Tax Filing Requirements for NPO’s and Charities

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:

1. Relief of poverty
2. Advancement of education
3. Advancement of religion
4. Other purpose that benefits the community as interpreted by the courts

NPO’s on the other hand, cannot fit under any of the charitable purposes mentioned above and must be operated exclusively for:

• Social welfare
• Civic improvement
• Pleasure or recreation
• Or for any other purpose that isn’t for profit

Charities
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:

• Is no longer exempt from tax;
• Is not able to issue official donation receipts; and
• Must transfer its property to an eligible done or be subject to revocation tax equivalent to the full value of its remaining assets

 
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.

Not-for-profit Organizations
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:

• Certain property income exceeds $10,000;
• Assets exceed $200,000; or
• A T1044 return was required to be filed at any time in the past

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:

• T2052 Registered Canadian Amateur Athletic Association Return of Information
• T4 Slip(s) and Summary for salary and wages paid to employees
• GST/HST Return for goods and services

 
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.  
 

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