Scott Park, CPA, CA
The main difference between charities and NPO's lies in their purpose.
A charity must be operated exclusively for one of four distinct charitable purposes:
NPO’s on the other hand, cannot fit under any of the charitable purposes mentioned above and must be operated exclusively for:
A charity must apply to the Canada Revenue Agency (CRA) and be approved for registration as a charity. The charity is issued a charitable registration number upon approval by the CRA. Once approved, a charity can issue official donation receipts for income tax purposes to donors.
Under the Income Tax Act, although charities are exempt from paying tax, each charity must file an information return each year. Form T3010, Registered Charity Information Return and related documents must be filed within 6 months after the end of the charity’s fiscal period.
A charity that does not file its return can lose its registered status. If its status is revoked, it:
The purpose of the revocation tax is to make sure that charitable property continues to be applied to charitable uses. The tax is 100% of the value of all remaining assets after all debts and liabilities have been paid.
Unlike registered charities, NPO’s do not have to apply to the CRA for approval before being established. However, the tax filing requirements will depend on how the organization is structured. For example, if a NPO is incorporated then it is required to file a T2 Corporation Income Tax Return.
Some of the benefits of filing the annual T2 corporate tax return include starting the clock on a statute-barred period in which the CRA can go back to re-assess under audit and receiving a GST refund. CRA will hold any GST refunds until the T2 corporate tax return is filed.
In addition to the T2 corporate tax return, NPO’s are also required to file a T1044 Non-Profit Organization (NPO) Information Return if:
An organization must file its NPO information return no later than 6 months after the end of its fiscal period. The penalty for not filing the information return is $25 a day up to a maximum of $2,500.
Under the Income Tax Act, certain NPO’s are deemed to be trusts and are required to file a T3 Trust Income Tax Return to report certain investment income.
Here are some other common filing requirements for NPO’s:
Given the number of tax compliance filing requirements mentioned above, it is important for NPO’s to pay attention to their specific circumstances and consult with their Chartered Professional Accountant for professional advice.
Disclaimer: The blogs posted on Scott Park & Co Inc. website provide information of a general nature. These blog posts should not be considered specific advice since each person's personal financial situation is unique and fact specific. Please contact us prior to implementing or acting upon any of the information contained in one of our blogs. Scott Park & Co Inc. cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.