Are Charities Allowed to Make Money in Canada?

Many people assume that charities in Canada operate on tight budgets and cannot generate income. This is a common misconception.

Charities in Canada are legally allowed to make money, but they must use that revenue to support their charitable mission rather than distribute profits to individuals.

The key difference between charities and regular businesses is not whether they can earn money, but what they do with it. Canadian charities can accept donations, charge fees for programs, run fundraising events, sell goods and services, and even earn investment income.

All of these activities are permitted under Canadian law.

Understanding how charities can generate revenue while staying compliant with Canada Revenue Agency rules is important for anyone involved in running or supporting charitable organizations. This article explains what activities are allowed, what restrictions apply, and how charities are regulated to ensure they use their money properly.

Understanding Charities and Non-Profit Organizations in Canada

Canada recognizes two main types of organizations that operate without making a profit: registered charities and non-profit organizations. These entities follow different rules under the Income Tax Act and have distinct legal requirements for how they operate and raise funds.

Definitions and Key Differences

Registered charities in Canada must operate exclusively for charitable purposes. These purposes fall into four categories: relief of poverty, advancement of education, advancement of religion, or other purposes that benefit the community.

They register with the Canada Revenue Agency (CRA) and receive a registration number that allows them to issue official donation receipts for tax purposes.

Non-profit organizations operate for social welfare, civic improvement, pleasure, recreation, or any other purpose except profit. They cannot operate exclusively for charitable purposes.

Non-profit organizations do not register with the CRA as charities and cannot issue official donation receipts to donors.

The key difference affects fundraising ability. Registered charities can offer tax receipts that encourage donations, while non-profit organizations cannot.

Both types of organizations must avoid using their income to personally benefit members. Charities must also meet annual spending requirements and file Form T3010 each year.

Non-profit organizations may need to file Form T1044 or other tax returns but face fewer regulatory requirements.

Types of Charities: Charitable Organizations, Public Foundations, and Private Foundations

Canada recognizes three types of registered charities. Charitable organizations conduct their own programs and activities to meet their charitable purposes.

They spend most of their resources on direct charitable work rather than giving grants to other organizations.

Public foundations primarily give grants to other qualified donees. They raise funds from the general public and must receive donations from many sources.

Public foundations face less restrictive rules than private foundations because of their broader donor base.

Private foundations also give grants but receive funding from a limited number of sources, often a single family or corporation. They face stricter rules about how they invest funds and which organizations can receive grants.

Private foundations must spend more of their assets each year compared to public foundations.

Legal Framework Governing Charities and Earning Revenue

The Income Tax Act serves as the primary federal legislation governing registered charities in Canada. Additional provincial and territorial laws regulate organizational structure and operations.

These legal frameworks work together to define how charities can generate and use revenue while maintaining their registration status.

Overview of the Income Tax Act

The Income Tax Act establishes the core rules for registered charities in Canada through the Canada Revenue Agency. This legislation defines what qualifies as a charity, sets out registration requirements, and determines how organizations can maintain their charitable status.

The Act allows registered charities to generate revenue through specific activities. Charities can operate related businesses if those businesses are subordinate to their primary charitable activities or run 90% or more by volunteers.

The law distinguishes between business activities and non-business activities to help charities understand what revenue generation methods are acceptable.

Activities not considered business operations include:

• Reselling donated items
• Accepting donations and operating fundraising campaigns
• Hosting occasional fundraising events
• Earning investment income
• Charging fees for services when funds cover operational costs

The CRA monitors compliance with the Income Tax Act and can revoke charitable registration if organizations violate the rules. The legislation also sets strict guidelines for director and trustee compensation to ensure charities operate in the public interest.

Canada Not-for-Profit Corporations Act and Provincial Legislation

The Canada Not-for-Profit Corporations Act governs the incorporation and legal structure of federal non-profit organizations. This Act sets out rules for corporate governance, member rights, and organizational responsibilities for federally incorporated entities.

Provincial and territorial governments have their own not-for-profit corporations legislation that applies to organizations incorporated within their jurisdictions. Each province maintains laws that focus on legal structure, fundraising activities, and operational requirements for charitable organizations.

These provincial laws apply whether an organization operates as a corporation or holds trust assets.

Organizations must comply with both federal tax requirements under the Income Tax Act and the corporate laws in their jurisdiction. Provincial legislation often includes additional rules about fundraising practices, financial reporting, and governance standards.

This multi-layered legal framework requires charities to navigate both federal and provincial requirements simultaneously.

Earning Money: Permitted Activities for Canadian Charities

Canadian charities can generate revenue through specific activities that align with regulations set by the Canada Revenue Agency. These activities fall into two main categories: acceptable revenue sources that don't qualify as business operations, and commercial activities that directly support charitable purposes.

Acceptable Revenue Sources

Charities can engage in several revenue-generating activities without being considered commercial operations. Reselling donated items falls into this category, as does receiving donations through traditional fundraising efforts.

Investment income represents another permitted source. Charities may invest their funds and receive returns from these investments without regulatory concern.

