Guidance

Reference number
CG-003

Issued
January 25, 2008

1. Purpose of this guide

The purpose of this guide is to help ethnocultural organizations that want to apply for charitable status. The guide puts important general information together in one place.

Each group has to consider how the information here applies to what it wants to do. To learn more about being a registered charity, a group may also want to talk to people with more experience managing charities or to lawyers who work in charities law.

The Canada Revenue Agency (CRA)'s Policy statement CPS-023, Applicants assisting ethnocultural communities, has more detailed information. The CRA's guidance for Canadian registered charities carrying out activities outside Canada, has information for organizations that want to carry on charitable activities overseas.

The CRA must follow the law in the Income Tax Act and the interpretation of the law by the courts. This guide does not replace the law.

CRA policy statements and guidelines are available for the public to read, and can be ordered from the Charities Directorate or found at this webpage: Policies and guidance.

2. Some facts about charities

Canada has over 80,000 registered charities.

A registered charity does not have to pay income tax – the government offers this privilege if a charity's work is for the public good and does not make a profit for individuals.

A registered charity can issue tax receipts for donations that are true gifts – people who donate money to a charity can use a tax receipt to reduce the personal income tax that they owe.

All Canadian charities must obey the rules in the law and file annual returns, including records of income and expenses, with the Canada Revenue Agency.

NGO

A non-governmental organization (NGO) is not the same thing as a charity. However, an NGO can apply for charitable status and be registered as a charity if it meets all the requirements.

3. The role of the Charities Directorate

The Charities Directorate is an organizational subdivision of the Canada Revenue Agency. Officers in the Charities Directorate review all applications for charitable status. The officers must apply all the rules fairly and consistently, following the law and any court decisions interpreting the law. The officers can only register a charity that meets all the legal requirements.

Charities Directorate officers can also monitor organizations that already have charitable status. The officers can check the annual reports of organizations and make sure that their activities continue to meet the legal requirements.

Enquiries officers in the Charities Directorate are trained and ready to answer questions from the public, and to provide information to help applicants and registered charities. They can help people to understand their options, and to know where to look for more information. See the telephone numbers listed at the end of this guide.

Some of the positives and negatives of being registered as a charity

Positives

A registered charity can:

• issue receipts for donations, which benefits the donor and may result in more gifts to the charity
• receive money from foundations and other charities (who are under strict limits as to whom they can give money)
• have increased credibility in the community because the public knows that the charity has to follow rules in order to have charitable status
• get publicity on websites and listings of charities in Canada

Negatives

A registered charity must:

• do only what it was approved to do in its charitable application
• spend on its charitable purposes at least 80% of the charitable donations for which it issues official receipts
• file detailed information reports on time, every year
• keep detailed records of money received, and write charitable receipts only for the eligible amount of donations
• allow the Canada Revenue Agency to audit its books and activities, if asked
• follow all other rules that apply to all charities

4. Definition of ethnocultural

An ethnocultural group shares characteristics that are unique to, and recognized by, the group. Characteristics may include:

• cultural traditions
• ancestry
• language
• national identity
• country of origin
• physical traits

A group may have its origins in many countries or link its distinct identity to a geographic region within a country.

Religion may also be a defining characteristic because, in some cases, it may be completely tied into a group's racial or cultural identity.

Activities that seek to eliminate disadvantages experienced by members of ethnocultural groups and to end discrimination may be charitable.

The Charities Directorate may register an ethnocultural organization as a charity when all the work the organization does has a public benefit and the work fits into one of the charitable categories described in this guide.

Aboriginal peoples have a unique legal and constitutional position in Canada. The CRA's policy CPS-012, Benefits to Aboriginal peoples of Canada, concerns charitable status for organizations that serve Aboriginal peoples in Canada.

5. First steps

How do charities get started? Often a few people in a community recognize there is a need and decide that they want to do something to help to meet that need. They may begin to work helping others, and after a time they may feel that it would be beneficial to become a registered charity.

To ask for charitable status, go to Apply to become a registered charity, where you can complete and submit the application for registration.

The application for charitable status

The application for charitable status must include:

• a statement of the organization's activities
• an explanation of how the organization will make decisions
• an estimate of the organization's income and expenses
• a governing document that describes the organization's purposes (also called objects). A governing document is a deed of trust, a constitution, or articles of incorporation

Governing documents and charitable purposes

To be registered as a charity, an organization has to have a formal structure and a clear purpose.

