What's the Difference Between a Nonprofit Organization and a Charity?
Espace idées • January 10th, 2018
hile in everyday language, we often interchange the two terms to refer to organizations we know and whose activities take place in our community, there are some important differences that distinguish them when it comes to the Income Tax Act.
But before you keep reading, let's start with a little quiz! In which category would you rank the following organizations (charity or nonprofit organization)?
Knights of Columbus Councils
All of the above examples are considered nonprofit organizations (NPOs) because they work for social welfare purposes and make no profits, as all revenue obtained is reinvested in the organization.
However, not all of them are charities. The main distinctions are presented below.
|Goal||Organizations that do not need to carry out activities for charitable purposes only.
Operated for the purpose of social well-being, community improvements, recreation, sports, entertainment or any other nonprofit activity.
|Operated exclusively for charitable purposes.|
|Examples||Soccer clubs, minor hockey leagues, curling clubs, baseball leagues, Knights of Columbus Councils, Lions Clubs, etc.||Organizations dedicated to alleviating poverty (ex: food banks), the advancement of education (ex: university foundations), advancement of religion, or other purposes that benefit the community (ex: health research).|
|Registration||No registration process with the Canada Revenue Agency.||Must apply to the Canada Revenue Agency to be registered as a charity.|
|Official donation receipts||Cannot issue official donation receipts.||Can obtain a registration number to issue official donation receipts for income tax purposes.|
|Income tax||Not automatically exempt from paying income tax.||Do not pay income tax.|
|Taxes||Few supplies are exempt from GST /HST.||May request a partial rebate of the GST/HST paid on eligible purchases.|
Neither charities nor nonprofit organizations can use their income for the personal benefit of their members.
In fact, organizations that want to register as a charity must meet a number of criteria. You’ll find an interesting summary of these criteria on the Éducaloi website. To learn more about the differences between NPOs and charities, visit the Canada Revenue Agency website.
Here is the category in which the above-mentioned examples would be classified, taking into consideration that all charities are automatically nonprofit organizations, while nonprofit organizations are not necessarily registered with the Canada Revenue Agency and are therefore not all charities. Not too confusing, we hope? 😉
Knights of Columbus Councils : NONPROFIT ORGANIZATION
Hospital Foundations : CHARITY
Scout Associations : NONPROFIT ORGANIZATION
University Foundations : CHARITY
We now challenge you to tackle this topic with another parent on the side of the soccer field! 😉