Charitable organizations in Canada are regulated under the Canadian

Canada

Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...

 Income Tax Act through the Charities Directorate of the Canada Revenue Agency

Canada Revenue Agency

The Canada Revenue Agency is a federal agency that administers tax laws for the Government of Canada and for most provinces and territories, international trade legislation, and various social and economic benefit and incentive programs delivered through the tax system...

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There are more than 85,600 registered charities in Canada. The charitable sector employs over 2 million people and accounts for about 7% of the GDP of Canada. Registered charities are registered under the Income Tax Act (Canada) as either a "charitable organization", "public foundation" or "private foundation". Although these distinctions were more important in the past, there are now few practical differences between the three types of registered charities.

Federal regulator of charities

The Charities Directorate of the Canada Revenue Agency is the primary regulator of registered Canadian charities under the Income Tax Act.

The mission of the Charities Directorate is:

"... to promote compliance with the income tax legislation and regulations relating to charities through education, quality service, and responsible enforcement, thereby contributing to the integrity of the charitable sector and the social well-being of Canadians."

The Charities Directorate of the Canada Revenue Agency is responsible for:

1. determining which organizations will be granted registered charity status.
2. providing information to registered charities on legal compliance issues.
3. receiving and maintaining a database of Canadian registered charities with copies of the T3010 registered charity information return.
4. auditing charities to check compliance with their responsibilities and obligations.
5. providing general information to the public on donations to registered charities.

Advantages of registered charity status

There are many advantages of being a registered charity under the Income Tax Act (Canada) including:

1. being able to issue "official donation receipts" for gifts to the registered charity which may assist a Canadian donor in reducing the amount of federal and provincial tax payable. For a donor in a high marginal tax rate in Canada, their donation can result in a reduction in taxes of between 40-60% of the donation depending on the province of the taxpayer and type of property donated.
2. it is easier to receive funds from certain entities such as other Canadian registered charities (e.g. foundations) or being a registered charity may be a condition of applying for grants from business or government etc.
3. there are reputational advantages to being a registered charity.
4. other advantages including reductions in property tax, exemptions and rebates under the GST/HST system.

In light of the substantial advantages of being a registered charity there are some restrictions, limitations and obligations of being a registered charity which are discussed below.

Definition of charity in Canada

The Income Tax Act does not define "charity" and Canada uses a common law definition, namely purposes that fall within the four "heads" of charity: the relief of poverty, the advancement of education, the advancement of religion, or other purposes that benefit the community in a way the courts have said are charitable.

This definition comes from the English case Commissioners for Special Purposes of Income Tax v. Pemsel commonly referred to as Pemsel.

The organization's purposes must be exclusively and legally charitable. Therefore all the purposes of the charity must be charitable, not just most purposes. In addition the organization must be established and resident in Canada.

Furthermore, there is a public benefit test: the charity must benefit the public or a sufficient segment of the public to be a registered charity in Canada.

Basic requirements for maintaining registered charity status in Canada

According to the CRA the basic requirements for a Canadian registered charity to maintain its status are as follows:

1. conduct allowable charitable activities and avoid prohibited activities.
2. keep adequate books and records.
3. properly issue official donation receipts.
4. meet the annual spending requirement called the disbursement quota,
5. file the T3010 Registered Charity Information Return with the CRA.
6. maintain status as a legal entity.
7. inform the CRA of certain changes.

Charitable activities

Canadian registered charities can carry out charitable activities by either gifting funds to a qualified donee or by carrying on its own activities through employees, volunteers or intermediaries.

Canadian charities can also, within certain limitations, carry out fundraising activities, business activities, political activities and social activities.

The Charities Directorate provides a glossary of terms relating to charity law and compliance for Canadian charities.

Canadian charities can conduct charitable activities in Canada and abroad. In July 2010 the Charities Directorate released "Canadian Registered Charities Carrying Out Activities Outside Canada" which replaces earlier guidance on Canadian charities conducting foreign activities. There are numerous legal and ethical issues with Canadian charities conducting foreign activities.

Other regulators of Canadian charities

In addition to the federal Income Tax Act regulation of registered charities, charities that operate in a particular province are subject to the jurisdiction of the public guardian and trustee of that province. The provinces and territories have varying degrees of involvement with charities. For information on different resources from the provincial and territorial governments see http://www.cra-arc.gc.ca/chrts-gvng/chrts/dnrs/rgltn/5-eng.html Of all the provinces, the Ontario Public Guardian and Trustee has been most active in the regulation of charities.

The Department of Finance Canada is responsible for the Income Tax Act (Canada), its regulations and any amendments to the Act.

If there is a dispute between a federal or provincial regulator and a registered charity then that registered charity may go to court in which case the courts will have the final say in determining the outcome of the dispute.

Other government departments are also involved with regulating charities. For example, if a charity is incorporated it is subject to the rules of the incorporating statute. Therefore, an Ontario non-profit corporation must look in part to the Ontario Corporations Act and a federal non-share capital corporation is governed under the Canada Corporations Act. Different types of charities are subject to sectoral regulation - for example universities, hospitals, daycares, etc.

Misuse of charitable resources

There have been some concerns expressed about misuse of Canadian charitable resources from the media, government, and the public. Recently the OECD published a report highlighting concerns about Canadian charities being used for tax evasion and money laundering entitled "Report on Abuse of Charities for Money-Laundering and Tax Evasion". The Charities Directorate of the CRA has a number of web pages alerting donors to avoid abusive tax shelter donations schemes and fraud involving charities.

In July 2010 there was widespread coverage of the fraud of Ashley Kirilow, a young Ontario

Ontario

Ontario is a province of Canada, located in east-central Canada. It is Canada's most populous province and second largest in total area. It is home to the nation's most populous city, Toronto, and the nation's capital, Ottawa....

 woman who shaved her head, her eyebrows, and plucked out her eyelashes in order to represent herself, on her facebook

Facebook

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page, as a cancer sufferer, so she could solicit donations to support her recovery.
Commentators speculated on the chilling effect her fraud would have on online donations.

Academic resources on charity law in Canada

The primary academic resource for charity law in Canada is The Philanthropist. In 2009 The Philanthropist was converted from a quarterly subscription model to a free online resource.