Imagine opening an organization to give back positively to our society. Now, one of the initial decisions we have to make is whether we should choose non profit vs charity registration. This can be a difficult decision, but we’re here to guide you through each step of the process.
You can visualize it by having two distinct vehicles for your process, both of which will bring you to your destination of helping others, but both of which have distinct features and requirements.
In Ontario, understanding the differences between non profit vs charity organizations is crucial in making the right choice for your cause.
We help many new organization founders conclude whether they should open a non-profit or charity in Ontario!
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What is a Non-Profit Organization?
Non-Profit Structure Explained
Non-profit Ontario is essentially an organization running without a goal of creating a profit for its directors, shareholders, or members. In the debate on non-profit vs charity, we should be aware that non-profits are allowed a much broader set of activities by the CRA compared to having a registration of their activities by the CRA.
People form non-profits for any legal purpose, as long as members don’t receive a direct economic benefit from the organization’s revenue or property. That’s why most organizations are drawn to the non-profit mode
Types of Non-Profit Activities
Non profit organizations in Ontario can be engaged in a number of activities from social clubs, professional organizations, religious organizations, recreational organizations, and advocacy organizations. One benefit of comparing non profit vs charity is that non profits are not restricted to charitable work only.
We often see non-profits focusing on events, sports leagues, pro development, cultural preservation, and member services. They contribute positively to the community without being required to meet the strict charitable purpose requirements.
Incorporation Under ONCA
The three-year transition period of the Ontario Not-for-Profit Corporations Act (ONCA) ended on 18 October 2024. As a result, all Ontario non-profits are now governed by the modernized regime of ONCA, which provides better governance structures and more pronounced rules of operation.
What is a Registered Charity?
Charitable Purpose Requirements
If we examine non profit vs charity distinctions, we must understand that the rules for registered charities are much more stringent. Registered charities must have purposes which give, or are capable of giving, a charitable benefit for the public or a significant portion of the public.
Charities must be working entirely for one or more of the four charitable objects: poverty relief, promotion of education, promotion of religion, or other charitable objects which are of benefit to the community. This narrow focus is what distinguishes charities in the non profit vs charity comparison.
Public Benefit Requirement
While most general non-profits are exempt from tax, only registered charities can prove that their work gives a quantifiable public benefit. We guide organizations to recognize that good intentions alone aren’t enough – strict proof must be shown that the charity’s work does something positive for the public or a substantial sector of the public.
CRA Registration Process
Charity registration application is a 4-step process. This involves creating eligibility, drafting required documents, filing the application, and waiting for CRA review and registration. This is a much more complex process vis-à-vis registration for a typical non-profit organization.
Key Differences at a Glance:
- Purpose & Activities
• Non-Profit: Can operate for social, cultural, or recreational purposes.
• Charity: Must serve a recognized charitable purpose (e.g., education, poverty relief). - Registration
• Non-Profit: Incorporate provincially or federally.
• Charity: Register with the CRA to issue tax receipts. - Tax Benefits
• Non-Profit: Cannot issue tax-deductible receipts.
• Charity: Can issue official donation receipts for tax purposes. - Oversight
• Non-Profit: Minimal government oversight.
• Charity: Strict CRA reporting, including T3010 returns. - Fundraising Rules
• Non-Profit: More flexible with funding.
• Charity: Funds must are for approved charitable programs only.
Tax Benefits and Implications
Income Tax Exemptions
One of critical factors involved in deciding between charity vs non profit is tax treatment. If you are a charity and you want to issue official receipts for donations and not pay income tax, you need to apply for registration as a charity.
Registered charitable organizations typically don’t pay income tax on their charitable activities, while non-profits also qualify for income tax exemption but, by default, can’t issue tax-deductible receipts for donations
Property Tax Implications
Nonprofits and charities can be qualified for a property tax exemption, although requirements and application processes can differ. We often encourage organizations to look at property needs before reaching the non-profit vs charity decision, since tax savings can be substantial for organizations that own property.
GST/HST Treatment
Non-profit vs charity tax implications also entail GST/HST treatment. Registered charitable organizations can access exemptions and rebates that regular non-profits don’t receive, offering significant cost savings for larger organizations.
Financial Management Differences
Investment Restrictions
Charities that are registered have investment and business restrictions, which a typical non-profit does not. Such restrictions have an impact on the long term planning of funds and income development plans of a non profit vs charity analysis.
Revenue Generation
Nonprofits are less stringent about creating revenues through business activities, membership revenues, and corporate activities. Charities must be sure that all of their revenues are for a charitable cause and not a risk to their charitable registration.
Surplus Management
Both of these organizations must be of a non-profit character, yet the charity vs non profit difference discloses opposing approaches to handling surpluses. Charities must grapple with the rules of disbursement quota, while non-profits can more easily accumulate their reserves for a rainy day.
Conclusion
Non profit vs charity is amongst the most critical choices you would have to undertake during registration of your organization. We highlighted the key differences based on scope of activities, tax effects, receipt of donations, registration, and ongoing compliance requirements.
Keep in mind that non profit vs charity is not necessarily a lifelong choice. Most organizations begin their existence as non-profits and then change to charitable status later on after their development and maturity. You need to decide on a structure that suits your immediate needs without closing your options for the future.
We recommend you seek out expert help o guide you in making the best non profit vs charity decision for your organization’s unique circumstances.