Tax Guide for Non Profits

photo credits: Insurance Broking Services

Thinking of starting a nonprofit organization? Aiming for altruistic ideas rather than profits, nonprofit organizations include groups, societies and clubs that operate for the benefit of society. They are similar to businesses and charities. However, there are slight differences between all three of these categories, and the Canada Revenue Agency has different reporting requirements for each type of entity. 

What are Nonprofit Organizations?

A nonprofit organization is a group organized for any purpose except profit, including social welfare, civic improvement, and pleasure or recreation. NPOs are similar to businesses and charities in how they operate. For example, all of these entities have expenses, such as rent, utilities and payroll, and they all collect money from clients, customers or contributors. However, the key difference between these organizations lies in how they treat their profits or revenues.

Businesses vs Nonprofit Organizations

When a business generates revenue, it may choose how it wants to use that money. The leaders of the business, whether it is a sole proprietorship, a partnership or a corporation, may reinvest the money in the business, pay it to stockholders, give themselves bonuses or almost anything else. 

NPOs, in contrast, must put any revenues they have back into the organization. NPOs can pay salaries to their employees and directors, and they may be allowed to hold some assets or cash from year to year.

Charities vs Nonprofit Organizations

Although these two groups overlap, the CRA treats them differently for tax and registration purposes.

Both charities and nonprofit organizations do not have to pay income tax, and the CRA bans both of these organizations from using their income to benefit members. However, charities are operated exclusively for charitable purposes, while NPOs may operate for the benefit of social welfare, pleasure, sport, recreation or any nonprofit purpose. However, charities face more regulations. They must register as charities and when they receive donations from taxpayers, they must issue donation receipts. At the end of the fiscal year, charities and most NPOs must file an information return, and NPOs may also have to file a T2 form as well.

Filing Taxes

NPOs do not have to pay taxes, but they may have to submit Form T1044, Non-Profit Organization Information Return. If your NPO has received or is eligible to receive taxable dividends, interest, rent or royalties worth more than $10,000, you have to file an information return.

Similarly, if the NPO’s assets exceed $200,000, it has to file an information return for the following fiscal period. Once your NPO files an information return, it must submit one every fiscal period as long as it continues to be an NPO.

For additional information, please visit the CRA website.

By | 2019-08-11T22:38:09-08:00 June 30th, 2019|Blog|0 Comments