Not every business is started with the intention of making money for profit. There are many individuals who want to set up charitable organizations, or non profit businesses. While these sound like one and the same thing, the CRA does not categorize them as such.
While there are many differences in the way these two different types of entities are handled by the Canada tax department one of the most significant is the registration of the entity with the CRA. If it is going to be a charitable organization it must be registered as such with the CRA, and if approved as a charitable organization it will be given a registration number. If it is going to be a not for profit business entity then it does not have to be registered for income tax purposes.
The main differences between these two types are…
A charitable organization must be registered as such and its sole purpose is to operate for charitable purposes only.
A not for profit operation has a wider scope as it could be for a sports organization or pleasure. It can operate for the social welfare for others or for civic improvements, for example. The main criteria is that it cannot operate strictly for charitable purposes.
One major benefit tax wise for the approved charitable organizations is that they have the authority to issue a tax receipt. This is not something that a not for profit organization can do.
Amongst all of the other miscellaneous rules for these two entities is the filing of the tax returns. The qualified charitable organizations must file Form T3010 within six months of its fiscal year end. The not for profit organizations do not have to file this form, but may have to file a T2, and or Form T1044.
The Canada tax department is really cracking down on charitable organizations in respect to their tax obligations. It is most important that you know whether you should be applying to the CRA as a charitable organization or as a not for profit business.
It is well worth getting a chartered accountant who is experienced with both of these entities to help guide you with the related tax matters.