Fundraising events also generate acceptable revenue, provided they occur occasionally rather than as regular business operations. The frequency and nature of these events matter for compliance purposes.

Charging fees for services is allowed when the funds collected cover the cost of operating those services. This approach lets charities recover expenses while fulfilling their charitable mandate.

These activities support charitable work without crossing into business territory. None of them require the extensive oversight needed for commercial operations, making them simpler to implement and manage.

Commercial Activities Linked to Charitable Purposes

Charities may operate businesses if these activities meet specific criteria. The business must be subordinate to primary charitable activities, meaning it cannot become the organization's main focus.

A business run by 90% or more volunteers automatically qualifies as acceptable. This volunteer-driven model allows charities to generate income while maintaining their not-for-profit purposes.

Examples of permitted commercial activities include:

• Operating gift shops, cafés, or restaurants at the charity's location
• Selling branded merchandise with the organization's logo
• Renting out building space or parking facilities
• Running paid parking services

These commercial activities must relate directly to the charity's mission. While charities cannot operate with a profit purpose as their primary goal, they can make a profit from related businesses to fund charitable work.

Restrictions and Limitations on Charitable Revenue Generation

Canadian charities can generate revenue but must follow strict rules about how they use surplus funds and what activities they can pursue. The Canada Revenue Agency monitors these organizations to ensure they maintain their charitable purpose rather than operating for profit.

Rules for Surplus and Profit Usage

Registered charities in Canada cannot distribute profits to members, directors, or other individuals. Any surplus revenue must be devoted entirely to the charity's charitable purposes and activities.

The Canada Revenue Agency requires that all resources, including funds, personnel, and property, support charitable work. A charity can accumulate reserves for future projects or operational needs, but these funds must remain available for charitable activities.

Charities risk losing their registered status if they use surplus funds for non-charitable purposes. The organization must demonstrate through financial records and annual filings that revenue serves its stated mission.

This restriction separates charities from for-profit businesses, which exist to generate returns for owners or shareholders.

Prohibited Activities and Loss of Status

Charitable organizations cannot operate unrelated businesses or engage in activities that stray from their charitable purposes. Private foundations face stricter rules and are prohibited from carrying out any business activities whatsoever.

The CRA will revoke charitable status if an organization:

• Operates a business unrelated to its charitable purposes
• Distributes profits to members or private individuals
• Fails to devote resources primarily to charitable activities
• Engages in prohibited political activities beyond allowed limits

Charities must also avoid partnership holdings that would be considered carrying on business, except in specific approved circumstances. Organizations that lose their registered status cannot issue tax receipts and may face significant tax consequences on their assets and income.

Oversight and Compliance: Regulation and Monitoring

The Canada Revenue Agency maintains authority over registered charities through a risk-based compliance system that balances education with enforcement. Charities must meet specific reporting standards and operational requirements to maintain their registered status and tax-exempt privileges.

Role of the Canada Revenue Agency (CRA)

The CRA's Charities Directorate monitors registered charities to ensure compliance with the Income Tax Act. The agency uses a risk-based approach that focuses educational resources on minor issues while reserving audits for serious non-compliance cases.

Most charities receive guidance through education letters and phone calls when the CRA identifies minor compliance gaps. The agency contacts thousands of charities annually through these interventions.

In 2024-2025, the CRA issued 5,373 education letters and made 1,200 education telephone calls.

Charities face audits when the CRA identifies potential serious violations. These audits can result from public complaints, media reports, annual return reviews, or referrals from other government departments.

The audit process examines books, records, bank accounts, governing documents, and board minutes.

After an audit, outcomes range from no action to revocation of charitable status. In 2024-2025, the CRA completed audits that resulted in 125 education letters, 51 compliance agreements, and 13 voluntary revocations.

Charities facing sanctions or revocation can file objections within 90 days and appeal decisions to federal courts.

Reporting and Operational Requirements

Registered charities must file the T3010 annual information return to maintain their status with the CRA. This return includes financial statements, details of programs and activities, and information about governance and compensation.

Not-for-profit corporations operating as registered charities must comply with both federal or provincial corporate laws and the Income Tax Act requirements. The CRA does not monitor compliance with other legislation but focuses solely on charitable registration obligations.

Charities must maintain accurate financial records and demonstrate that their resources serve charitable purposes. They need clear policies for donation receipting, financial controls, and program spending.

The CRA requires charities to spend funds on their own activities or transfer them to other qualified donees with proper direction and control.

Organizations that lose registered status through revocation must dispose of assets within one year to other registered charities or pay a 100% revocation tax. This ensures donated funds remain in the charitable sector.

Comparing Charities and Other Not-for-Profit Entities

In Canada, registered charities and non-profit organizations both operate without the goal of making profit, but they face different rules regarding registration, tax receipts, and how they can earn revenue.

Not-for-profit corporations can engage in commercial activities more freely than registered charities, which must ensure all revenue-generating activities directly support their charitable purposes.

