5 Things to Know Before Starting a Canadian Charity
Starting a charity in Canada is a meaningful way to make a difference. It comes with important rules and responsibilities that we must understand.
Knowing the key legal requirements and operational duties before we begin can help us avoid mistakes that might cost our charity its registered status or tax benefits. This clarity keeps our charity compliant and effective in serving its cause.
The process requires more than just good intentions. We need to be aware of filing obligations and proper fundraising practices.
We must also control how our charity’s activities are managed. These factors help us maintain trust and meet the Canada Revenue Agency’s standards.
By understanding these five key points, we set our charity on a solid foundation. This makes it easier to focus on the work that truly matters.
This knowledge will guide us through registration and daily operations. It also supports our long-term success.
Is Registered Charity Status Right for You?
Starting a charity means deciding if official recognition as a registered charity fits your goals. This choice affects how you run your organization and the benefits you can access.
We must understand the key differences between charitable and not-for-profit groups. Registration brings responsibilities, so we must be prepared to meet these demands.
Charity Versus Not-For-Profit Entities
Not all groups with good causes are registered charities. A not-for-profit can operate without charity status but cannot issue official tax receipts or access certain funding.
Charities must focus on activities that provide a clear public benefit. Charitable status requires us to work toward specific purposes, like relief of poverty, education, or other community benefits.
Not-for-profits may engage in social or recreational activities without strict public benefit requirements. We should ask if our goals fit the legal definition of charity before applying.
Benefits and Obligations of Registration
Being a registered charity offers tax benefits and funder credibility. We can issue tax receipts to donors and access grants and funding reserved for charities.
This status can boost public trust and open more doors for donations. However, registration requires strict compliance with Canadian Revenue Agency (CRA) rules.
We must file annual returns (like the T3010) and follow fundraising laws. Proper record-keeping and transparency are mandatory.
Failure to meet these rules risks penalties or losing our registered status. We also need control over how our charity operates, including activities done by third parties.
Assessing Your Readiness
Before applying for charity status, we must evaluate if we can manage the legal and administrative workload. Do we have the time, knowledge, and resources to keep detailed records and file reports accurately?
It’s crucial to plan for long-term compliance, not just immediate benefits. Can we uphold the public benefit standard in all projects?
Do we understand the risks of non-compliance? Considering these factors will help us decide if charitable registration suits our mission and capacity.
If not, a not-for-profit structure might be more appropriate for starting out.
The CRA is always ready to show its teeth to Charity Organization strutting their stuff in wanton neglect of its established order, and this hardly requires analysis.
Canada boasts a legion of registered charities that’re charitable organizations. You couldn’t count them even if you tried. 86,000, to slap a figure on that. That said, 74,500 of those registered as charitable organizations that run their charity operations with the aid of employees, volunteers and intermediaries which may not be charities.
With a largesse of charity organizations comes the need for compliance. These legal obligations have been put in place, and the directors and staff of these charities must understand that it is their legal duty to avoid problems such as compliance agreements, penalties or outright revocation.
Most times charity organizations are oblivious of these regulations. And to compound their woes, the documentation of these matters relating to legal compliance has been a hard nut to crack. Issues ranging from difficult-to-understand, legal lingo that is the stuff of legal experts.
You don’t wanna deal with that. And in this post, we roll up our sleeves and dig deep into the dirt of these topics with your ease of comprehension top of mind. So, you can put the stress of making sense of it aside and focus on what you’re good at — your charity operations:
5 Things to Know Before Starting a Charity
The CRA is always ready to show its teeth to Charity Organization strutting their stuff in wanton neglect of its established order, and this hardly requires analysis.
Canada boasts a legion of registered charities that’re charitable organizations. You couldn’t count them even if you tried. 86,000, to slap a figure on that. That said, 74,500 of those registered as charitable organizations that run their charity operations with the aid of employees, volunteers and intermediaries which may not be charities.
