Daily Archives: February 9, 2009

Many people use the words “charity” and “non-profit organization” interchangeably. However, the two words have distinctive meanings in tax law.

Under the Income Tax Act, both charities and non-profit organizations are generally exempt from income tax if no part of their income is payable to, or available for the personal benefit of, a proprietor, member, or shareholder.

However, not all non-profit organizations are charities. In Canada, charities are required to register with the Canada Revenue Agency (CRA) and to meet certain legislative obligations. The registration may be revoked by the CRA if the conditions or obligations are not met.

To qualify as a charity under the Income Tax Act, the organization must be established and operate for charitable purposes and devote resources to charitable activities.

Although the Income Tax Act does not define what constitutes “charitable purposes,” the CRA follows the common law. Generally speaking, the following activities are considered charitable:

1. the relief of poverty
   
2. the advancement of education
3. the advancement of religion
4. other purposes beneficial to the community

In particular, the last category would include the following activities:

• providing certain amenities to the benefit of the community (e.g., museum, library, gallery, botanical garden)
• rehabilitating victims of substance abuse and preventing substance abuse
• providing counselling service for people in distress
• protecting the welfare of children
• organizing environmental projects
• providing affordable rental housing, providing immediate relief to victims of natural disasters
• establishing humane societies, animal shelters, and similar institutions to prevent cruelty to animals

The list above is by no means exhaustive. If you require further assistance in determining whether your organization would qualify as a charity, please do not hesitate to give me a call at 416 433 5531.

Source: Canada Revenue Agency, “Registering a Charity for Income Tax Purposes” T4063(E) Rev. 08