Structure

The structure may be as:

• a trust
• a group with a constitution
• a not-for-profit organization that is incorporated under provincial, territorial, or federal law. Many charities in Canada choose to incorporate

Purpose

The object or purpose statement is the main statement that an organization makes about the reason it exists. To qualify to register as a charity, this statement must be clear, precise, and include some details on the organization's charitable activities. It is not good enough to say "to help immigrants" or "to build community spirit." The organization must describe what it plans to do and how it plans to do it in its purpose statement.

The following is an example of an acceptable purpose statement for a group that is planning to provide support services to newcomers to Canada:

"To provide education, counselling, and other support services for immigrants and refugees in need, including language instruction, employment training, job-search activities, translation services, and information programs on Canadian culture and life."

The foregoing statement gives a clear idea of the organization's charitable purpose and what activities it will do to achieve that purpose. The organization does not restrict activities to one ethnic group or immigrants from one country. Its stated purpose is to benefit all immigrants and refugees in need.

The sample statement includes many purposes, but an organization may be a charity with only one purpose. For example, if the organization only plans to provide language training for refugees, then its purpose statement may just say that:

"To provide language instruction for refugees."

The more purposes included in the governing documents, the more work the organization must do to show how it will achieve those purposes. The organization must provide a complete description of the activities that it will do to achieve each purpose.

To receive charitable status, all of an organization's purposes must be charitable.

It is best to think through the charitable characteristics of an organization's purpose before applying for incorporation. Otherwise, the group may end up with a purpose in its governing documents that is not charitable and that makes it impossible for it to be registered as a charity. The organization would then have to amend its governing documents and send the changes to the Canada Revenue Agency. This takes time and adds to expenses.

Already incorporated organizations with a charitable project idea

Sometimes an organization that is incorporated and does not have charitable status decides that it wants to become a registered charity. It may, for example, want to take on a new project and fund it by receiving donations and issuing tax receipts. It has to do one of the following:

• make sure each of its purposes as stated in its incorporation documents is charitable
• set up a separate, new organization to do the charitable work

If an organization has any non-charitable purpose, the Canada Revenue Agency cannot register the organization as a charity.

To be registered

To be registered as a charity, an organization must:

• state each of the organization's charitable purposes clearly, precisely, and in some detail
• include only charitable purposes
• describe all the activities that the organization will do to achieve each of its charitable purposes

6. Public benefit

All the work that a charity does must benefit the public.

The benefit must:

• be a real benefit that can be assessed. By doing X we expect Y will happen. We can show that Y is useful (and not harmful) to the community
• extend to a significant section of the whole community. For example, by operating a food bank, a charity will help relieve poverty, which benefits low-income people and the whole community too

Every application for charitable status has to pass this public benefit test. However, just because an organization's work passes the public benefit test does not mean it is charitable. The work must also fall into one of the four charitable-purpose categories.

Benefit and community

• the proposed activities will benefit the public
• the proposed activities must extend to a significant section of the whole community

7. Charitable purposes

To be registered as a charity, all of an organization's purposes must fall into at least one of the following categories:

(i) the relief of poverty

(ii) the advancement of education

(iii) the advancement of religion

(iv) other purposes that benefit the community in a way that the law says is charitable

An organization may be registered with a purpose that fits under just one category, or under more than one category.

(i) The relief of poverty

What are the basics that people need in order to live? Necessities of life include food, shelter, and clothing. Activities are charitable when they provide people experiencing poverty with the basic necessities of life. For example, an organization that operates a food bank or provides low-cost housing for people with limited income is acting to relieve poverty.

To fit into the relief of poverty category, an organization's purpose must focus on providing help to people who have little or no income. If an organization's purpose includes helping people who are not experiencing poverty, then the purpose is unlikely to be charitable. For more information, see Guidance-029, Relief of poverty and charitable registration.

(ii) The advancement of education

Education is all about helping people to learn, and includes:

• literacy education
• job-readiness training
• cross-cultural education
• life-skills training
• cultural festivals aimed at educating the public
• English or French language courses
• citizenship courses
• training to help new immigrants or refugees to settle in Canada
• education and awareness about racial, ethnic, or gender equality

Providing information, or providing information on only one side of an issue, does not qualify as a charitable purpose under the advancement-of-education category. To advance education, there has to be a learning process through which people are given facts from which they can draw their own conclusions. For more information on the advancement of education, see Guidance CG-030, Advancement of education and charitable registration.