With a largesse of charity organizations comes the need for compliance. These legal obligations have been put in place, and the directors and staff of these charities must understand that it is their legal duty to avoid problems such as compliance agreements, penalties or outright revocation.
Most times charity organizations are oblivious of these regulations. And to compound their woes, the documentation of these matters relating to legal compliance has been a hard nut to crack. Issues ranging from difficult-to-understand, legal lingo that is the stuff of legal experts.
You don’t wanna deal with that. And in this post, we roll up our sleeves and dig deep into the dirt of these topics with your ease of comprehension top of mind. So, you can put the stress of making sense of it aside and focus on what you’re good at — your charity operations:
1. Filing of the T3010:
The T3010 is an income tax return form for registered charities, and it is alternatively known as the Registered Charity Information Return Form. The charity must complete and submit this form every six months after its fiscal year. Charities are expected to fill this form each year, and it doesn’t matter if they’re active or not — what’s relevant is that they’re in operation.
Failure of a charity to fill and submit this form will cause its registered status to be revoked. In simpler terms, this means that Canada would no longer recognize the organization as a legal charity organization within its borders. And with this comes the revocation of every other advantage originally enjoyed by the charity.
Flowing from this, the charity would no longer be able to issue official donation receipts to their donors, and they won’t be eligible for tax exemptions either.
2. Fundraising Guidance
Fundraising is any activity that involves soliciting donations in cash or kind. During fundraising, charities are mandated to comply with their legal and ethical obligations. Fundraising can be carried out by the charity or anyone acting in its place. For it to be carried out within the boundaries permissible by law, it must not:
a). be illegal orcontrary to public policy;
b). be deceptive; or
c). be for personal gain or be the main purpose of the charity.
A charity that engages in unacceptable fundraising, even through a third party, would face the threat of sanctions or the revocation of its registered status.
3. Direction and Control Over Its Activities
It is not unheard of for charities to select intermediaries to perform charity operations in their stead. Where this is the case, the charity must ensure that it has direction and control over these activities performed on its behalf.
Having direction and control means that they will have a say in how the overall operation is run — from the objective to when it would begin and end, the area, and the region where the activity would be carried out.
A charity that selects intermediaries is expected to have autonomy over them.
4. Proper Receipting
Receipts issued for donations received by charities must be done according to the Income Tax Act. A charity must take note of its responsibility, so it doesn't unwittingly find itself in a situation of non-compliance. Cases of improper receipting may lead to the registered status of a charity being revoked, and it will be found guilty of improper receipting in the following circumstances:
a) If it issues a receipt with inaccurate or incomplete information
b) If it issues a receipt for a transaction that doesn't qualify as a gift, e.g, services rendered.
c) If it issues a receipt on behalf of another organization. Doing this can be seen as a way to evade tax.
d) If it issues a receipt for an inflated amount/False reportage of donations. For instance, whena charity puts in an amount on a receipt that is more than value of the gift received.
Although the chances of this being an honest mistake cannot be struck out due to the charity's inability to correctly place the fair market value (FMV) of a property, it remains strongly advised that if the FMV cannot be rightly determined, a receipt shouldn't be issued. Better safe than sorry!
5. Documentation
It goes without saying that Charity operations should be documented — all of its income and expenditures. Extra care must be paid to the documentation of donations received, and the receipts issued along with them. Because a charity is responsible for every issue under its name, it must account for corresponding donations in its books.
That’s why lending the charity’s registration number to another organization could be such a bad idea because it could lead to the revocation of your charity’s registered status.
Under the Income Tax Act, a charity must keep adequate books and records, and they must contain enough information to allow the CRA to determine if the charity is operating in accordance with the Income Tax Act. The CRA recommends that the books and records be kept in either English or French.
Understanding Charitable Purposes and Activities
When we set up a Canadian charity, we must understand what counts as a charitable purpose. Our activities must support these goals.
Our charity's success depends on meeting legal standards and bringing clear benefits to the public. This means knowing the categories of charity and how to show our impact.
