Not-for-Profit FAQ

1. What is the difference between a registered charity and a non-profit organization?

Registered charities and non-profit organizations both operate on a non – profit basis, however they are not the same.

Registered charities are charitable organizations, public foundations, or private foundations that are created and resident in Canada. They must use their resources for charitable activities and have charitable purposes that fall into one or more of the following categories:

Relief of poverty
Advancement of education
Advancement of religion
Other purposes that benefit the community

Only registered charities can issue official donation receipts for income tax purposes.

Registered charities must file an annual information return (Form T3010 and form TP-98522 if in Quebec) within six months of its fiscal year-end.

Non-profit organizations are associations, clubs, or societies that are not charities and are organized and operated exclusively for social welfare, civic improvement, pleasure, recreation, or any other purpose except profit. It is not a charity.

Non-profit organizations are required to file a T2 corporate income tax return (and CO-17 if in Quebec). They may also be required to file Form T1044 – Non-Profit Organization (NPO) Information Return if certain conditions are met. Both the corporate income tax return(s) and T1044 are due to be filed within six months of its fiscal year-end.

2. What is a private foundation?

A private foundation:

is established as a corporation or a trust (and not an unincorporated association)
has exclusively charitable purposes
carries on its own charitable activities and/or funds other qualified donees, (e.g., registered charities)
may have 50% or more of its directors or trustees notat arm’s length with each other
generally receives the majority of its funding from a donor or a group of donors that are not at arm’s length
must ensure that its income cannot be used for the personal benefit of any of its members, shareholders, or governing officials

3. What is a public foundation?

A public foundation:

is established as a corporation or a trust
has exclusively charitable purposes
generally gives more than 50% of its income annually to other qualified donees, (e.g., registered charities), but it may carry out some of its own charitable activities
must ensure that more than 50% of its directors or trustees must be at arm’s length with each other
generally receives its funding from a variety of arm’s length donors
must ensure that its income cannot be used for the personal benefit of any of its members, shareholders, or governing officials

4. What is a gift in kind?

Gift in kind refers to a gift of property other than cash such as capital property (including depreciable property) and personal-use property (including listed personal property). Contributions of services (such as time, skills or efforts) are not considered gifts in kind.

5. What is a qualified donee?

A qualified donee is an organization that can issue official donation receipts for gifts it receives from individuals and corporations. It can also receive gifts from registered charities.

A qualified donee can be:

a registered charity (including a registered national arts service organization)
a registered Canadian amateur athletic association
a registered journalism organization
a registered housing corporation resident in Canada constituted exclusively to provide low-cost housing for the aged
a registered Canadian municipality
a registered municipal or public body performing a function of government in Canada
a registered university outside Canada, the student body of which ordinarily includes students from Canada
a registered charitable organization outside Canada to which His Majesty in right of Canada has made a gift
His Majesty in right of Canada, a province, or a territory
the United Nations and its agencies

6. What is a disbursement quota?

The disbursement quota is the minimum calculated amount that a registered charity is required to spend each year on its own charitable programs or on gifts to qualified donees. The disbursement quota calculation is based on the value of a charity’s property not used for charitable activities or administration. The purpose of the disbursement quota is to ensure that charities use their tax receipted gifts for charitable activities/purposes. There are different disbursement quotas for the three categories of registered charities (charitable organizations, public foundations and private foundations).

Charities that have fiscal year ends that begin before January 1, 2023 are required to spend a minimum of 3.5% on the average value of their assets, if the total value of a charity’s property not used for charitable activities or administration exceeds $100,000 ($25,000 for a charitable foundation).

The minimum spending requirement was raised from 3.5% to 5% for charities with fiscal year ends beginning on or after January 1, 2023 and only for the portion of property not used in charitable activities or administration that exceeds $1 million.

7. What goes on an official donation receipt?

An official donation receipt must contain all the following information:

For gifts of cash

A statement that it is an official receipt for income tax purposes
The name and address of the charity as on file with the Canada Revenue Agency (CRA)
The charity’s or RCAAA’s registration number (not required for other qualified donees)
The serial number of the receipt
The place or locality where the receipt was issued
The day or year the donation was received
The day on which the receipt was issued if it differs from the day of donation
The full name and address of the donor
The amount of the gift
The value and description of any advantage received by the donor
The eligible amount of the gift
The signature of an individual authorized by the charity to acknowledge donations
The name and website address of the Canada Revenue Agency

For non-cash gifts, these additional elements

The day on which the donation was received (if not already indicated)
A brief description of the property transferred to the charity
The name and address of the appraiser (if property was appraised)
The deemed fair market value of the property in place of amount of gift above

8. What is “fair market value” for charities when issuing official donation receipts?

Fair market value generally means the highest price, expressed in dollars, that a property would bring in an open and unrestricted market between a willing buyer and a willing seller who are both knowledgeable, informed, and prudent, and who are acting independently of each other. Important to note that it does not necessarily mean “highest price” – need to ensure that both parties are “knowledgeable, informed, and prudent, and who are acting independently of each other”.

