Charitable organization (Canada)

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A charitable organization in Canada is regulated under the Canadian Income Tax Act through the Charities Directorate of the Canada Revenue Agency (CRA).

Contents

There are more than 85,600 registered charities in Canada. [1] The charitable sector employs over 2 million people and accounts for about 7% of the GDP of Canada. Registered charities are registered under the Income Tax Act [2] 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, [3] 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 [4] 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. [5]

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. [6]

Canadian charities can also, within certain limitations, carry out fundraising activities, [7] business activities, [8] political activities [9] [10] and social activities. Regal Prosperity, directed by Roble Regal, has engaged in social media driven charity campaigns directly paying out to the homeless and rewarding individuals for charitable deeds.[ citation needed ]

Charities can also participate in Community Economic Development (CED) activities. [11] 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 Canada Revenue Agency (CRA) does not recognize CED activities as 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. [12] 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. [13] Other notable Canadian leaders in the field supporting charities to engage in CED and social enterprise development are Tonya Surman, Mitchell Kutney, David LePage [14] and Bruce Campbell. [15]

The Charities Directorate provides a glossary [16] of terms relating to charity law and compliance for Canadian charities.

Canadian charities can conduct charitable activities in Canada and abroad. [17] 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. [18] [19]

Conservation organizations

Canada ranks 16th in land area per capita. [20] Between 1990 and 2019, the fraction of Canada's land area under protection doubled from 6% to more than 12%. [21] Organizations involved with habitat protection include the Nature Conservancy of Canada, Ducks Unlimited, Nature Canada, and many smaller organizations. Since many donors to Canadian conservation organizations are US-based tax payers, the CRA has defined the concept of Prescribed Donee as "a charity outside Canada whose purpose is to hold title to land in Canada or to transfer land to a registered charity in Canada for conservation purposes." [22] Currently, the CRA has approved American Friends of Canadian Nature, American Friends of Canadian Conservation, [23] [24] and Nature United as Prescribed Donees.

Federal regulator of charities

The Charities Directorate [25] 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." [26]

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:

  1. 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 with 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 the type of property donated.
  2. 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.
  3. there are reputational advantages to being a registered charity.
  4. 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: [27]

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. [28] 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 Federal Department of Finance is responsible for the Income Tax Act, its regulations and any amendments to the Act. [29]

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.

Misuse of charitable resources

There have been some concerns expressed about the misuse of Canadian charitable resources from the media, [30] government, and the public. Recently the OECD published a report highlighting concerns about Canadian charities being used for tax evasion and money laundering entitled Report on Abuse of Charities for Money-Laundering and Tax Evasion. [31] The Charities Directorate of the CRA has a number of web pages alerting donors to avoid abusive tax shelter donations schemes and fraud involving charities. [32]

In July 2010 there was widespread coverage of the fraud of Ashley Kirilow, a young Ontario woman who shaved her head, her eyebrows, and plucked out her eyelashes in order to represent herself, on her facebook page, as a cancer sufferer, so she could solicit donations to support her recovery. [33] [34] While this was not a question relating to activities of a charitable organization, commentators speculated on the chilling effect her fraud would have on online donations. [35]

Academic resources on charity law in Canada

The primary academic resource for charity law in Canada is The Philanthropist.

University of Toronto's Bora Laskin Law Library offers a research guide of other academic resources.

Related Research Articles

A nonprofit organization (NPO) or non-profit organization, also known as a non-business entity, or nonprofit institution, is a legal entity organized and operated for a collective, public or social benefit, in contrary with an entity that operates as a business aiming to generate a profit for its owners. A nonprofit is subject to the non-distribution constraint: any revenues that exceed expenses must be committed to the organization's purpose, not taken by private parties. An array of organizations are nonprofit, including some political organizations, schools, business associations, churches, social clubs, and consumer cooperatives. Nonprofit entities may seek approval from governments to be tax-exempt, and some may also qualify to receive tax-deductible contributions, but an entity may incorporate as a nonprofit entity without securing tax-exempt status.