Defining Charitable Purposes Under Canadian Law
Charitable purposes are the core reasons our organization exists. They must be exclusively charitable by law.
The Income Tax Act guides these definitions and ensures charities serve the public good. Our purposes should be clearly stated in our governing documents.
This clarity helps the Canada Revenue Agency (CRA) decide if we qualify for registration. Purposes that do not fit within legal charity definitions will not be accepted.
Charitable purposes must be specific and focused on causes that courts have recognized as charitable. We need to define charitable aims such as relieving poverty or advancing education.
The Four Categories: Poverty, Education, Religion, Community Benefit
Canadian charity law recognizes four main categories of charitable purposes. Our charity must fit into at least one of these categories:
- Relief of Poverty: Activities that help people meet basic needs like food, shelter, or clothing.
- Advancement of Education: Programs offering formal or informal learning, training, or scholarships.
- Advancement of Religion: Promoting faith, worship, and related activities.
- Other Purposes Beneficial to the Community: This covers health, environment, arts, and other public benefits.
We must align our charitable activities to these categories. Our activities must clearly show how they benefit the community.
Complying With the Public Benefit Test
To qualify as a charity, our purposes and activities must pass the public benefit test. The benefits we provide should be for the public, not just a private group or individual.
The CRA looks for evidence that our work improves lives or communities in ways open to the general public or a sufficient section of it. Charges or restrictions cannot block reasonable access to our services.
We need to make sure our activities do not conflict with any law or policy. We must carry out our work in a clear, accountable way.
Proper governance and transparency help us prove we meet this standard. By focusing on accepted charitable purposes and meeting public benefit rules, we position our charity for approval and long-term success.
Structuring Your Charity Legally
To start a charity in Canada, we must carefully plan its legal framework. This includes deciding how to incorporate and preparing the right documents.
We also need to set up rules for managing the organization. These steps ensure our charity operates legally and meets government requirements.
Choosing Federal or Provincial Incorporation
We can incorporate our charity either federally or provincially. Federal incorporation is done under the Canada Not-for-profit Corporations Act (CNCA).
This lets us operate across Canada and is suited for charities working nationally or in multiple provinces. Provincial incorporation follows the laws of the province where we mainly work.
Each province has its own Not-for-Profit Corporations Act or similar rules. This option may be simpler if our work focuses mostly in one province.
Federal incorporation requires filing with Corporations Canada. Provincial incorporation involves provincial agencies, and fees and rules vary.
We must choose based on where we expect to operate and the governance needs of our charity.
Governing Documents and Constitution
Governing documents are crucial. They describe the purpose, powers, and rules of our charity.
This usually includes the constitution and bylaws. The constitution outlines the charity’s mission and objects.
It must follow the definition of charitable purposes recognized by Canadian law. Bylaws set out how the charity will be run day-to-day.
They include details on meetings, membership, director duties, and conflict of interest policies. These documents must be clear and comply with the Income Tax Act and the CNCA or relevant provincial act.
We must keep these documents up to date. They act as our charity’s legal backbone and help prevent misunderstandings or disputes.
Articles of Incorporation Essentials
Our charity’s articles of incorporation form the official record of its creation. These include the charity’s legal name, its purpose, and its initial structure.
Articles are filed with the government when we apply for incorporation. We must describe the objectives clearly, ensuring they are charitable and meet the Canada Revenue Agency (CRA) requirements.
If we plan to limit liability of directors or members, this must be specified. The articles also set out how directors are appointed and removed.
Incorrect or vague articles can delay registration or cause compliance issues. We should review these carefully and seek advice if needed.
Properly done, they provide a strong legal foundation.
Determining Governance Structure
A strong governance structure is vital. We decide how many directors will oversee the charity and how decisions will be made.
Usually, we appoint a board of directors to guide and monitor charity activities. Governance rules include how directors are elected, their terms, and meetings.
The structure should encourage transparency and accountability. It must meet the CNCA or provincial act requirements and CRA rules.
