What is the difference between a registered charity and a non-profit organization?
Although registered charities and non-profit organisations (NPOs) both operate on a non-profit basis, they are not the same.
Registered Charity
Charitable organisations, public foundations, and private foundations established and based in Canada are considered registered charities. Depending on the entity’s structure, source of funding, and mode of operation, the Income Tax Act distinguishes between charitable organizations, public foundations, and private foundations. Foundations often give grants, while charitable organizations are usually operational charities.
A registered charity is designated as a “charitable organisation” if it devotes its resources primarily to charitable activities conducted by itself and more than half of its directors/trustees deal with each other at arm’s length (i.e., are not related by blood, marriage, common law relationships, or close business ties).
Public foundations are charitable organizations with the designated status of ‘Registered Charity’, constituted and operated exclusively for charitable purposes; they are corporations or trusts; and more than half of their directors and trustees are not related by blood, marriage, common-law relationships or close business ties).
A private foundation is one with all the characteristics of a public foundation, but more than half its board members are related by blood, marriage, common-law relationships or close business ties.
For an organization to be considered a charity, it must use its resources for charitable purposes that fall into one of the four categories listed below:
- Poverty alleviation
- Educational advancement
- Religious advancement
- Purposes beneficial to the community
Examples of registered charities
Some examples of registered charities under each of the four categories:
- Poverty Alleviation (low-cost housing units and food banks)
- Educational advancement (colleges, and research institutes)
- Religious advancement (places of worship and missionary entities)
- purposes beneficial to the community (Community centres and libraries)
Non-profit organizations
The primary definition of a non-profit organisation (NPO) is provided by the Section 149(1) Income Tax Act, which is as follows:
“A club, society, or association that, in the Minister’s opinion, was not a charity within the meaning of subsection 149.1(1) and that was organised and operated exclusively for social welfare, civic improvement, pleasure or recreation, or any other purpose other than profit, and no part of the income of which was payable to, or otherwise available for the personal benefit of, any proprietor, member, or shareholder thereof…” (Income Tax Act, Section 149(1)(l)).
The term “club, society, or association” includes corporations and trusts. The key criterion is that profit cannot be the entity’s primary goal. However, this does not imply that profitable activities are prohibited.
Non-profit organisations include social, recreational, or hobby groups, some amateur sports organisations, and certain festival organisations.
A charity cannot be considered or operate as a non-profit organisation. You can only meet one of the classifications, not both.
The Canada Revenue Agency (CRA) tax services offices are responsible for determining whether an organisation can operate with the status of a registered Charity. Also worthy of note is that thet determine if a Not-for-profit organization or Charity qualifies for tax-exempt status.
The major differences in Registered Charities and Not-for-profit are detailed below ( excerpt from CRA Website)
| The differences between a registered charity and a non-profit organization | ||
|---|---|---|
| Topic | Registered charity | NPO |
| Purposes |
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| Registration |
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purposes |
| Charitable registration number |
|
|
| Tax receipts |
|
|
| Spending requirement (disbursement quota) |
|
|
| Designation |
|
|
| Returns |
|
return (Form T1044) or both within six months of its fiscal year-end |
| Personal benefits to members |
|
|
| Tax exempt status |
|
|
| GST/HST |
|
only if it receives significant government funding
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This article is presented for informational purposes only. The content does not constitute legal advice or solicitation nor does it create a solicitor-client relationship. The opinions stated are exclusively the writers’ and should not be attributed to any other party, including F.Taiwo Law Office or its clients. The writers make no assurances regarding the accuracy or adequacy of the information in this article.
If you are seeking legal advice, please contact our team at F.Taiwo Law Office. We would be pleased to provide you with our assistance on any issues raised in this article.
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