Are the terms “registered charity” and “not-for-profit organizations (NPOs)” interchangeable? How do they differ? First and foremost, we need to define each of these terms. While both a registered charity and an NPO fall under the larger description of the voluntary, not-for-profit or community benefit sector, and both operate on a not-for-profit basis, their definitions are different according to the Income Tax Act (ITA). If an organization meets the definition of a “charity” it cannot also be considered a not-for-profit organization under the ITA. This is true even if the organization is not registered or cannot be registered as a charity. It simply can not be considered a not-for-profit organization.
To determine which status – either registered charity or NPO – an organization would be best categorized as, the organization should clearly identify its mission, goals, activities, sustainability, and future plans.
Another key point to keep in mind is that registered charities are created and work solely for charitable purposes. This could be to relieve poverty, advance education, or to contribute to the greater good of a respective community. Some examples of easily recognized registered charities include food banks, soup kitchens, colleges and universities, places of worship, libraries, and animal shelters. An organization that wishes to be a registered charity must apply to the CRA to be approved, and they fit the specific definition to do so. Once approved, the CRA will designate a registered charity an official title (charitable organization, public foundation, or private foundation). A registered charity can issue official donation receipts for income tax purposes and has the obligation to spend a minimum amount on its own charitable activities or as gifts to qualified recipients. When it comes to tax obligation, a charity is exempt from paying income taxes, however, they must file an annual information return (form T3010) within six months of its fiscal period end.
On the other hand, an NPO can operate for any purpose outside of exclusive charitable purposes or for profit. Many times, they will work for social welfare, civic movement, pleasure, sport, recreation, or any other non-profit purpose. Some examples of NPO’s include golf or curling clubs, hockey associations, baseball leagues, parades, and seasonal celebration. Another difference from a registered charity is that 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.