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Charitable Status

In Canada Charitable Status means registration with Revenue Canada as a charity, under the Income Tax Act. In order to obtain charitable status, an organization must be established and operated for charitable purposes, and must devote its resources to charitable activities.

Note, however, that an organization may be considered a charity under provincial law, even if it is not registered as such with Revenue Canada. Such organizations may be subject to provincial laws governing the administration of charitable property. These laws entitle charities to certain legal and tax privileges, but also impose certain filing and other obligations - see below, under "Provincial Regulation of Charities".

Eligibility

Any organization, whether incorporated or not, can apply to Revenue Canada to be registered as a charity. An unincorporated organization must however have a constitution, explaining the organizationís purposes and structure.

Categories of charitable purposes

The courts have defined four categories of charitable purposes. Your organizationís objects and activities must fall within at least one of the following four categories:

1. The relief of poverty;
2. The advancement of religion;
3. The advancement of education; or
4. Other purposes of a charitable nature (i.e., similar to the first three categories), which are beneficial to the community as a whole.

Not all purposes that benefit the public are considered charitable. For example, advocacy on controversial issues is not considered to be a charitable activity. See Revenue Canadaís publication entitled "Registering a Charity for Income Tax Purposes" (T4063) for more detail as to what kinds of activities are considered to be charitable.

Electronic community networks

Networks and access sites may be considered charitable. This will depend on the purpose, structure and activities of your organization.

While it has been a challenge to convince Revenue Canada that free provision of the means for electronic communication is charitable in nature, a recent court decision has paved the way forward. In overturning Revenue Canadaís denial of charitable status to the Vancouver FreeNet (now the Vancouver Community Network), the Court ruled that "...there is absolutely no doubt in my mind that that provision of free access to information and to a means by which citizens can communicate with one another on whatever subject they may please is a type of purpose similar to those which have been held to be charitable": Vancouver Regional FreeNet Association v. Minister of National Revenue, Federal Court of Appeal, File A-413-94, July 8, 1996. One of the three judges disagreed, but stated that "had the record revealed that the Association was to operate solely as a "public access pointí, giving users access to a restricted range of public interest services", he might have concluded differently. In other words, the more restricted the access that you provide, the easier it may be to qualify as a charity.

Revenue Canada continues to treat each application for charitable status on its own merits. Hence, it is essential that your organizationís purposes and activities, standing on their own, meet the requirements for charitable registration. The Vancouver FreeNet Associationís stated purposes and activities provide a good model for other groups seeking charitable status. However, it must be emphasized that any variation on this model (such as user fees) could render the organization non-charitable.

Key ingredients for qualification as a charity thus appear to include:

* provision of free access;
* non-commercial nature of enterprise;
* purposes limited to those delivering community benefit;
* activities which focus on the delivery of community benefit.

What are the advantages of being a registered charity?

1. Registered charities can issue official donation receipts for gifts received. This reduces the income tax payable by the donor, and thereby enhances fund-raising capabilities.
2. Charitable organizations may be able more readily to obtain grants from private foundations and/or government and other benefits (e.g., permits to conduct a lottery or bingo; liquor licences).
3. Registered charities are exempt from paying income tax. (So are most non-charitable non-profits, however.)
4. Registered charities are eligible for a 50% rebate of G.S.T./H.S.T. paid on purchases made in the course of the organizationís business. (So are non-charitable non-profits who receive 40% of their funding from government sources, however). Other tax exemptions or rebates may also apply under provincial law.

What are the obligations of a registered charity?
The benefits of charitable status are accompanied by significant restrictions and obligations. Hence, the decision to operate as a charity should not be taken lightly.

Charities are held to a very high standard of care, and must comply with a number of filing and record-keeping requirements. In addition, they can expect to be audited periodically by Revenue Canada. A registered charity must:

* devote its resources to charity, and in particular:
o avoid engaging in any partisan political activity;
o devote no more than 10% of the charityís resources in non-partisan "political activities" such as distributing information or engaging in communications designed to sway public opinion to the charityís point of view;
* file a form T3010, Registered Charity Information Return and Public Information Return, annually, within six months of the organizationís year-end (part of which becomes public information);
* keep proper books and records, including duplicates of all donation receipts issued;
* comply with strict rules governing the issuance of receipts for gifts or donations;
* expend on charitable activities in any given year at least 80% of the amounts for which it issued donation receipts in the previous year;
* obtain permission from the Minister of Revenue to accumulate property (e.g., in order to undertake a large project in future years), where applicable;
* limit the creation of any capital fund to:
o receipted donations remaining after the disbursement quota (80%) has been met;
o non-receipted donations or gifts of capital; or
o donations accompanied by written direction from the donor that the gift be held for at least 10 years.

