Charity FAQs

What are Canada's guidelines for business activities by charities, and how do they compare to charitable, fundraising, and investment activities?

Understanding Business Activities for Charitable Organizations in Canada

Charitable organizations (excluding private foundations) are permitted to engage in business activities, which can serve as a significant source of income. Nonetheless, these activities are subject to specific restrictions and must comply with the regulations established by the Canada Revenue Agency (CRA).

Guidelines governing business activities

Provided that it is a related business, a registered charity (excluding private foundations) is permitted to engage in business activities. A related business refers to:

• A business where substantially all of the individuals participating are volunteers, or
• A business that is associated with and dependent on the charitable purpose of the organization.

A business can be classified as a related business if “substantially all” of the individuals participating are volunteers. For instance, suppose a local community theater (run by a charity) employs two full-time staff members, an artistic director, and a marketing manager, along with 25 volunteer ushers, performers, and backstage crew members. In this case, there are 27 people involved in the theater's operations, and the volunteers represent approximately 93% of the total headcount. Consequently, as most individuals participating in the community theater are volunteers, it can be deemed a related business.

To obtain additional details, please refer to the CRA's Policy Statement CPS-019 titled "What is a Related Business?".

Is it connected to a charitable objective?

For a business to be associated with a charity's objective, it must have a direct correlation to that objective. Four different types of connection or linkage to charitable purposes exist:

1. Supplementary business activities that support charitable activities. These activities are essential for the efficient functioning of charitable operations or for enhancing the quality of services provided by the charity. For instance, a community center offers fitness classes and charges a fee for access to the gym to support its charitable goal of promoting healthy living.
2. By-product business activities that stem from charitable activities. The charitable operation produces goods or services that can be subsequently sold. For example, an animal shelter makes and sells pet food as a by-product of its charitable activity of caring for animals.
3. Excess capacity business activities that utilize the unused resources of a charity. For example, a non-profit daycare center offers its facilities and staff to rent after hours to host children's birthday parties.
4. The sale of promotional items that support the charity or its mission. For example, a breast cancer foundation sells pink ribbon merchandise to raise awareness and support for breast cancer research.
   

Tip: Organizations planning to establish a "Social Enterprise" should ensure that the regulations concerning business activities are applied to these endeavors.

Comparison to charitable activities

Although numerous activities generate revenue for a charity, merely doing so doesn't classify the activity as a business activity. Displayed in the following table are a few distinctions between charitable activities and business activities.

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Comparison to fundraising activities

The act of soliciting donations is not classified as a business activity since donors contribute to a charitable purpose without expecting anything in return.

Most fundraising events, however, are considered business activities as they often possess commercial characteristics. For example, events like concerts, dinners, and sporting tournaments share similarities with for-profit entertainment offerings.

Nevertheless, some events exhibit more features of a fundraising activity rather than a business activity. Furthermore, fundraising events, even if they are considered business activities, may not necessarily be subject to relevant business regulations if they do not qualify as "carrying on a business." The CRA evaluates each fundraising event on a case-by-case basis. If a charity organizes similar events repeatedly throughout the year, the CRA may evaluate them collectively and determine that their recurring nature qualifies as carrying on a business.

Comparison to investment activities

Charities frequently generate investment income, whether from excess funds, endowments, or other assets designated to support charitable endeavors. Although both business and investment activities generate income from assets, investment activities are often passive in nature, involving asset ownership.

Outlined in the following table are several distinctions between investment activities and business activities.

Unlike investment activities, earning income from business ventures necessitates an active role in operating the enterprise.