A non-profit corporation can be a church or church association, school, charity, activity clubs, volunteer services organization, professional association, research institute, museum, or in some cases a sports association. Non-profit corporations must apply for charitable status to benefit from tax-exempt status and be able to issue tax-deductible receipts to donors.
Non-Profit Corporations and Charities
A non-profit corporation is a legal entity separate from its members and directors formed for purposes other than generating a profit to be distributed to its members, directors or officers as dividends. While a non-profit corporation can earn a profit, the profit must be used to further the goals of the corporation rather than to pay dividends to its membership. Non-profit corporations are formed pursuant to federal or provincial law.
Business corporations, on the other hand, are formed to make a profit and to distribute the profit to its shareholders. Business corporations are regulated by either federal or provincial laws. For more information on business incorporations, click here.
Why incorporate a non-profit corporation?
Incorporating gives an organization legal status. It is not essential for a non-profit corporation to incorporate. Whether an organization decides to incorporate or not depends upon its activities, nature, or type of organization.
As a legal entity, an incorporated association is recognized by the legal system as having rights and responsibilities. An incorporated organization can enter into contracts, buy land, borrow money, have bank accounts, etc., in its own name.
Other advantages to incorporating may include:
- the liability of the members is limited (for example, members are not personally liable for debts of the corporation)
- continuity of the organization is assured while the membership changes
- a corporation can own property in its name regardless of membership change
- the ability to bring a legal action in its own name (an unincorporated body cannot), and
- the chances of receiving government grants may increase because of the stability the organization appears to have
An unincorporated association is an agreement between individuals, and generally has no legal status. The members may be personally liable to the creditors for the full amount of any debts. An unincorporated body cannot generally sue or be sued; members must sue or be sued personally. Title to property has to be in all the members’ names if the group is not incorporated. This can make selling the property difficult.
Charitable status for your non-profit corporation
The Canada Customs and Revenue Agency (CCRA) (formerly Revenue Canada) is the government department responsible for granting organizations charitable tax status. The process routinely takes 6 months to 18 months and requires applicants to fulfill a number of requirements. One of the major advantages of obtaining charitable status, is that the organization is able to issue receipts to donors for income tax purposes. This can be a major advantage when soliciting for donations. In addition, charities receive certain tax exemptions. If an organization is created in Canada, is non-profit and is charitable in purpose, it may qualify as a charity within the meaning of the Income Tax Act. A non-profit corporation cannot issue tax deductible receipt simply because it is a non-profit corporation. It must first submit an application and be accepted as having charitable status.
If you intend to apply to CCRA for charitable registration, we strongly suggest that you first contact CCRA first to confirm the use of the objects of your corporation. However, your organization’s use of proper objects is only part of Revenue Canada’s requirements for charitable registration. Revenue Canada must take other factors into consideration, including the activities and programs your organization undertakes to achieve its objects. For information on how to apply to Revenue Canada for charitable registration you may wish to contact your local Revenue Canada office which can be found in the blue pages of your telephone book or call the Charities Division in Ottawa at (613) 954-0410, Toll – Free 1-800-267-2384.
To proceed with the charitable status application of your corporation:
Objects and purposes are acceptable for charitable status
The Charities Directorate of the Canada Customs and Revenue Agency administers the Income Tax Act as it applies to registered charities. CCRA only grants charitable status to organizations where the (a) the applicant’s purposes and activities fall within the legal concept of charity as recognized by the courts; and (b) the organization meets the other requirements of the Income Tax Act.
Please note that there are organizations in the community with worthwhile purposes that are not considered “charitable” by the courts. For example, organizations like non-profit social clubs and advocacy groups fall in this category. These groups do not qualify for registration.
What are charitable Purposes?
The courts have identified four general categories of charitable purposes. For an organization to be registered, its purposes have to fall within one or more of the following categories:
- the relief of poverty;
- the advancement of education;
- the advancement of religion; or
- certain other purposes that benefit the community in a way the courts have said are charitable.
The application for registration you send to us should clearly show the way the organization will meet each of its charitable purposes. Thus, a purpose “to relieve poverty” is acceptable only if it is accompanied by a statement of activities indicating how the organization will accomplish this purpose. For example, the statement might say the organization will relieve poverty “by establishing a food bank, operated by volunteers, in rented premises on Maple Street. The food bank will receive gifts of food from retail stores and individual donors.”
Starting a Corporation? Have Questions?
Registering a new Canadian Non-Profit doesn’t have to be complicated.
Our FAQ can answer some of the most common questions about Non-Profit registration that owners like you want to know.
Not sure where to begin?
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