Administrative Law | Registered Charities: Reclaiming Your Status
You had registered charity status and lost it?
Here are the steps to follow to remedy this situation.
Registered charities are governed by the Charities Registration Act, among other things.
Section 2(1) of the Act states that its purpose is to reflect Canada’s commitment to participate in the international effort to protect the integrity of the charitable registration system under the Income Tax Act.
This legislation assures Canadian taxpayers that the benefits of registration are available only to organizations that are operated exclusively for charitable purposes.
What is a registered charity?
In defining a registered charity, the Charities Registration Act refers to section 248(1) of the Income Tax Act.
This section states that registered charities are those that develop charitable works or establish a charitable foundation.
The Act defines a registered charity as an organization that has applied to the Minister for registration in the prescribed form and is registered, at the relevant time, as a charitable organization, a private foundation or a public foundation:
(a) a charitable organization, private foundation or public foundation, as defined in subsection 149.1(1), that is resident and incorporated or established in Canada
(b) a branch, section, parish, congregation or other division of a charitable organization, private foundation or public foundation, as defined in subsection 149.1(1), that is resident, incorporated or established in Canada and that receives gifts in its own name
The Act further defines charitable organization and charitable foundation in section 149.1(1) by setting out a number of relatively specific criteria.
We can summarize as follows:
Charitable organization: a charitable organization at any time means an organization, whether incorporated or unincorporated, that is operated and constituted exclusively for charitable purposes and that is carried on by the organization or by eligible contributors. In addition, all resources must be devoted to charitable activities from which no part of the income is payable to any of its owners, members, shareholders etc.
In addition, it should be mentioned that more than 50% of the directors, shareholder members, etc. may not be at arm’s length with each other or with a person responsible for the work that the organization promotes. The ratio legis underlying these provisions is that there should be absolutely no doubt about the independence and disinterestedness of the heads of registered charities.
charitable foundation: means a corporation or trust established and operated exclusively for charitable purposes, no income from which is payable to or otherwise available for the personal benefit of any owner, member, shareholder, trustee or settlor of the trust or corporation, and which is not a charitable organization
But what is charitable?
The Canada Revenue Agency states that the organization’s purposes must fall into one or more of the following categories:
- Relief from poverty;
- Educational advancement;
- The advancement of religion;
Other purposes that benefit the community in a way that is charitable in the eyes of the courts.
The requirement to file a return with financial statements
The Income Tax Act requires registered charities to file the appropriate return with copies of financial statements no later than six months after the end of their fiscal year.
Please be aware that depending on your fiscal year end, different versions of the form will be available.
If you do not file a prescribed version of the T3010 with supporting documents and financial statements, the Canada Revenue Agency will send you a reminder notice.
If within 90 days of this notice you have not sent the above documents to the Charities Directorate of the Canada Revenue Agency in Ottawa, your registration will be revoked.
Recovering revoked charitable status: filing the form
If your registered charity status is revoked, a form must be completed and submitted to the Canada Revenue Agency.
One of the purposes of this return is to calculate the revocation tax that your organization must pay.
In principle, this tax will be equal to 100% of the fair market value of the charity’s remaining assets, after eligible debts and expenses and transfers to eligible donees.
To complete this form, you will need the organization’s financial statements and accounting records as you will be asked to answer many relatively specific questions. In addition, it will be necessary to be able to produce evidence of all transfers made to qualified donees such as transfers of securities or bank statements.
In conclusion, your charity can benefit from federal and provincial income tax exemptions as well as many other tax advantages since it is an organization providing a public benefit. However, you will have to remain vigilant and scrupulously complete the forms required by the Canada Revenue Agency in a timely manner so as not to risk having your registered charity status revoked!
NOTE: This article does not constitute legal advice or a legal opinion from a tax lawyer. Rather, it is provided solely to inform readers of certain aspects surrounding the details of the laws surrounding the rights of charities in Quebec.