Is Your Organization a Charity or a Nonprofit: Learn The Tax Implications

by Craig Anthony

2 min read

Accountants and bookkeepers for Canadian nonprofit organizations need to understand the significant differences between nonprofits and charities. Although charities and nonprofits are both technically nonprofits, there are slight differences that matter when it comes to the taxes for which the organization is responsible. If you are keeping records for a charity, you must register your charity and use the government issued registration number when issuing receipts to your donors.

What Is Your Purpose?

Canada designates businesses as nonprofits or charities based on the purpose for which they exist. Charities exist to benefit their community. They can include churches, synagogues, mosques, or other religious organizations. Some charities help the poor, and others have educational purposes. Canada classifies nonprofits as organizations that are not in business to make a profit that exist for the improvement of social welfare, recreation and pleasure, such as sports teams.

Are You Registered?

As the member of an organization in charge of bookkeeping, you should know if the government classifies your institution as a nonprofit or charity. If it exists as a charity, you must register the organization and then the government issues you a registration number. If your organization is a registered charity, it can issue receipts when individuals make donations. Donors can then use these receipts to lower their tax burdens. When you are a nonprofit, you do not register and cannot issue receipts for donations.

How Do You Increase Your Donations?

Many charities are dependent on donations to continue their mission. In the past, such donations often depended on face-to-face contact with donors. As of 2017, your charity has more options for fundraising. Online options allow your charity to receive additional funding from sources you might never meet in person. Accessing these additional sources of income is a great way for increasing your operating budget and gives your organization the financial means for providing support in the communities you serve.

Do You Pay Taxes?

Members of your organization look to you in determining if it must pay taxes. Generally, nonprofits and charities do not pay income taxes, but if your nonprofit organization earns capital gains through the sale of property, the government may collect taxes on those profits. If you are a registered charity, you do not pay taxes, even if the organization receives profits from capital gains.

Do You Qualify for an HST Rebate?

If your organization is a charity and pays HST on items it purchases, it may qualify for a rebate for the HST it has paid. Your charity’s qualification is dependent on its location and where it does business. Five provinces do not participate in the HST program. As your organization’s bookkeeper, you may have responsibility for filing paperwork for the HST rebate that allows your group to recover the funds. Whether you are the bookkeeper for a nonprofit or charity, it is essential that you understand and apply the appropriate tax laws for your organization. This knowledge ensures you make the greatest use of the available resources.

References & Resources

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