This is the second post in Cadence’s four-part series on starting your own non-profit or charity.
● Part 1: Six Questions to Ask Before Starting a Non-profit or Charity
You’ve read our guide to whether or not you should start your own benevolent venture, and the answer is yes. Great!
There’s one more question you’ll need to answer: should you start a non-profit organization or charity?
Fortunately for you, helping do-gooders decide how to best achieve their charitable goals is what gets us up in the morning.
Non-profit vs. Charity: What’s the difference?
Both charities and non-profit organizations focus on doing good work. So what’s the big difference?
While most people use the terms interchangeably, in Canada there are important distinctions that you need to consider before you decide what’s best for your organization.
First, charities are established to undertake what the CRA calls “charitable activities.” Broadly speaking these activities fall into four categories: poverty alleviation, the advancement of education, the advancement of religion, and the catchall “other purposes beneficial to the community,” which includes things like promoting health, protecting the environment, and relieving conditions associated with age or disability.
A charity may also be set up primarily to receive donations and give gifts to other charities. We’ll get into more detail about these entities (public or private foundations) in another post. For our purposes here, we’ll focus on ‘doing charities’ – charitable organizations – which are created to actively run programs, services, and activities deemed charitable by CRA.
In contrast with charities, which can only pursue activities accepted by our tax authority, non-profit organizations can operate to promote social welfare through sport, leisure, civic activities (none of which are considered “charitable” by the CRA) and more. Essentially, they can be created for any purpose except profit.
The most practical difference is that charities have been reviewed and approved by CRA, and can issue tax receipts for donations. Because of this privileged tax status, charities are also subject to more layers of regulation; receipts must be issued in specific form, funds must be spent in specific ways, and forms must be filed every year to show that specific rules were followed.
That’s not to say that non-profit organizations exist in a regulation-free zone. Like any incorporated entity, a non-profit organization needs to pay attention to its filing requirements and comply with the laws that govern it. It’s just that a charity has to go the extra mile to make sure that it plays by CRA’s rules for registered charities. That’s the price you pay for being able to issue tax receipts.
Charity Central has a very helpful guide outlining the key differences between non-profit organizations and charities that you can download and review as you consider your options.
As you can imagine, registering a charity does take more time and patience than setting up a non-profit organization, but for many organizations, it’s a crucial step in ensuring they can sustainably pursue their charitable goals. A tax receipt is a powerful incentive for many donors and it’s worth considering whether your supporters are likely to give – or give more – if they can get one.
However, if your benevolent mission isn’t limited by the CRA’s definition of “charitable purposes” and you can operate without issuing tax receipts, starting a non-profit organization is an excellent way to do good in the world. The process is simpler, the maintenance is relatively unfussy and, in terms of benevolent activities, the sky’s the limit.
Bonus: Other benevolent ventures
Social Enterprises: There is currently no straightforward legal structure for social enterprises in Canada but essentially, it’s a for-profit business that’s primary reason for existence is to serve the public good, much like a charity or non-profit.
Foundations: As noted above, foundations are registered charities that primarily distribute funds, typically through grants, to other charitable organizations. There are two types – private and public – and we’ll discuss these in further detail in another post.
Still not sure where you fit? Stop by and we’ll help you sort out which type of venture will help you do good.
