Charities 101

A registered charity is an organization established and operated for charitable purposes, and must devote its resources to charitable activities. The charity must be resident in Canada, and cannot use its income to benefit its members. Charities are usually registered as Corporations, or are governed by a trust or a constitution. They may be under a covering of a parent Organization.

The main advantages of charities are:

Ø  Charities are able to receive gifts tax free.

Ø  Charities provide receipts to donors for tax savings.

Ø  Charities are tax exempt

Ø  Charities make a great impact in our communities, provinces and our country!

The main disadvantages of charities are:

Ø  Charities take time to set up.

Ø  It is a large undertaking to set up a Charity, and there are ongoing requirements.

Ø  Charities must meet a public benefit test.

Ø  You cannot keep profit of the charity.

Ø  If you lose charitable status, all assets are taxed, or if break any of the various charitable rules you could face various consequences.

Many people have asked what the difference is between a charity and foundation in Canada.  The main difference is that charities are public and foundations are private.  Foundations in Canada are charities and mostly operate by the same rules.  Foundations are typically used to raise funds privately to distribute to other charities.

Charities should not be confused with non profits.  Non profits have much less regulation than charities, however they are treated similarly in that they are typically tax exempt and cannot distribute profit to benefit ownership.  The biggest difference between charities and non profits is that non profits are not allowed to issue tax receipts for donations to receive tax credits!