(iii) The advancement of religion

It is a charitable purpose for an organization to teach the religious tenets, doctrines, practices, or culture associated with a specific faith or religion. The religious beliefs or practices must not be subversive or immoral.

Teaching ethics or morals is not enough to qualify as a charity in the advancement-of-religion category. For example, a website that states the opinions of an individual or group about what they think is right or wrong does not qualify as advancement of religion. There has to be a spiritual element to the teachings, and the religious activities have to serve the public good.

(iv) Other purposes that benefit the community

Generally, purposes that fit under the relief-of-poverty, the advancement-of-education, and the advancement-of-religion categories are considered to benefit the community even if they are focused on an ethnocultural group. For example, any activity to relieve poverty is socially useful, even if the activity is not focused on the whole community.

The fourth category under which a purpose can qualify as charitable is more complex. It may apply to a variety of different types of organizations that have been recognized by the courts as having charitable purposes—such as libraries, community centres, and medical clinics.

As explained in Part 6, an organization that bases its request for charitable status on the benefit-the-community category must show that the purpose is:

• socially useful (benefiting the whole community)
• providing a real benefit to a significant section of the whole community

Four categories

To be registered as a charity, all of an organization's purposes must fit into one or more of these four categories:

• the relief of poverty
• the advancement of education
• the advancement of religion
• other purposes that benefit the community

8. Other rules that affect ethnocultural groups

Groups that promote multiculturalism

Multiculturalism is a vague term that has not been clearly defined by the courts. The promotion of multiculturalism does not fall into any of the four charitable categories.

An organization applying for charitable status will be turned down if promoting multiculturalism is one of its purposes.

An organization applying for charitable status will also be turned down if promoting or preserving a culture is one of the organization's purposes. This is because promoting or preserving a culture is seen to benefit only some members of the community, not all. However, a charity can do a variety of activities that may contribute to a more multicultural community, such as:

• promoting racial, ethnic, or gender equality
• fostering positive relations between communities
• increasing public knowledge and appreciation of an ethnic group's art, culture, language, and traditions

Cultures and multiculturalism

• for a purpose, do not include the promotion of multiculturalism
• also, do not include the promotion or preserving of a culture as a purpose

Social or cultural events

A group's social events or cultural celebrations do not qualify as charitable purposes. For example, banquets, picnics, and Canada Day celebrations are not considered charitable purposes.

Nonetheless, a charity can carry on social activities to help achieve its charitable purposes and to help raise funds. However, the charity can only write a charitable donation receipt for the true gift it received. A person buying a ticket and attending an event may enjoy something in return, such as free food and entertainment. The charity can only give the person a charitable receipt for the gift part of the ticket. For example, if a ticket to an event costs $100, and the food and entertainment is worth $75, the charity can only write a charitable donation receipt for the eligible amount of $25.

Limits on who receives services

To be a registered charity, an organization does not have to allow everyone in the community to access its services. The organization may have a good reason for focusing its services on a group (for example, an ethnic group), but the services must still be available to anyone whose needs are within the charity's official purposes.

Charitable work outside Canada

A charity registered in Canada may support charitable work outside Canada if the work is directly and clearly linked to the Canadian organization's charitable purposes.

A Canadian charity can only transfer sums of money or other resources to foreign charities that are considered qualified donees. Qualified donees include:

• the United Nations and its agencies
• certain universities outside Canada (listed in Schedule VIII of the Income Tax Regulations)
• foreign charities to which the Canadian government has made a recent donation

Most foreign charities are not qualified donees, even though they may be recognized as charities in their home country.

Planning to give sums of money or other resources to an individual or to an organization that is not a qualified donee can result in the Canadian charitable organization losing its registered charitable status.

Charities involved in work outside Canada are subject to intensive review and extra requirements.

