The current reporting requirements for Charities & Non-Profit Organizations have left a lot of our clients wondering what exactly they are required to file. This article is intended to act as a general guideline for the reporting requirements of Charities & Non-Profit Organizations.Charities
Under the Income Tax Act, every registered charity has to file an Information Return each year. The return must be filed no later than six months after the end of the registered charity’s fiscal period.
The Information Return includes:
- Registered Charity Information Return, Form T3010A
- Registered Charity Basic Information Sheet, Form TF725
- List of directors/trustees or like officials, Form T1235
- List of qualified donees, Form T2136
- Copy of the registered charity’s own financial statements
CRA will send a Registered Charity Information Return Summary to acknowledge that they have received and processed your return. A charity that does not file its return can lose its registered status and may be liable for a $500 penalty.
A registered charity must spend a specific amount each year on charitable programs or as gifts to qualified donees. This amount varies according to the registered charity’s designation and is called its “disbursement quota”. The purpose of the disbursement quota is:
- To ensure that most of the registered charity’s funds are used to further its charitable purposes and activities;
- To encourage registered charities not to accumulate excessive funds; and
- To keep other expenses at a reasonable level.
Essentially the disbursement quota is in place to ensure that registered charities actively use their tax-assisted donations to help others according to their charitable purposes. To help registered charities plan their expenditures, the quota is largely based on what happened in the previous years. Consequently, at the end of one year, a registered charity should have a fair estimate of how much it will need to spend on its charitable programs the following year.
A disbursement excess is created when a charity spends more on charitable activities or by way of gifts to qualified donees than it is required to by its disbursement quota for that year. A charity can apply a disbursement excess from one year against a disbursement shortfall occurring in the immediately preceding fiscal period. If necessary, a charity can also draw on a disbursement excess for up to five of its following fiscal periods to help it meet its disbursement quota.
If a charity spends less on charitable activities or by way of gifts to qualified donees than its disbursement quota for that year, it has a disbursement shortfall. A charity can draw on previous years’ disbursement excesses to cover a shortfall. If no excesses are available to draw on, the charity can try to spend enough the following year to create an excess that will make up for the shortfall. Continuous shortfalls can lead to revocation of the charity’s registration.
Non-Profit Organizations (NPOs)
A non-profit organization must file a Non-Profit Organization Information Return (Form T1044) if:
- It received or was entitled to receive taxable dividends, interest, rentals or royalties totalling more than $10,000 in the fiscal period,
- The total assets of the organization were more than $200,000 at the end of the immediately preceding fiscal period (the amount of the organization’s total assets is the book value of these assets calculated using generally accepted accounting principles); or
- An NPO information return had to be filed for a previous fiscal period
Once an organization has filed an NPO information return for a fiscal period, it must file an information return for all subsequent fiscal periods, as long as it remains an NPO and regardless of the dollar value of its revenues or the book value of its assets in those later years.
An organization has to file its NPO information return no later than six months after the end of its fiscal period. If the organization fails to do so on time, the basic penalty is $25 a day. There is a minimum penalty of $100 and a maximum of $2,500 for each failure to file. An NPO is not required to include financial statements with the NPO information return.
Unlike charities, there is currently no disbursement quota that regulates where an NPO must spend their revenues.
Ultimately it is the responsibility of the Board of Directors to ensure that their organization is in compliance with the aforementioned reporting requirements. If you have any questions relating to the reporting requirements of your organization please contact SB Partners.