<span class="mw-page-title-main">Charitable trust</span> Irrevocable trust established for charitable purposes

A charitable trust is an irrevocable trust established for charitable purposes and, in some jurisdictions, a more specific term than "charitable organization". A charitable trust enjoys a varying degree of tax benefits in most countries. It also generates good will. Some important terminology in charitable trusts is the term "corpus", which refers to the assets with which the trust is funded, and the term "donor", which is the person donating assets to a charity.

<span class="mw-page-title-main">Donation</span> Gift given by physical or legal persons, typically for charitable purposes and/or to benefit a cause

A donation is a gift for charity, humanitarian aid, or to benefit a cause. A donation may take various forms, including money, alms, services, or goods such as clothing, toys, food, or vehicles. A donation may satisfy medical needs such as blood or organs for transplant.

The Canada Revenue Agency is the revenue service of the Canadian federal government, and most provincial and territorial governments. The CRA collects taxes, administers tax law and policy, and delivers benefit programs and tax credits. Legislation administered by the CRA includes the Income Tax Act, parts of the Excise Tax Act, and parts of laws relating to the Canada Pension Plan, employment insurance (EI), tariffs and duties. The agency also oversees the registration of charities in Canada, and enforces much of the country's tax laws.

Charitable contribution deductions for United States Federal Income Tax purposes are defined in section 170(c) of the Internal Revenue Code as contributions to or for the use of certain nonprofit enterprises.

A foundation is a category of nonprofit organization or charitable trust that typically provides funding and support for other charitable organizations through grants, but may also engage directly in charitable activities. Foundations include public charitable foundations, such as community foundations, and private foundations, which are typically endowed by an individual or family. However, the term "foundation" may also be used by such organizations that are not involved in public grantmaking.

<span class="mw-page-title-main">Charitable organization</span> Nonprofit organization with charitable purpose

A charitable organization or charity is an organization whose primary objectives are philanthropy and social well-being.

United States non-profit laws relate to taxation, the special problems of an organization which does not have profit as its primary motivation, and prevention of charitable fraud. Some non-profit organizations can broadly be described as "charities" — like the American Red Cross. Some are strictly for the private benefit of the members — like country clubs, or condominium associations. Others fall somewhere in between — like labor unions, chambers of commerce, or cooperative electric companies. Each presents unique legal issues.

A 501(c) organization is a nonprofit organization in the federal law of the United States according to Internal Revenue Code and is one of over 29 types of nonprofit organizations exempt from some federal income taxes. Sections 503 through 505 set out the requirements for obtaining such exemptions. Many states refer to Section 501(c) for definitions of organizations exempt from state taxation as well. 501(c) organizations can receive unlimited contributions from individuals, corporations, and unions.

Charity fraud is the act of using deception to get money from people who believe they are making donations to a charity. Often a person or a group of people will make material representations that they are a charity or part of a charity and ask prospective donors for contributions to the non-existent charity. Charity fraud not only includes fictitious charities but also deceitful business acts. Deceitful business acts include businesses accepting donations and not using the money for its intended purposes, or soliciting funds under the pretense of need.

Income taxes in Canada constitute the majority of the annual revenues of the Government of Canada, and of the governments of the Provinces of Canada. In the fiscal year ending 31 March 2018, the federal government collected just over three times more revenue from personal income taxes than it did from corporate income taxes.

Laws regulating nonprofit organizations, nonprofit corporations, non-governmental organizations, and voluntary associations vary in different jurisdictions. They all play a critical role in addressing social, economic, and environmental issues. These organizations operate under specific legal frameworks that are regulated by the respective jurisdictions in which they operate.

A 501(c)(3) organization is a United States corporation, trust, unincorporated association or other type of organization exempt from federal income tax under section 501(c)(3) of Title 26 of the United States Code. It is one of the 29 types of 501(c) nonprofit organizations in the US.

