Area of Law: Business 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.
Proposed New Law 2020: Ontario Not-for-Profit Corporations Act, 2010 (ONCA)
Currently, not-for-profit organizations incorporated in Ontario are governed by the Ontario Corporations Act.
However, the Ontario Not-for-Profit Corporations Act, 2010 (ONCA) is proposed legislation specifically governing how non-profits and charities operate in Ontario. The new Act contains the regulations for forming and running a not-for-profit or charity in Ontario, such as the rights and responsibilities of members and directors, and the requirements for meetings and financial statements.
Bill 154, Cutting Unnecessary Red Tape, 2017 was also introduced on November 14, 2017 as an amendment to ONCA that proposes further measures aiming to make it easier for businesses, including non-profits, to grow and create more jobs.
Both ONCA and Bill 154 received Royal Assent on November 14, 2017 and are expected to be proclaimed into law and in full effect in 2020. Once ONCA is proclaimed into force, non-profits will no longer be governed by the Ontario Corporations Act, and organizations will have a three-year implementation period to become compliant with the new requirements.
According to the Government of Ontario, Ministry of Government and Consumer Services, once ONCA and the amendments under Bill 154 come into effect the new rules will do the following:
- make the incorporation process easier and more efficient; for example, applications for articles of incorporation will be submitted directly to ServiceOntario
- clarify the rules for governing a corporation, including the director’s responsibilities and increased accountability
- clarify that not-for-profit corporations can earn a “profit” through commercial activities as long as it is reinvested to support the corporation’s not-for-profit purposes (charities still face restrictions)
- allow some corporations to use a “review engagement” in place of an audit
- provide members with actions they can take if they believe directors and officers are not acting in the corporation’s best interests
- make it mandatory for organizations to make proxies or alternate ways of voting available to members
- give members greater access to financial records; specifically, organizations can specify fewer than 21 days for distribution of financial statements before the annual meeting
- make a clear distinction between public benefit corporations and other not-for-profits. A public benefit corporation is a charitable corporation or a non-charitable corporation that receives more than $10,000 per financial year
For more information on ONCA, visit ontario.ca. For more information about charities, visit the Government of Canada’s guide on non-profits and charitable status. For information on the differences between a registered charity and a non-profit organization (NPO) and the tax implications, view Canada Revenue Agency’s tax guide for non-profit organizations.
For legal advice and assistance, contact a business lawyer.
You now haveoptions: