Often the term “registered charity” is used interchangeably with “not-for-profit organizations (NPOs)”.
Both terms fall under the larger description of the voluntary, not-for-profit or community benefit sector. However, while both organizations operate on a not-for-profit basis, they are defined differently under the Income Tax Act (ITA). If an organization meets the definition of a “charity” it cannot be considered a not-for-profit organization under the ITA, even if the organization is not registered or cannot be registered as a charity.
To determine which status – registered charity or NPO – is best suited for an organization, the organization should identify its mission, goals, activities, sustainability, and future plans.
Registered charities are established and operate exclusively for charitable purposes.
These purposes could be to relieve poverty, advance education, or to contribute to the greater good of a respective community. Examples of registered charities include food banks, soup kitchens, colleges and universities, places of worship, libraries, and animal shelters. An organization must apply to the CRA to be approved as a registered charity. Then, the CRA will designate a registered charity as a charitable organization, public foundation, or private foundation. A registered charity has the ability to issue official donation receipts for income tax purposes, and also has the obligation to spend a minimum amount on its own charitable activities or as gifts to qualified donees. In terms of tax obligation, a charity is exempt from paying income taxes, but must file an annual information return (form T3010) within six months of its fiscal period end.
Conversely, an NPO is established and can operate for any purpose except for exclusive charitable purposes or for profit. An NPO can operate for social welfare, civic movement, pleasure, sport, recreation, or any other non-profit purpose. Examples of NPO’s include golf or curling clubs, hockey associations, baseball leagues, parades, and seasonal celebration. An NPO does not have to apply for registration, and therefore cannot issue official donation receipts. In terms of tax obligation, an NPO is generally exempt from paying income tax, but may be taxable on property income or on capital gains. It may have to file a T2 return if incorporated, and/or an information return (T1044) within six months of its fiscal period end.