<span class="mw-page-title-main">Private foundation</span> Type of charitable organization

A private foundation is a tax-exempt organization not relying on broad public support and generally claiming to serve humanitarian purposes. The Bill & Melinda Gates Foundation is the largest private foundation in the U.S. with over $38 billion in assets. Most private foundations are much smaller. Out of the 84,000 private foundations that filed with the IRS in 2008, approximately 66% have less than $1 million in assets, and 93% have less than $10 million in assets. In aggregate, private foundations in the U.S. control over $628 billion in assets and made more than $44 billion in charitable contributions in 2007.

A foundation in the United States is a type of charitable organization. However, the Internal Revenue Code distinguishes between private foundations and public charities. Private foundations have more restrictions and fewer tax benefits than public charities like community foundations.

Taxes in Bulgaria are collected on both state and local levels. The most important taxes are collected on state level, these taxes include income tax, social security, corporate taxes and value added tax. On the local level, property taxes as well as various fees are collected. All income earned in Bulgaria is taxed on a flat rate of 10%. Employment income earned in Bulgaria is also subject to various social security insurance contributions. In total the employee pays 12.9% and the employer contributes what corresponds to 17.9%. Corporate income tax is also a flat 10%. Value-Added Tax applies at a flat rate of 20% on virtually all goods and services. A lower rate of 9% applies on only hotel services.

A flow-through share (FTS) is a tax-based financing incentive that is available to, among others, the mining sector. A FTS is a type of share issued by a corporation to a taxpayer, pursuant to an agreement with the corporation under which the issuing corporation agrees to incur eligible exploration expenses in an amount up to the consideration paid by the taxpayer for the shares.

<span class="mw-page-title-main">Marty Morantz</span> Canadian politician (born 1962)

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Charities Directorate of Canada is part of the Federal Ministry of National Revenue, and is responsible for reviewing the applications for charity registration, and auditing and maintaining accountability through education and responsible enforcement. They work to count and monitor the registered charities operating in Canada in the fairest way possible. As of December 2014, there were 86,193 charities registered in the directorate. The Directorate is located in Ottawa, in the Canadian Revenue Agency offices.

<span class="mw-page-title-main">Charities Regulator</span> Regulator of charities in Ireland

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References

Update Reference link: http://www.durhamregion.com/opinion/columns/article/1112884--charities-extend-their-reach-online