Non-cash gifts in excess of $1,000 are recommended to be appraised by a competent third-party appraiser that is not associated with either the donor or the charity.

9. What is an “advantage” with respect to issuing an official donation receipt?

An advantage is generally the total value of all property, services, compensation, or other benefits that a person is entitled to receive in relation to a donation. The advantage may be conditional or receivable in the future, either by the donor or a person or partnership not dealing at arm’s length with the donor.

Certain advantages are deemed to be too small that the “De Minimis Rule” applies and the advantage is not required to be deducted from the gift amount. This rule applies when the advantage is less than the lower of 10% of the fair value of the gift or $75.

In situations where the advantage is greater than 80% of the value of the gift, the eligible portion is denied. CRA’s position is that there was no true intention to make a gift by the donor.

10. What is a T3010?

A registered charity must file an annual information return with financial statements and required attachments.

A charity must:

file a complete return
file the return within six months from the end of the charity’s fiscal year
ensure that the financial statements are attached to the return and are the same fiscal period
file a return even if the charity was not active during the year
describe the charitable activities (Section C2 of the return)
must complete form T1235 which includes the directors, trustees date of birth, position, postal code
must complete form T1236 to disclose gifts made to other qualified donees

11. When to complete Section D or Schedule 6 of the T3010?

When completing the T3010, information must be presented in either Section D or Schedule 6. How to determine which section to complete depends on the following:

Schedule 6

Complete this schedule if any of the following applies:

The charity’s revenue exceeds $100,000
The amount of all property (i.e. investments, rental property, etc.) not used in charitable activities is more than $25,000
The charity had permission to accumulate funds during this fiscal period

Section D

Complete this section if none of the situations above apply

12. When should a charity issue a donation receipt?

There is no requirement in the Income Tax Act for a registered charity to issue an official donation receipt or that it issue a receipt within a certain timeframe.

The CRA suggests that registered charities issue receipts by February 28 of the calendar year that follows the year of the donation. This will allow the individual taxpayer to claim the donation on their personal tax returns.

13. How many meetings must a charity hold during the year?

The Income Tax Act does not have a specific number of meetings that are required during the year. These are regulated by the by-laws of each individual charity. Directors have the responsibility to ensure that a charity is operating in the publics interest. Meetings should therefore be held on a regular basis.

14. What type of transactions with Canadian charities do NOT result in a gift and a donation receipt?

The payment of a basic fee for admission to an event or to a program
The payment of membership fees that convey the right to attend events, receive literature, receive services, or be eligible for entitlements of any material value that exceeds 80% of the value of the payment
A payment for a lottery ticket or other chance to win a prize
The purchase of goods or services from a charity
A donation for which the fair market value of the advantage or consideration provided to the donor exceeds 80% of the value of the donation
A gift in kind for which the fair market value cannot be determined
Donations provided in exchange for advertising/sponsorship
Gifts of services (for example, donated time, labour)
Gifts of promises (for example, gift certificates donated by the issuer, hotel accommodation)
Pledges
Loans of property
Use of a timeshare and
The lease of premises

15. Are Not-for-Profit organizations required to have their financial statements audited annually?

For an organization incorporated under the Federal Not-for-Profit Corporations Act, this is dependent on whether the organization is considered to be a soliciting organization or non-soliciting organization.

An organization is considered soliciting when it has received more than $10,000 in income from public sources in a single financial year. Public sources include gifts or donations from non-members, grants from federal, provincial or municipal government and funds from another corporation or entity that also received income in excess of $10 000 from public sources. For soliciting organizations:

$50,000 or less gross annual revenues, default is a review engagement. However, audit or compilation are acceptable
More than $50,000 and up to $250,000 gross annual revenues, default is audit. However, members can pass a special resolution to require a review engagement instead.
Over $250,000 gross annual revenues, must have an audit

An organization is non-soliciting if it has received no public funds or less than $10,000 in public funds in each of its three previous financial years. For non-soliciting organizations:

Under $1 million gross annual revenues, default is review engagement. However, audit or compilation are acceptable
Overt $1 million gross annual revenues, must have an audit

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Yaffa Cohen, CPA

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