Charities and Non-Profit Organizations (“NFO”) are exposed to more complicated financial matters than ever. The key reason is that those organizations have experienced increasing challenges in resources. That said, compliance requirements for payroll taxes, maintaining charitable status, fund-raising activities, etc. are increasingly complex. Therefore, the functions performed by the treasurer of those organizations are critical to the financial operations of charities and NFOs. Here are a few items that need attentions:
Charity status
The CRA has issued a few guidelines in Charity.
- A registered charity is allowed to carry out its charitable purposes both inside and outside
Canada in only two ways: by carrying on its own charitable activities, and by gifting to qualified donees. - A registered charity must maintain direction and control over its activities and must not engage
in prohibited political activities or unrelated business activities. - A registered charity must keep adequate books and records for the prescribed time period at an
address in Canada that is on file with the Canada Revenue Agency. - A registered charity may only issue official receipts for donations that legally qualify as gifts. An
official receipt must contain all the information specified in Section 3501 of the Income Tax Regulation. - A registered charity must file an annual T3010 information return no later than six months after the end of the charity’s fiscal period.
There are cases that charities’ status being revoked due to the organizations failed to maintain proper books and records, failed to devote all of its resources to its charitable purposes and activities, issued improper donation receipts. As a result, it is always suggested to revisit the nature of activities carried out and ensure all books are maintained properly and donation receipts are issued according to the Income Tax Act and agreed to the general ledger. On the other hand, with accurate and accessible records kept by organizations, executive team is fully equipped to work together to determine annual budgets and future missions.
GST/HST exposure
GST/HST becomes so complex particularly for a lot of charities and NFOs. As this section is complex, even professionals need to spend time on the guides and regulations to ensure the matters are clearly understood.
In most registered charities, most of the sources of income for charities are not subject to HST. Examples include:
- Personal and corporate donations
- Government grants and subsidies
- Fees for counselling, rehabilitation, education, and social services
However, some items are tax exempt but having exceptions. One of the good examples is a supply of a membership by a charity. Generally selling the membership is exempt. But if the value of the membership benefits is 30% or more in relation to the cost of the membership, then HST kicks in.
Many sales, leases, or other supplies of real property made by a charity are exempt from GST/HST. However, if facilities are rented out to parties whose purpose is deviated from charity’s original purpose, then it may damage the charity’s CRA registered status.
Property tax
This issue may not be critical to some charities or NFO as they lease a space to carry out the activities. But for a lot of charities with longer history, they own the property and are responsible for the maintenance of the property. Properties under Charities are generally exempt from or pay minimal property tax. However, if parts of the building are devoted to non-charity purposes or deviated from its original mission, many municipalities choose to levy property tax on a pro-rata basis.
Nowadays, renting space to non-charity groups or even to small businesses is increasingly common for some charities to address their budget challenges. Therefore, it is imperative for charities to revisit the relationships with users of the property. Furthermore, charities may want to consider the amount of tax that may become payable on extra income derived from renting the extra space and calculate those payable taxes into the rent charged. In addition, insurance liability may need to be factored in the calculation as well. And another risk factor that the board needs to pay attention is whether the property has sufficient reserve for future maintenance. If not, better start earlier as the operating budget only covers the operation of activities not the property itself.
Financial matters are easily overlooked in many charities and NFOs. Always ask questions about the nature, the exposure and the risk. Running a charity is more like running a corporation. Don’t underestimate the risks that the organizations are involved. The CRA also recently launched new Charities Education Program (CEP). You can click here to see how it helps Charities. If your organization have questions about charities, please contact us at 647-872-6656. We surely can help!
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