  1. ↑ "Charities Listings". Canada Revenue Agency. Retrieved 2011-11-06.
  2. ↑ For an updated version of the Income Tax Act see http://laws.justice.gc.ca/eng/I-3.3/index.html
  3. ↑ See Advancing Religion as a Head of Charity: What Are the Boundaries? by Terrance S. Carter The Philanthropist, Vol 20, No 4 (2007)http://thephilanthropist.ca/2007/01/advancing-religion-as-a-head-of-charity-what-are-the-boundaries/
  4. ↑ Commissioners for Special Purposes of Income Tax v. Pemsel [1891] UKHL 1 , [1891] A.C. 531(20 July 1891), House of Lords (UK)
  5. ↑ See Guidelines for Registering a Charity: Meeting the Public Benefit Test
  6. ↑ [ permanent dead link ]
  7. ↑ "CPS-028 Fundraising by Registered Charities". Archived from the original on 2011-06-06. Retrieved 2010-07-26.
  8. ↑ CPS-019 What is a Related Business?
  9. ↑ CPS-022 Political Activities
  10. ↑ Richard Bridge, Nathan Gilbert (2005). "Helping Charities Speak Out: What Funders Can Do". The Philanthropist, Vol 20, No 2.
  11. ↑ CG-014 Community Economic Development Activities
  12. ↑ Mark Blumberg (2013). "Blumbergs' Snapshot of the Canadian Charity Sector 2012". Global Philanthropy.
  13. ↑ "Social Enterprise Council - Get to know us - Social Enterprise Canada". Archived from the original on 2014-08-16. Retrieved 2014-10-15.
  14. ↑ "David LePage | Buy Social Canada". Archived from the original on 2015-01-08. Retrieved 2015-01-08.
  15. ↑ "Bruce Campbell".
  16. ↑ Charities Glossary
  17. ↑ "Guidance for Canadian Registered Charities Carrying Out Activities Outside Canada". www.cra-arc.gc.ca. Retrieved 2010-09-05.
  18. ↑ Mark Blumberg (2008). "Canadian Charities and Foreign Activities". The Philanthropist, Vol 21, No 4. Archived from the original on 2011-07-06. Retrieved 2010-01-01.
  19. ↑ Amy, David G. (2000). "Foreign activities by Canadian charities". The Philanthropist, Vol 15, No 3.
  20. ↑ "Countries Compared Geography > Area > Land > Per-capita" . Retrieved 2021-03-13.
  21. ↑ "Canada's conserved areas". 9 February 2010. Retrieved 2021-03-13.
  22. ↑ "Prescribed Donee". 31 October 2003. Retrieved 2021-03-13.
  23. ↑ "Government of Canada Provides Tax Relief for Charitable Donations to the American Friends of Canadian Land Trusts". 29 October 2010. Retrieved 2021-03-13.
  24. ↑ "Archived - Backgrounder - Tax Relief for Charitable Donations to the American Friends of Canadian Land Trusts". Archived from the original on 2019-04-20.
  25. ↑ Charities and Giving
  26. ↑ About the Directorate
  27. ↑ "Checklists for Charities". www.canada.ca. 2016-04-20. Archived from the original on 2017-07-17. Retrieved 2021-11-20.
  28. ↑ "Safeguarding Charitable Assets through Good Governance". Archived from the original on 2013-08-09. Retrieved 2012-02-27.
  29. ↑ "Tax Policy". Government of Canada: Dept. of Finance. Retrieved April 24, 2023.
  30. ↑ Investigative Reporter Kevin Donovan of the Toronto Star and investigative reporter David Baines of the Vancouver Sun newspapers have the most interested and prolific in exposing the misuse of charities in Canada. Also in The Philanthropist, Vol 22, No 1 (2009) see Fraud in Canadian Nonprofit Organizations as Seen Through the Eyes of Canadian Newspapers 1998–2008 http://thephilanthropist.ca/2009/05/fraud-in-canadian-nonprofit-organizations-as-seen-through-the-eyes-of-canadian-newspapers-1998-2008/
  31. ↑ Report on Abuse of Charities for Money-Laundering and Tax Evasion
  32. ↑ How can I donate wisely and avoid fraud?
  33. ↑ "Cancer faker gets new charge: Kirilow's former co-worker says charge relates to fundraiser in Burlington, Ont". CBC News. 2010-08-11. Retrieved 2010-08-18. An Ontario woman accused of faking cancer in order to elicit donations for herself has been charged with an additional count of fraud over $5,000.
  34. ↑ Stephanie Dearing (2010-08-09). "Ashley Kirilow vilified for alleged cancer charity scam". Digital Journal. Archived from the original on 2010-08-20. Retrieved 2010-08-18. Those in the know allege Kirilow made off with at least $20,000, an amount that under different circumstances would only merit the young woman a mention in the local newspaper after she'd been found guilty. But because Kirilow claims she faked cancer to get the money, her story has gone around the world.
  35. ↑ Reka Szekely (2010-08-13). "Charities extend their reach online". Durham Region News. Archived from the original on 2011-07-18. Retrieved 2010-08-18. At worst there's the case of Ashley Kirilow, the Burlington woman accused of faking cancer and bilking thousands of dollars from people eager to support her. Ms. Kirilow is accused of posting pictures of herself bald and with plucked eyebrows and eyelashes on her Facebook group for an alleged bogus charity called "Change" for a Cure. Reading about the allegations against Ms. Kirilow is disheartening and inevitably leaves people feeling jaded about charitable organizing via social media.
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