We also set policies on conflicts of interest, financial oversight, and reporting. This ensures our charity behaves responsibly and maintains public trust.
A well-defined governance structure reduces risks and supports long-term success.
The Charity Application and CRA Process
Starting a registered charity in Canada means following a clear process defined by the Canada Revenue Agency (CRA). We need to prepare carefully, complete the right forms, and submit detailed documents.
Understanding how long the review will take helps us plan. Being organized and thorough helps us meet the CRA’s requirements smoothly.
Preparing for Your CRA Application
Before applying, we must ensure our organization meets the CRA’s rules. Our purpose needs to be charitable under Canadian law.
We also need a formal governing document, like bylaws or a trust deed, that explains how decisions will be made. We should gather detailed information about our board members and the structure of governance.
This includes roles and responsibilities, showing how we maintain control and accountability. The better prepared we are, the fewer delays we face during review.
Completing Form T2050 Online
Form T2050 is the official application to register a charity under the Income Tax Act. We complete it online through the CRA’s portal.
This form asks for specific details about our organization’s purposes, activities, and financial plans. We answer questions carefully and honestly.
We must clearly state how our activities support our charitable purposes. If we miss or misstate important information, the CRA may ask for clarifications, which slows down approval.
Accurate and complete answers give us the best chance.
Required Attachments and Documentation
Along with Form T2050, we must provide supporting documents. This usually includes:
- Governing documents (bylaws, constitution, trust deed)
- A detailed list of activities and programs
- Financial statements or a proposed budget
- A list of directors and key officers
These documents prove our organization’s structure and charitable work. Having all required attachments ready and matching the form’s details makes the CRA process smoother.
Timeline and CRA Review Process
After submitting a complete application, the CRA typically takes 4 to 6 months to review. This timeline can vary depending on the complexity of our organization and the completeness of our application.
During the review, the CRA may contact us for more information or clarification. Prompt and clear responses help keep the process moving.
Once approved, our organization becomes a registered charity in Canada. We become eligible for tax benefits and can issue donation receipts.
Keeping track of deadlines and following up if needed is part of managing the application process.
Key Compliance, Operations, and Ongoing Requirements
Starting a Canadian charity means we must follow clear rules to keep our status and run smoothly. This involves filing specific reports and issuing correct donation receipts.
We must manage our activities legally and control any work done by others on our behalf. Attention to these details helps us stay compliant and maintain public trust.
Mandatory Annual Returns (Form T3010)
We must file Form T3010 every year with the Canada Revenue Agency (CRA). This form, also called the Registered Charity Information Return, provides details on our financial activities, programs, and governance.
It must be submitted within six months after our fiscal year ends. Not filing the T3010 on time can lead to our charity’s registration being revoked.
This means we lose tax privileges, including the ability to issue official donation receipts. The CRA uses this form to monitor if we follow the rules in the Income Tax Act.
Our financial statements should be included or available. Keeping accurate and complete records is vital to complete this form correctly.
Proper Donation Receipts and Tax Exemptions
Issuing donation receipts correctly is essential for us and our donors. Receipts must meet CRA standards to qualify donors for tax credits.
Incorrect receipts, such as those with incomplete info or for non-qualifying gifts, can put our registration at risk. We should never issue receipts for services or on behalf of another group.
When assigning fair market value (FMV) to property donations, we must be cautious. If we can't determine FMV accurately, it is safest not to issue a receipt.
Proper receipting supports our charity’s claim for tax exemptions. These receipts show the value of donations we receive and ensure donors get the correct benefits on their taxes.
Allowable Business and Fundraising Activities
Our fundraising must follow legal and ethical rules. Activities should not be deceptive, illegal, or aimed at personal profit.
We can conduct fundraising ourselves or work with others. We remain responsible for ensuring compliance.
We must avoid fundraising that contradicts public policy or uses misleading information. If a third party does our fundraising, we need to oversee it closely.
