So you want to become a charity…Three things to do before your non-profit can apply for charitable status

If you have been operating a non-profit for a while, you might be wondering if it is time to change your organization’s status and become a full-fledged charity. 

As we’ve written about before, there are pros and cons to gaining charitable status – the biggest pro being that you can issue tax receipts for donations. The downside, of course, is the paperwork: charities are much more heavily regulated than non-profits, which means there are more rules to follow and more filings to complete. 

But if you have considered the costs and benefits and are ready to change your organization’s status, here are a few steps you need to take before you apply: 

1. Update your bylaws & purposes 

First things first: to even qualify for charitable status in Canada, your organization’s purposes must be considered “charitable at law.” If you’ve been operating as a non-profit, chances are you haven’t applied this test to your purposes. Take the time to review your governing documents – constitution, articles of incorporation, bylaws, etc. – to ensure the purposes qualify as charitable and your bylaws are compliant with CRA policy. 

Broadly speaking, to be charitable, your organization’s work must fall into one of four categories: the relief of poverty, the advancement of education, the advancement of religion, or the catchall “other purposes beneficial to the community.” This last category includes things like promoting health, protecting the environment, supporting people with disabilities and others. 

If your current purposes and bylaws do not fall into one of these categories, reflect on your organization’s mission. Will your vision still be achieved if you update your purposes to be “charitable at law”? If so, get out that red pen and make some edits.  

2. Review your board

During the application process, expect the CRA to research your board of directors’ histories and backgrounds. The CRA does not offer a checklist on what they are looking for, but in general, they want to see that your board members will uphold the ethical obligations to members, donors, and Canadian tax-payers that come along with charitable status. 

Before you apply, do an audit of your board. Make sure your directors: 

• Are free from bad press 
• Have a positive or neutral social media presence
• Do not have unresolved tax issues 
• Are up-to-date on their personal and corporate tax filings

In addition, if you are planning to register as a charitable organization or public foundation, ensure at least 51% of the board of directors have an “arm’s length” relationship with the organization’s executive team and each other. According to the CRA’s glossary, “‘at arm’s length’ describes a relationship where persons act independently of each other or who are not related.” Essentially, if your board is made up primarily of friends, employees, or business associates, it’s time to diversify. 

Read our advice on creating a diverse, high-functioning board.

3. Make sure your books are in order

Getting charitable status is all about the paperwork, so make sure yours is 100 per cent up-to-date before you submit your application. This includes both your organization’s financial and corporate obligations. 

To make the cut, your non-profit needs to be in good standing both taxwise and corporately. You will need to supply the CRA with your financial statements, change of director filings, and any other corporate change filings. Since the CRA launched its online filing system, these standards have gotten even more stringent, as it has made it easier for the CRA to keep tabs on everything. 

View the CRA’s list of factors that will prevent an organization from getting charitable status here.

We know this might sound overwhelming. But even with all the regulations, gaining charitable status can be a huge step forward for many organizations, particularly when it comes to attracting donors. 

If you need help to get started, our friends at Glasshouse Capacity Services Society are an excellent resource for getting your financial filings back on track. And, of course, we would love to help you check off all the boxes if you are struggling to update your bylaws, vet your board, or meet your compliance requirements. 

Give us a shout and we can talk you through the exact steps your organization needs to take to successfully transition to charitable status.