Area of Law: Business & Corporate Law
Answer # 238
CharitiesRegion: Ontario Answer # 238
Types of charities
In Canada, there are four “heads” or categories of charities. They are:
- The relief of poverty.
- The advancement of education.
- The advancement of religion.
- Other purposes beneficial to the community.
It is not enough for the purpose or activity of an organization to be praiseworthy and worthwhile in and of itself. In order for an organization to be considered charitable, it must be operated for the benefit of the community or a significantly important class of the community. The basic theory for allowing charitable and not-for-profit organizations preferential tax treatment is that they are not meant to make profits but rather are established to provide benefits for the public.
A Canadian charitable organization may be incorporated or unincorporated. There are three types of Canadian charities:
- Charitable organizations
- Public foundations
- Private foundations
Each of these must meet different requirements.
In order for a not-for-profit organization to obtain charitable status, it must file an application with and receive the approval of Canada Revenue Agency, Charities Division. If the organization wishes to become incorporated, it must also file an application for incorporation either federally or provincially.
Advantages of charitable registration
The advantages of charitable status are primarily tax-based. These include exemption from, and reduced liability for, certain municipal, provincial and federal taxes, and the ability to issue income tax credit receipts for donations.
In addition, charitable status generally provides an organization with a positive image from the public’s perspective.
To apply for registration as a charity under the Income Tax Act (Canada), various documents must be filed with Canada Revenue Agency. If all the documentation and information filed is acceptable to Canada Revenue Agency, the organization will receive written notice of its registration as a charity within approximately eight to 12 months, subject to the discretion of Canada Revenue Agency.
Considering the privileges that charities enjoy in our society, an organization must satisfy a number of conditions before it can be registered and it must continue to meet various obligations to maintain its charitable status. Charities must file an annual information return with Canada Revenue Agency. In addition, charities must disburse their funds for charitable purposes in accordance with a specified quota.
All not-for-profit corporations, whether charitable or non-charitable, must have audited financial statements and must be carried on without the purpose of gain for their members.
Ontario Not-for-Profit Corporations Act, 2010 (ONCA)
The Ontario Not-for-Profit Corporations Act, 2010 (ONCA) came into force on October 19, 2021. ONCA is the new legislation governing how not-for-profits and charities provincially incorporated in Ontario are created, governed and dissolved including the rights and responsibilities of members and directors, and the requirements for meetings and financial statements (previously governed under the Ontario Corporations Act).
Existing not-for-profit corporations previously governed under the Corporations Act now have a three-year implementation period to become compliant with the new requirements and make any necessary changes to bring them into conformity with ONCA.
The Ontario Guide to the Not-for-Profit Corporations Act, 2010 can be helpful for those wanting to incorporate new not-for-profit organizations, as well identify what has changed from the Corporations Act (CA) for those corporations already in existence and previously governed under the CA.
NEW Ontario Business Registry
The Ontario Government has created the new Ontario Business Registry for organizations, including not-for-profits and charities, that are registered, incorporated, or licensed to carry on business in Ontario.
Not-for-profits and charities can now complete over 90 transactions instantly, 24 hours a day, 365 days a year, through the online registry, including:
- start, dissolve and change a not-for-profit / charity
- search for a business or not-for-profit or charitable corporation
- access existing business or not-for-profit or charitable corporation
- file notices and other documents under other business law statutes
Get legal help and insurance
Learn about non-profit and charity insurance to understand the different coverages needed to protect your organization.
Because the legal issues which arise with charities can be very complicated and have some unique requirements, it is advisable to consult a lawyer. For legal advice and assistance with starting and operating a business, contact a business law lawyer.
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