Any business activities unrelated to our charitable mission need careful management. Income from these activities might affect our tax-exempt status.
Clear records and transparency help prevent problems.
Working With Intermediaries and Qualified Donees
Sometimes, we hire or partner with intermediaries to run parts of our programs. We must keep direction and control over their activities.
We decide what intermediaries do, when, and how. Qualified donees are other registered charities or government bodies we can give grants to.
When working with qualified donees, we ensure funds are used for charitable purposes. Lending our registration number or documents to others is risky.
If the other party misuses our status, we could lose our registration. We keep thorough documentation and supervise all operations done on our charity’s behalf.
Types of Canadian Charitable Entities
We need to understand the main categories of registered charities in Canada. These types affect how a charity operates, raises funds, and is governed.
Charitable Organizations: Operations and Focus
Charitable organizations are the most common type. They usually run their own programs and services.
Their main focus is to deliver direct help or relief, such as food banks, shelters, or educational programs. These organizations must have a governing body with more than half of the directors independent from the charity.
This helps ensure accountability. They can raise money from the public and often rely on donations, grants, and fundraising events.
They can also issue official donation receipts for tax purposes. Compared to foundations, they have more hands-on involvement with their charitable activities and communities.
Public Foundations Versus Private Foundations
Public foundations mainly grant funds to other charities or projects. They must receive most of their funding from the public or other charities.
Their board of directors needs to be largely independent to avoid conflicts of interest. Private foundations are controlled by a smaller group, often family members or a single donor.
If a charity has only one director, it is automatically a private foundation. Private foundations may fund charitable work, but they usually don’t run their own programs.
They have stricter rules about how they manage their assets and report to the Canada Revenue Agency (CRA).
Conclusion
Starting a Canadian charity requires careful attention to legal compliance and operational requirements. Understanding these five essential areas – T3010 filing, fundraising regulations, activity control, proper receipting, and documentation – will help protect your organization's registered status and ensure long-term success in serving your community.
The Canada Revenue Agency takes compliance seriously, and even well-intentioned mistakes can result in penalties or revocation of charitable status. By following proper procedures and maintaining adequate records, you can focus on what matters most – advancing your charitable mission.
If you need guidance navigating Canadian charity law complexities, B.I.G. Charity Law Group is here to help.
Schedule a FREE Consultation or contact us at dov.goldberg@charitylawgroup.ca or call 416-488-5888 to discuss how we can support your organization. Visit CharityLawGroup.ca to learn more about our comprehensive charity law services.
Frequently Asked Questions
Starting a charity in Canada involves many rules about legal setup, operations, and finances. Knowing how to meet these standards and manage fundraising is important for success.
What are the requirements for a charity in Canada?
We must register with the CRA to operate as a charity. This includes having a clear charitable purpose, filing annual returns like the T3010 form, and keeping detailed financial records.
We also follow fundraising rules and control any activities done by others on our behalf.
What are the 4 heads of charity in Canada?
The four main categories of charity purposes in Canada are:
- Relief of poverty
- Advancement of education
- Advancement of religion
- Other purposes beneficial to the community
We choose our purpose from one of these to qualify for registration.
What is the difference between a nonprofit and a charity in Canada?
A nonprofit does not aim to make a profit but does not issue tax receipts. A charity has special legal status, can issue official donation receipts, and benefits from tax exemptions.
We must register as a charity with CRA to get these benefits.
What does it take to start a charity?
Starting a charity takes a clear plan, a governing document, and a legal registration process. We also need a board of directors and a way to keep accurate books and records.
How to start a charitable organization in Canada?
We start by drafting Articles of Incorporation with proper wording for charity status. Then, we apply for registration with the CRA using forms and documentation.
It is also important to set up proper governance and financial management practices early on.
How much money do you need to start a charity?
There is no fixed minimum amount required to start a charity.
You should have enough funds to cover initial operating costs and legal fees.
Plan for the activities you want to run.
Many people start small and grow funds through fundraising.
.png)