Distinctions Between Charities and Non-profit Organizations

Registered charities must operate exclusively for charitable purposes that fall under four categories: relief of poverty, advancement of education, advancement of religion, or other purposes that benefit the community.

Non-profit organizations can pursue broader goals like social welfare, civic improvement, recreation, or pleasure.

A key difference involves tax receipts. Registered charities can issue official donation receipts for income tax purposes, while non-profit organizations cannot.

This affects how each type of entity can fundraise and attract donors.

Both registered charities and non-profit organizations must register with the Canada Revenue Agency, though the process differs. Charities receive a charitable registration number and must file Form T3010 annually.

Not-for-profit corporations may need to file Form T1044 or other tax returns but do not receive a charitable registration number.

Neither type of entity can distribute income to personally benefit members. Both are generally exempt from income tax, though non-profit organizations may pay tax on property income or capital gains.

Case Scenarios: Commercial Activity in Practice

A registered charity that runs a thrift shop can use all profits for its charitable programs. The shop qualifies as a related business because it employs individuals the charity serves and directly furthers its mission.

A non-profit sports club can operate a restaurant open to the public without risking its status. The revenue supports the club's recreational purposes.

A charity offering consulting services unrelated to its mission faces restrictions. If these activities become substantial or do not connect to charitable purposes, the organization risks losing its charitable status.

The charity must show that such work advances its charitable goals or brings in necessary funding through proper structuring.

Non-profit organizations face fewer restrictions on commercial activities. They can earn income as long as profits support their stated non-charitable purposes and do not benefit members personally.

Conclusion

Canadian charities can make money, but they must follow clear rules set by the Canada Revenue Agency. The key difference between charities and regular businesses is how profits are used.

Charities must reinvest all earnings back into their mission and programs. There is no limit on how much money a charity can earn in Canada.

What matters is using those funds properly to support charitable activities and serve the community. Charities can generate income through donations, grants, fundraising events, program fees, and business activities related to their purpose.

Setting up a charity or understanding compliance rules can feel complicated. B.I.G. Charity Law Group helps organizations with Canadian charity law through clear, fixed-fee legal support.

The team assists with registering new charities, ensuring compliance with CRA requirements, and answering questions about revenue and operations.

Organizations can schedule a free consultation or reach us at 416-488-5888 or dov.goldberg@charitylawgroup.ca. Visit CharityLawGroup.ca to learn more about our services.

Frequently Asked Questions

Canadian charities can generate revenue through various activities, but they must follow specific rules about how they earn and use these funds. The Canada Revenue Agency oversees these regulations and requires charities to report their financial activities annually.

Can you earn money from a charity?

Charities in Canada can earn money through multiple sources. They can receive donations, charge fees for services, sell goods, and hold fundraising events.

Employees and directors of charities can receive reasonable compensation for their work. Salaries should match what similar positions earn in the non-profit sector.

Charities must ensure that no part of their income benefits private individuals or shareholders beyond fair payment for services.

Can charities invest money in Canada?

Canadian charities can invest their funds to generate income for their charitable purposes. They must follow the rules set out in their governing documents and applicable laws.

The Canada Revenue Agency requires charities to make investment decisions that a reasonable and prudent person would make. Charities can invest in stocks, bonds, mutual funds, and other financial instruments.

They must ensure their investments do not jeopardize their ability to carry out charitable activities.

Can a registered charity make a profit?

Registered charities in Canada can generate surplus revenue, which people often call profit. The key difference is how charities must use this surplus compared to for-profit businesses.

All surplus funds must go towards the charity's stated charitable purposes. Charities cannot distribute profits to members, directors, or private individuals.

They must reinvest any extra money into programs and activities that advance their charitable mission.

What are the restrictions on the use of funds earned by a charity in Canada?

Charities must spend their resources on charitable activities that align with their registered purposes. The Canada Revenue Agency requires charities to dedicate their funds to achieving their stated mission.

Charities cannot use funds to provide private benefits to individuals except as reasonable compensation for services. Payments to staff, contractors, or service providers must represent fair market value.

Political activities can only use a limited portion of a charity's resources. Charities cannot support or oppose political parties or candidates.

What are the consequences for a Canadian charity if it fails to comply with revenue regulations?

The Canada Revenue Agency can impose penalties on charities that fail to follow revenue regulations. These penalties may include fines for late filing or failure to keep proper records.

Serious violations can result in suspension of a charity's ability to issue tax receipts. In extreme cases, the Canada Revenue Agency can revoke a charity's registered status.

Loss of charitable status means the organization can no longer issue tax receipts and may need to pay taxes on its income.

How must a charity in Canada report income generated from its activities?

Canadian charities must file Form T3010, the Registered Charity Information Return, every year. This form asks for details about all sources of revenue, such as donations, grants, fundraising income, and investment earnings.

Charities must report their income by category. They also need to explain how they spent their funds.

The filing deadline is six months after the charity's fiscal year-end. The Canada Revenue Agency publishes most of this information in its online database.