Running a not-for-profit organization is challenging, but when it comes to the accounting, reporting and filing requirements, it can be down-right confusing. With the information here, you can learn exactly what is expected to ensure your not-for-profit organization meets all requirements.
If your organization is registered with the Canadian Customs and Revenue Agency as a charitable organization, it will be allowed to issue tax receipts and will not have to pay taxes on income. Not every not-for-profit organization is able to gain this status since it is a privilege that is only given to organizations that have one or more of the following goals: advancing religion, advancing education, reduction of poverty, or other activities that are beneficial to the entire community.
Understanding whether or not your not-for-profit organization has charitable status is the first step in the filing and reporting process.
Each registered charity under the Income Tax Act has to fill out and file an Information Return every year. This return has to be filed no more than six months after the end of the fiscal period for the charity.
Included on the Information Return is:
- Form T3010A – the Registered Charity Information Return
- Form TF725 – the Registered Charity Basic Information Sheet
- Form T1235 – the list of all trustees, directors or other officials
- Form T2136 – the list of all donors
- A copy of the financial statements from the charity
If the charity fails to file the return, it may lose its registered status and may even have to pay a penalty of up to $500.
Each year it is required that the charity spend a certain amount of money on charitable programs. The total amount will vary based on the designation of the charity, but is referred to as the disbursement quota. This quota serves several purposes:
- To provide documentation that the majority of the organization’s funds are used for charitable activities and purposes.
- To ensure excessive funds are not accumulated.
- To maintain a reasonable level of expenses.
If the charity spends less on the charitable activities then the established year’s quota, this will result in a shortfall. However, the previous year’s excesses can cover these shortfalls. The charity may also have to spend more the next year if there is no previous excess for the shortfall. A charity that experiences continuous shortfalls may have their charitable tax status revoked.
Do you need assistance with your accounting, filing and reporting for a charitable organization? If so, learn about the tax services offered by Hogg Shain & Scheck.