A Canadian charity can work in a foreign country either by doing the charitable work itself with its own employees or volunteers, or by arrangements to do work through representatives. When a Canadian charity uses representatives, it must be sure that:

• all the money the charity spends is for charitable work
• there are clear arrangements to control spending
• records are kept in Canada to show how the charity's money was spent

Organizations should also make sure that they have realistic purposes and goals for the work they want to carry out outside Canada. Charitable work outside Canada is very complex, and extensive information and documentation is required with applications for registration by organizations working in foreign counties.

The Canada Revenue Agency must be assured that all of a Canadian charity's money is being spent for a charitable purpose. Many special rules apply when a Canadian charity works abroad or partners with others to do charitable work in a foreign country.

Examples of acceptable charitable work outside Canada:

• providing food and clothing to an area where a disaster has occurred
• digging wells and setting up an irrigation system in a developing country that lacks these necessities
• running a home for orphaned children in an area of special need
• operating a medical clinic in an isolated area
• building a school

Operational capacity

Operational capacity means having the necessary financial and human resources, expertise, experience, and networks (such as contacts with established local partners) to carry out proposed activities effectively. It is best to have reachable goals and not try to do too much.

For example, it may be possible for a new or small charity to set up one irrigation system in one village. A goal of setting up 15 irrigation systems in 15 villages in three different countries may not be a realistic goal.

For more information, see Canadian registered charities carrying out activities outside Canada.

Checklist for work outside Canada

• the charitable work outside Canada links to the Canadian charity's purpose
• transfers of money and resources are made only to qualified donees outside Canada
• clear agreements and records exist when a Canadian charity hires others to do charitable work for it in a foreign country
• the organization has the operational capacity to carry out its proposed activities

Social advocacy and public policy dialogue and development activities

A charity cannot engage in any activities that directly or indirectly support, or oppose, a political party or a candidate for public office.

However, a charity can conduct social advocacy and public policy dialogue and development activities carried on in furtherance of its stated charitable purposes.

9. Other materials

More information about Canada Revenue Agency policies

The Canada Revenue Agency publishes policy statements and guidelines to help applicants for charitable status understand the policies that apply to their application. These statements and guidelines are available from the Charities Directorate and on the CRA website at Policies and guidance. This is a list of some of the publications that may be especially relevant to ethnocultural groups.

• Policy statement CPS-023, Applicants assisting ethnocultural communities
• Guidance CG-026, Relieving conditions attributable to being aged and charitable registration
• P113, Gifts and income tax
• Policy commentary CPC-026, Fundraising – Third-party fundraisers for the benefit of a particular registered charity
• Policy statement CPS-024, Guidelines for registering a charity: Meeting the public benefit test
• Policy statement CPS-026, Guidelines for the registration of umbrella organizations and title holding organizations
• Guidance CG-027, Public policy dialogue and development activities by charities
• Guidance CG-002, Canadian registered charities carrying on activities outside Canada
• Policy statement CPS-021, Registering charities that promote racial equality

10. Reasons an application for charitable status will not be successful

These are the 10 most common reasons why an application for registered charitable status will not be successful:

1. the organization has one or more purposes that are not charitable
   
2. the application does not have enough information about the organization's activities
   
3. the organization's activities do not support the organization's purpose. For example, an organization states as its purpose that it will relieve poverty by running a food bank. In the activity section of the application there is no mention of a food bank, and it appears that the organization is operating a school instead
   
4. the application does not include a clear statement that the organization's activities are open to everyone
   
5. the organization does not seem to have the operational capacity (such things as people, structures, and materials) to carry out its activities in Canada or outside Canada
   
6. the application lacks financial information, as well as details to support the organization's purpose and activities
   
7. the organization's focus is on social or cultural activities
   
8. the application does not include supporting documents such as Web addresses, brochures, booklets, newspaper articles, or course content for classes offered that would provide information about the organization's current activities
   
9. the organization is devoting resources to supporting or opposing a political party or a candidate for public office
   
10. the application does not include any copy of an agreement with representatives who are supposed to help the organization to carry out its activities outside Canada
    

Officers who work at the Charities Directorate help people who are thinking of applying for charitable status by answering their questions and giving them information about the policies and the process. The officers welcome questions about the application form, requirements to become a registered charity, and Canada Revenue Agency policies that apply to charities.

After an organization has charitable status, Charities Directorate officers continue to be available to answer questions about how the rules apply to charities. If you have any questions, please make use of this service.

More information

For more information, go to Charities and giving, or contact the Charities Directorate.