v. Pemsel commonly referred to as Pemsel.
The organization's purposes must be exclusively and legally charitable. Therefore all the purposes of the charity must be charitable, not just most purposes. In addition the organization must be established and resident in Canada.
Furthermore, there is a public benefit test: the charity must benefit the public or a sufficient segment of the public to be a registered charity in Canada.
Charitable activities
Canadian registered charities can carry out charitable activities by either gifting funds to a qualified donee or by carrying on its own activities through employees, volunteers or intermediaries.
Canadian charities can also, within certain limitations, carry out fundraising activities, business activities, political activities and social activities.
Charities can also participate in Community Economic Development (CED) activities. CED activities may further charitable purposes that: relieve poverty; advance education; or benefit the community in other ways the law regards as charitable. However, it is important to note that the CRA does not recognize CED activities as a distinctly charitable in and of itself. CED activities have been closely linked to developments in social enterprise and social finance as a way for charities and non-profits to be more sustainable. According to Mark Blumberg, in 2012 charities earned more revenue than they received donations. A number of organizations, such as Enterprising Non-Profits, Centre for Social Innovation and Assiniboine Credit Union have been supporting charities and non-profits participating in CED activities across Canada. Other notable Canadian leaders in the field supporting charities to engage in CED and social enterprise development are Tonya Surman, Mitchell Kutney, David LePage and Bruce Campbell.
The Charities Directorate provides a glossary of terms relating to charity law and compliance for Canadian charities.
Canadian charities can conduct charitable activities in Canada and abroad. In July 2010 the Charities Directorate released "Canadian Registered Charities Carrying Out Activities Outside Canada" which replaces earlier guidance on Canadian charities conducting foreign activities. There are numerous legal and ethical issues with Canadian charities conducting foreign activities.
Federal regulator of charities
The Charities Directorate of the Canada Revenue Agency is the primary regulator of registered Canadian charities under the Income Tax Act.
The mission of the Charities Directorate is:
"... to promote compliance with the income tax legislation and regulations relating to charities through education, quality service, and responsible enforcement, thereby contributing to the integrity of the charitable sector and the social well-being of Canadians."
The Charities Directorate of the Canada Revenue Agency is responsible for:
Advantages of registered charity status
There are many advantages of being a registered charity under the Income Tax Act including:
- being able to issue "official donation receipts" for gifts to the registered charity which may assist a Canadian donor in reducing the amount of federal and provincial tax payable. For a donor in a high marginal tax rate in Canada, their donation can result in a reduction in taxes of between 40-60% of the donation depending on the province of the taxpayer and type of property donated.
- it is easier to receive funds from certain entities such as other Canadian registered charities (e.g. foundations) or being a registered charity may be a condition of applying for grants from business or government etc.
- there are reputational advantages to being a registered charity.
- other advantages including reductions in property tax, exemptions and rebates under the GST/HST system.
In light of the substantial advantages of being a registered charity there are some restrictions, limitations and obligations of being a registered charity which are discussed below.
Basic requirements for maintaining registered charity status in Canada
In order to maintain their status under the Income Tax Act, charities must comply with basic requirements on:
Strengthening of regulatory powers
Effective January 2012, the Income Tax Act was amended to provide that charities and registered Canadian amateur athletic associations ("RCAAAs") may have their registration refused or revoked, or be suspended from issuing official donation receipts, if an "ineligible individual" acts as a member of the board of directors, a trustee, officer or like official, or controls or manages the operation of the organization. An "ineligible individual" is someone who:
A "relevant criminal offence" is defined as a conviction involving a form of financial dishonesty by the individual, such as tax evasion, theft and fraud. A "relevant offence" relates to financial dishonesty including offences under fundraising legislation, consumer protection legislation and securities legislation. Both cases can also extend to offences not involving dishonesty, but are nonetheless relevant to the operation of the charity or association.
Other regulators of Canadian charities
In addition to the federal Income Tax Act regulation of registered charities, charities that operate in a particular province are subject to provincial supervision. Of all the provinces, Ontario's Office of the Public Guardian and Trustee has been the most active in the regulation of charities.
The Department of Finance is responsible for the Income Tax Act, its regulations and any amendments to the Act.
If there is a dispute between a federal or provincial regulator and a registered charity then that registered charity may go to court in which case the courts will have the final say in determining the outcome of the dispute.
Other government departments are also involved with regulating charities. For example, if a charity is incorporated it is subject to the rules of the incorporating statute. Therefore, an Ontario non-profit corporation must look in part to the Ontario Corporations Act and a federal non-share capital corporation is governed under the Canada Corporations Act. Different types of charities are subject to sectoral regulation - for example universities, hospitals, daycares, etc.