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How to ensure you meet CRA requirements for charitable registration

Image: www.cbc.ca

Charitable status is granted by the Government of Canada to organized groups (charitable organization, private foundation, or public foundation) that have been formed for purposes which meet the public good and who seek tax relief for their operations and the right to issue receipts for donations. Charitable status is granted and regulated by the Canada Revenue Agency (CRA).

However, registering to be accepted as a charity is not easy and at times may be very complex. This stems from the fact that you have to demonstrate that your organisation’s aims are charitable for the public benefit. It cannot have some aims which are charitable and others which are not.

To this end, the CRA has published a succinct summary of the general requirements that an organization requires to qualify as a charity. The seven general requirements are set out below:

    1. Charitable purposes and activities. Purposes (also known as “objects”) are the objectives that an organization is created to achieve. Activities are the ways in which an organization furthers its purposes. To be eligible for charitable registration, an organization must show that each of its purposes is charitable at law, and that its activities further these charitable purposes in a way that complies with the requirements of the common law and the Income Tax Act. Since activities can potentially further more than one purpose, an organization must show why and how each activity is undertaken, as well as its beneficiaries.
    2. Public benefit. Registered charities must have purposes that deliver, or are capable of delivering, a charitable benefit to the public or a sufficient section of the public.
    3. Political activities. Registered charities may conduct limited, non-partisan political activities that further their stated charitable purposes. However, registered charities may not have political purposes and may not conduct partisan political activities.
    4. Business activities. Registered charities must limit business activities to those that relate to their charitable purposes, although private foundations may not carry out any business activities, related or unrelated. A related business activity is a commercial (revenue-generating) activity that is related to a charity’s purposes–meaning linked and subordinate to that purpose, or substantially run by volunteers.
    5. Operating through intermediaries. A registered charity must maintain direction and control over its resources (for example, funds, personnel, and property) and activities. This includes any activities carried out on its behalf by an intermediary (an individual or non-qualified donee that the charity works with to carry out its own activities). When working through an intermediary, it must ensure that an appropriately structured arrangement is in place.
    6. Prohibited or illegal activities. Purposes and activities that are illegal in Canada or contrary to Canadian public policy are prohibited.
    7. Canada’s anti-terrorism legislation. All charities must comply with Canada’s anti-terrorism legislation, including those contained in the Criminal Code of Canada. Charities are responsible for ensuring that they do not operate in association with individuals or groups that are engaged in or support terrorist activities. This applies whether or not the entity is listed under the Criminal Code of Canada.

The upcoming Not-For-Profit PolicyPro Release 2012-04 – December 2012 includes replacement for the introduction to Chapter 1 – Corporate Administration, and the first policy in that chapter, “Registering the Organization.” The material has been updated and refreshed, and some additional material and links to the CRA website have been added.

Jeffrey D. Sherman
BComm, MBA, CIM, FCA

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Jeffrey Sherman

Chief financial officer, author, lecturer and professor focussing on corporate finance at Atrium Mortgage Investment Corporation, Canadian Mortgage Capital Corp., Trimel Pharmaceuticals Corporation, and Anagram Services
Jeffrey D. Sherman, BComm, MBA, CIM, FCA, is a director or CFO of several public companies and has had over 20 years of executive management experience. He is the author of Finance and Accounting PolicyPro, Not-for-Profit PolicyPro and Information Technology PolicyPro (guides to governance, procedures and internal control, all published by First Reference and the CPA). Read more
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