How Can You Convert a Nonprofit into a Registered Charity in Canada?

If you run a nonprofit organization in Canada, you may wonder if it's possible to convert it into a registered charity. The process can offer several advantages, including access to more funding opportunities and tax benefits. However, it's important to understand the steps involved and the legal requirements for making this transition.

In this guide, we’ll break down the key information you need to know about converting a nonprofit into a registered charity in Canada. We’ll cover the benefits of making this change, the steps to follow, and the legal considerations.

What is the Difference Between a Nonprofit and a Registered Charity in Canada?

Before diving into the process of conversion, it's essential to understand the difference between a nonprofit and a registered charity in Canada.

• Nonprofit Organizations: Nonprofits are organizations that operate for social welfare, civic improvement, pleasure, recreation, or any other purpose except profit. They can apply for certain grants, but they do not have the tax receipting privileges as registered charities.
• Registered Charities: Registered charities, on the other hand, are nonprofit organizations that have been approved by the Canada Revenue Agency (CRA). As registered charities, they can issue tax receipts for donations, qualify for certain grants, and enjoy tax exemptions. Charities must meet specific criteria and follow strict rules in terms of how their funds are used.

Why Convert a Nonprofit into a Registered Charity?

‍Converting your nonprofit into a registered charity can provide several benefits, including:

• Tax Benefits: As a registered charity, your organization can issue donation receipts, which can encourage people to donate. Donors who receive a tax receipt can claim deductions on their personal tax returns, making your organization more appealing to potential supporters.
• Access to Grants: Many government and private foundations offer funding specifically to registered charities. Nonprofits do not have the same access to these funding sources.
• Tax Exemption: Registered charities are generally exempt from paying income tax, making it easier to reinvest funds into your charitable programs.
• Credibility: Being a registered charity can increase your organization's credibility and trustworthiness. It signals to donors, partners, and the public that your organization is meeting strict legal and ethical standards.

Steps to Convert a Nonprofit into a Registered Charity in Canada

‍Converting your nonprofit organization into a registered charity involves several steps. Here’s a breakdown of the key stages in the process:

1. Ensure Your Organization Meets the Criteria for Charitable Status

‍The first thing you’ll need to do is ensure that your nonprofit organization meets the basic criteria for charitable status. According to the CRA, a registered charity must have the following characteristics:

• Exclusively Charitable Purpose: Your organization must operate for a charitable purpose, such as advancing education, relieving poverty, promoting health, or advancing religion.
• Nonprofit: Your organization cannot distribute profits to its members or directors. Any income must be reinvested into the organization’s charitable activities.
• Public Benefit: The organization’s activities must benefit the public or a large portion of it. It cannot only benefit a specific group or individual.

2. Review Your Nonprofit’s Governing Documents

‍Next, you’ll need to review your nonprofit’s governing documents, such as your articles of incorporation or bylaws. These documents must reflect the charitable purposes of your organization.

• If your nonprofit’s governing documents don’t explicitly state that your organization’s activities are charitable in nature, you’ll need to amend them. Make sure your documents align with the legal definition of a charity in Canada.

3. Prepare and Submit the Application for Registration

‍Once your organization meets the necessary criteria, you can prepare your application for registration as a charity. The application process involves submitting the following documents to the CRA:

• Application for Registration as a Charity: This is the primary form that you’ll need to submit to the CRA. It asks for detailed information about your organization, including its charitable purposes, activities, and finances.
• Governing Documents: Include a copy of your nonprofit’s governing documents, such as your articles of incorporation and bylaws. If you’ve amended your documents to reflect charitable purposes, include those amendments.
• Financial Information: You’ll need to provide financial statements for your organization, including a budget for the current year and a statement of your income and expenditures.
• Detailed Description of Activities: The CRA will want to know exactly what your organization does, who it benefits, and how it operates. Be prepared to provide detailed descriptions of your programs and activities.

4. Wait for Approval from the CRA

‍After submitting your application, the CRA will review it to ensure that your organization meets the requirements for registration as a charity. This process can take several months, so it’s important to be patient.

During this time, the CRA may contact you for additional information or clarification. If everything is in order, the CRA will issue a formal Notice of Charity Registration, and your organization will officially be a registered charity.

5. Adhere to Ongoing Compliance Requirements

‍Once your nonprofit has become a registered charity, it must comply with a range of ongoing legal requirements. These include:

• Annual Reporting: You’ll need to file an annual return with the CRA (Form T3010) that provides detailed financial information about your charity’s activities and income.
• Use of Funds: Registered charities must use their resources exclusively for charitable purposes. You cannot use funds for non-charitable activities or distribute them to individuals or members.
• Maintain Accurate Records: Keep detailed records of your organization’s activities, income, and expenditures. The CRA may request to review these records at any time.

Legal Considerations and Challenges

‍Converting a nonprofit into a registered charity can be a lengthy and complicated process. Some of the challenges that organizations may face include:

• Meeting Charitable Purposes: If your nonprofit’s activities don’t strictly align with recognized charitable purposes, it may be difficult to qualify for registration.
• Amending Governing Documents: If your nonprofit’s bylaws or articles of incorporation don’t reflect charitable purposes, you may need to amend them. This can require approval from your board of directors or members.
• Compliance with CRA Requirements: Registered charities are subject to strict reporting and operational requirements. It’s essential to ensure that you comply with all of the CRA’s rules to maintain your charitable status.

Conclusion

‍Converting a nonprofit organization into a registered charity in Canada can offer significant benefits, such as tax exemptions, increased credibility, and access to more funding opportunities. However, it requires careful planning, documentation, and adherence to the CRA’s requirements.

By following the steps outlined above and ensuring that your organization meets the necessary criteria, you can successfully make the transition from a nonprofit to a registered charity. Remember to stay compliant with all legal requirements and seek professional advice if you’re unsure about any part of the process.

If you need assistance with converting your nonprofit into a registered charity, it's always a good idea to consult with an experienced charity lawyer who can guide you through the process and ensure that everything is done correctly. Our charity lawyers have successfully converted hundreds of not-for-profit organizations into charities for clients in Ontario, British Columbia, Alberta, Quebec, and across Canada.  If you require assistance with converting your Not-for-Profit corporation into a charity, contact us today at 416-488-5888 or schedule a free 15 minute free consultation here.