Charity and NFP Legislation

When most people decide to start a charity, they have a big dream to make a difference in the world. They know they want to help, but they’re not always entirely sure how they plan to do that.

That can complicate things for these organizations, because under Canadian law and tax regulations, there are actually quite a few limitations on what you can and can’t do. To make matters worse, if you cross the line on these limitations, even unintentionally, you can lose your charitable registration status.

One area that is particularly tricky is the business that your charity can be involved in. So, let’s take a closer look at why you might want to be involved in business, and what the rules are.

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Why Do Charities Want to be Involved in Business?

The law in Canada says that a registered charity (either a charitable organization or public foundation) may be engaged in business related to its purpose or mission.

Of course, charities’ purpose or mission is to effect positive change in the world, and one of the most fundamental ways to do that is to provide financial support to organizations or individuals.

That means that charities need to generate revenue, and one way to do this is to be involved in some kind of business. That’s where things get tricky.

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What Are “Related Businesses”?

One of the complexities of generating revenue for a charity while still staying on the right side of the regulations governing them is how to earn money.

When it comes to the definition of “related businesses” in the charities context, there are two specific situations that apply:

1.      If the business is “subordinate” to your primary activities, which means it’s not the primary focus of your work and,

2.      If it is run 90% or more by volunteers

That’s still pretty broad and open to interpretation though. Which means that many people and organizations struggle to determine if the business they are planning to run to support their charitable work will meet the requirements.

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Things That Are NOT Considered a Business

The first type of activity we should look at are things that are not considered a business when done by a charity, and there are actually quite a few things that fall into this category, including:

·        Reselling items that have been donated to the charity.

·        Fund raising activities that rely on asking for and receiving donations.

·        Fundraising events, so long as they are not a frequent or regular activity.

·        Investing the charities funds and receiving income from those investments

·        Charging fees for services, provided that the funds raised are used to pay for the operation of the service.

All of the things on this list can be done without being considered business activities and will not cause any risk to your charitable registration status.

Things That ARE Considered a Business

Of course, for the rule about business conducted by charities to exist, there must be circumstances where you might cross this line. These include:

·        Operating a gift shop, paid parking service for your operation, or a restaurant or café on the site of your organization

·        Selling products with your organization’s logo on them

·        Renting out space in your building or parking lot

These activities should all be directly related to the activities of your charity, but they can be done and used to generate funds for your organization.

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When in Doubt, Ask

As with most of the regulations and legalities related to registering and running a charity in Canada, these guidelines are quite vague, and can be open to interpretation. Sometimes, that interpretation can put even people and organizations with the very best intentions on the wrong side of the law.

If there is ever any doubt that the business activity you are planning or considering to support your charitable work is acceptable, always ask. A little preemptive research or a few questions to the right people can make all the difference.

Remember that even if you make a good faith decision with the very best intentions, if you make the wrong choices, you can put your charitable registration at risk. So, you always want to have as much information as possible before you move forward.

A great resource that expands more on this concept is hosted on the Canada Revenue Agency’s website.

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