Definitions and Useful Information
The Income Tax Act requires that registered charities expend a prescribed amount annually on charitable activities or gifts to “qualified donees”. This amount is referred to as an annual disbursement quota and is based on the average fair market value of a charity’s investment assets over the previous two years.
Gifts in Kind
Any non-cash gift such as a gift of shares or real property
Requirements for Official Tax Receipts
Subsection 230(2) of the Income Tax Act requires a registered charity must keep a duplicate copy (which should clearly be marked as a copy) of each Receipt it issues. Receipts should be sequentially numbered – no two receipts should have the same number. Tax Receipts must contain the following information:
- a statement that it is an Official Receipt for Income Tax Purposes.
- the Charity’s name and address in Canada as recorded with Charities Directorate.
- the Charity’s business number assigned by Charities Directorate
- the place or locale where the Receipt was issued.
- the name and address of the donor.
- the amount received, the eligible amount and the amount of benefit (if any) of the gift – This could differ if, for example, you receive $100 which includes the purchase of a ticket to a fundraising dinner for which the value of the dinner is $30. The amount received would be $100, the eligible amount would be $70 and the amount of benefit would be $30.
- the signature of “a responsible individual” who has been authorized by the organization to acknowledge donations
- the Receipt must show both the date on which the Receipt was issued and the date on which the donation was received. However, if a donor makes If the a series of cash donations during the year, it is acceptable to simply show the year in which the cash donations were received and only issue one Official Receipt after all of the donations have been received for the year.
- where the donation is a gift of property other than cash, the Receipt must show the actual day on which the property was received (not simply the year in which it was received) and must contain a brief description of the property. The Receipt must show the amount that is the fair market value of the property at the time that the gift was made. If the donated property has been appraised, the Receipt must also show the name and address of the appraiser.
- the receipt must also show Canada Revenue Agency’s website address
Canadian charities that wish to make outright grants to other organizations may only make such grants to organizations that are “qualified donees”. A term defined under the Income Tax Act, qualified donees are:
- Registered charities
- Registered Canadian amateur athletic associations (RCAAA)
- Registered national arts service organizations
- Housing corporations resident in Canada constituted exclusively to provide low-cost housing for the aged
- Charitable organizations outside Canada to which Her Majesty in right of Canada (the federal government or its agents) has made a gift during the charity’s fiscal period or in the 12 months immediately preceding the period.
- Municipalities in Canada
- Her Majesty in right of Canada or in right of a province (that is, the federal government, a provincial government, or their agents)The United Nations and its agenciesUniversities outside Canada listed in Schedule VIII of the Income Tax Regulations
LISTS OF REGISTERED CHARITIES
LISTS OF QUALIFIED DONEES OTHER THAN REGISTERED CHARITIES
Registered Charities in Canada
A registered charity will be designated by Canada Revenue Agency as either a charitable organization, a public foundation or a private foundation, dependent upon its structure, its source of funding and its activities.
- Charitable organization
A charitable organization primarily carries on its own charitable activities. Fewer than 50% of the charity’s directors can be related persons. As well, at least 50% of the funds the charity receives must come from unrelated donors.
- Private foundation
The primary purpose of a private foundation is to make gifts to organizations that are “qualified donees”. A registered charity is designated as a private foundation if 50% or more of its directors are related persons, and/or if more than 50% of its funding comes from related persons.
- Public foundation
The primary purpose of a public foundation is usually to make grants to other organizations that are “qualified donees” although some public foundations may also undertake some of their own activities provided that they have received permission to do so from Canada Revenue Agency. Fewer than 50% of the charity’s directors may be related, and less than 50% of its funding may come from donors who are related.
Note: Charities incorporated in Ontario are further restricted by provincial laws to making grants to only charitable organizations.
I am including this definition to clear up a common misconception. It is wrong to refer to a registered charity in Canada as a non-profit. A non-profit is defined in Section 149 (l) of the Income Tax Act as:
“a club, society or association that, in the opinion of the Minister, was not a charity within the meaning assigned by subsection 149.1(1) and that was organized and operated exclusively for social welfare, civic improvement, pleasure or recreation or for any other purpose except profit…” [emphasis added]
Non-profits are exempt from paying income tax under most circumstances but they do not have the right to issue official tax receipts. Regardless of their tax exempt status, Canadian non-profits must file a Corporate T2 Return annually and in certain cases, a T1044 Non-Profit Information Return.
LINKS TO MORE INFORMATION ON CANADA REVENUE AGENCY REQUIREMENTS FOR NON-PROFIT ORGANIZATIONS
I do not offer accounting or other services for non-profits.
Retention of Records
Canada Revenue Agency requires that a charity must retain certain records as follows: Duplicate donation receipts, with the exception of receipts issued for donations subject to a ten year direction, must be held for a period of two years from the end of the calendar year in which the donations were made. Donation receipts for gifts made subject to a ten year direction (a direction that the gift be held for a minimum of ten years) must be held for as long as the charity remains registered and for two years after its registration is revoked.
All other books, records and their related accounts and source documents must be kept for a minimum of six years from the end of the last fiscal year to which they relate. Where a charity loses its registration, books and records must be retained for two years after the date the registration is revoked.
FOR FEDERAL CORPORATIONS -CANADA NOT-FOR-PROFIT CORPORATIONS ACT (CNFP Act)
Soliciting and Non Soliciting corporations
Under the CNFP Act, corporations are classified as either soliciting or non-soliciting. This classification depends on the amount and source of funds the Corporation receives during its fiscal year and determines both the type of financial statements it is required to produce (see table below) and its corporate reporting requirements. Soliciting Corporation: A corporation is considered soliciting when it has received more than $10,000 income from public sources in a single financial year.
Public Sources include any person who is not a member, director, officer, employee of the corporation or the spouse or cohabitating partner of such a person, or the relative of such a person. Other public sources include federal, provincial or municipal grants and funding and donations and gifts from corporations that meet the definition of a soliciting corporation.