Revocation of status by Revenue Canada

Yes. Charitable registration may be revoked by Revenue Canada if the charity is found not to be in compliance with any of the requirements of the Income Tax Act, including those set out above. Charitable organizations can also have their registration revoked upon their own application.

In either case, revocation carries penalty, in the form of a "revocation tax" of 100% on all remaining assets not transfered to qualified donees (e.g., other registered charities) within one year of revocation. It is therefore unwise to obtain charitable status on the basis of purposes and activities which may change in the future. Registering as a charity should be considered a permanent decision for the organization, given the cost of relinquishing charitable status.

Whether or not to seek charitable status

As you can see, there are advantages and disadvantages to charitable registration. In general, being a registered charity enhances your fundraising capabilities, but restricts your activities and method of operation. It is up to your organization to weigh these costs and benefits, and to decide whether registering as a charity would be worthwhile.
Some community networks have decided that the burdens of charitable registration, along with the uncertainty surrounding the definition of "charitable", outweigh the potential benefits. In particular, some groups wish to retain the option of imposing user fees, or of pursuing other more commercial types of revenue sources such as advertising or the provision of training, research and other accessory services for a fee. If your organization is considering the imposition !of user fees, or a more commercial-type venture in the future, then this should be made clear to Revenue Canada at the outset to avoid potential revocation of charitable status and related penalties later on.

Application Process


Completion of Form T2050, Application for Income Tax Registration for Canadian Amateur Athletic Associations and Canadian Charities, and file it with the Charities Division of Revenue Canada (tel: 1-800-267-2384). You will need to attach to this application form an official copy of the organizationís governing documents, including constitution and/or letters patent, bylaws, and a statement of activities, setting out in full the activities and programs to be carried on by the organization in furtherance of its objectives.

Other Rules

Provincial legislation or municipal by-laws may place further obligations on charities operating in their territory. The provincial or municipal government may consider an organization to be a charity, even though it is not registered with Revenue Canada as such. Typically, these rules require charities to file reports or annual returns, or to apply for licences in connection with certain types of activities. You should contact the appropriate authorities to confirm your obligations in this regard. The following highlights some provincial rules relating to charities and other organizations carrying on charitable activities.

Alberta

The Charitable Fund-raising Act is designed to protect the public from fraudulent, mis!leading or confusing solicitations. It requires every organization formed for a charitable purpose (including "philanthropic, benevolent, educational, health, humane, religious, cultural or artistic" purposes) to maintain in the province complete financial records of its operations and solicitations for at least three years after the solicitations were made, and sets out certain specific rules that must be followed when soliciting donations, including information to be provided upon request, and time periods for phone solicitations.

Manitoba

The Charities Endorsement Act requires all organizations and individuals who wish to raise funds from the public for charitable purposes to obtain prior authorization from the provincial government. "Charitable purpose" includes "any charitable, benevolent, philanthropic, patriotic, athletic, artistic, or civic purpose,.... the promotion of civic improvement or the provision of a public service".

Ontario

Ontario uses the same definition of "charity" as does Revenue Canada. Under the Ontario Charities Accounting Act, all charities operating in Ontario must notify the Public Trusteeís Office within one month of incorporation and/or registration as a charity. The Public Trustee will require copies of the charityís constitution or corporate charter, street and mailing address of the charity and of each director and officer, and financial statements. Annual filings are also required, including financial statements for the year past, and any changes to the charityís consitution, address or directors. If incorporating in Ontario as a charity, the application for incorporation must be submitted first to the Public Trustee for approval (along with a fee of $120.00), before being submitted to the Companies Branch of the Ministry of Consumer and Commercial Relations.

Contact:
Office of the Public Trustee for Ontario
Charitable Property Division
145 Queen Street West
Toronto, Ontario
M5H 2N8
1-800-366-0335

P.E.I.

Under the Charities Act, any organization raising funds from the public "for benevolent, educational, cultural, charitable or religious purposes" must first register with the provincial government. Every charity so registered must:

* keep minutes of every meeting, including the recorded names of members attending the meetings;
* keep proper accounting books, which must show the total receipts and expenditures of any collection, bazaar, sale, entertainment or exhibition held. These books may be audited by someone chosen by the Minister;
* pay all monies received by the charity into separate accounts in a chartered bank;
* keep the books and accounts of the charity open at all times for inspection by the Minister. The Minister can terminate a charity's registration if he finds the organization in violation of these requirements. In such a case, the monies and assets of the charity will be vested in the Minister, who will decide what to do with the holdings.