Charities/Not-for-Profit Law involves a number of legal specialties, including corporate law, trusts and estates, and depending on the circumstances, real estate, taxation, employment and general business law.
It involves representation of organizations such as public and private foundations, community trusts, cultural and performing organizations, educational and health care institutions, and other tax exempt entities, on matters ranging from obtaining charitable registration status from the Canada Revenue Agency, issues of corporate governance and planned giving, tax planning, and compliance with applicable provincial and federal statutes and regulations.
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Lawyers working in this space may be working under charities or charitable institutions which are generally classified into either Non-profit or Not-for-profit. Non-profit and Not-for-profit are two different entities, but both have similarities and differences. The two do not generate profit entirely for its stakeholders (i.e., owners), as the profit of these organizations is entitled for charitable purposes and public benefit only, or for its operations; hence, any “profit” must be entirely used for their identified cause or for the benefit of their identified communities. As such, the term “non-profit” may refer to both these entities but are still technically different especially under the charities and not-for-profit law.
Not-for-profit or Charities are organisations or foundations whose existence is dedicated for charitable purposes, and which are registered under Canadian charities and not-for-profit law. This registration provides these organisations the legal personality to issue official receipts for the donations it receives, to become tax exempt, and to be regulated by the government and Canadian laws. These organisations may have a specific focus depending on its purpose such as poverty alleviation, religious advancement, educational purpose and/or research, public safety, animal welfare, and among others.
Non-profit organisations are unincorporated associations or group of individuals, such as recreational clubs, that are not necessarily registered under the charities and not-for-profit law. Similar with not-for-profit organisations, these non-profit organisations may be organized for any purpose other than for profit-generation. A not-for-profit may start as a non-profit before its elevation to becoming a registered charity. Examples of non-profit organisations are social clubs, amateur sports clubs, or specific-hobby groups.
The charities and not-for-profit law provide for the procedures to be undertaken of an organisation who wishes to be registered as a non-profit organisation in Canada.
A not-for-profit organisation can be registered either as a federal or provincial corporation with the charities and not-for-profit law, both of which have different requirements and processes that the charities and not-for-profit lawyers below can assist you with.
Federal incorporation is necessary to operate either nationally or internationally. An application for incorporation is either filed online or submitted to Corporations Canada. After the corporation has been created, documents are needed to be submitted to Corporations Canada under the Canada Not-for-profit Corporations Act (or the NFP Act). Such incorporation or registration would also be governed by other Canadian charities law, such as the Charities Registration (Security Information) Act. Once incorporated, a federal not-for-profit incorporation would now have certain benefits such as the right to use their chosen name across Canada.
Next would be the creation of the corporation by-laws which would govern the objectives, philosophies, and operations of the said not-for-profit or charity.
The Income Tax Act requires the not-for-profit corporation to register with the Canada Revenue Agency (CRA) as charities. This would enable the charity or the not-for-profit to issue official donation receipts and be exempted from taxes and be eligible for lower corporate taxes.
For registration under the charities and not-for-profit law as a provincial incorporation, the process would start with the registrar of the chosen provincial or territorial government. There may be different process and requirements in every province or territory in Canada.
Charities and not-for-profit lawyers can help organisations with registration and other regulations that may come with it.
Under the charities and not-for-profit law, while both non-profit and not-for-profit are not for income generation, a major difference is the registration of a not-for-profit organisation for the purpose of tax exemption and issuance of official donation receipts. There are also other similarities and differences between a non-profit and not-for-profit in Canada:
If the aim of forming the organisation is exclusively for the benefit of the community, a social cause, or for charitable purposes, then a charity or not-for-profit would be a recourse recommended by most charity and not-for-profit lawyers. However, if it is only for recreational purposes and will only operate locally, a non-profit would be a better fit.
According to its purpose, a charity or a not-for-profit is required to undergo registration under the charities and not-for-profit law and is afterwards given a registration number; while a non-profit organisation does not need to be registered. In addition, a charity or a not-for-profit would have a spending requirement on its own charitable activities or as gifts to qualified donees, which is otherwise not required for non-profit organisations.
Once registered, a charity or a not-for-profit may now issue official donation receipts for the purpose of becoming exempt from paying income taxes. On the other hand, a non-profit cannot issue such official receipts, are still exempt from paying income taxes, but may be taxed through other ways such as capital gains or property income.
While both may have to pay GST and/or HST on their purchases, a charity or a not-for-profit may claim a partial rebate of these taxes paid on eligible purchases, while a non-profit can only claim such rebate if they have received significant funding from the government.
Owing to their being a registered organisation, a charity or a not-for-profit may compute taxes using the formula of net tax for charities, but non-profit organisations may have to compute theirs in the regular way.
To be eligible for registration under the charities and not-for-profit laws of Canada, the organisation who desires to be registered must:
A lawyer specializing in charity and not-for-profit law will be able to help navigate your way through these registrations.
For the purpose of regulation, the charities and not-for-profit law of Canada states that the Canada Revenue Agency (or CRA) is the primary agency to register charities. It is also the agency which ensures that these charities and not-for-profit organisations comply with the Income Tax Act and common law. The CRA is also tasked with the education of newly registered charities for them to validly and voluntarily comply with the requirements under the Canada charity law.
Not-for-profit organisations are not a charity under Canadian charities and not-for-profit law. An organisation would only become a charitable institution or a charity if it is registered under the law of charitable and not-for-profit organizations, as mentioned above.
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