What is the Difference Between a Not For Profit and a Charity?

Originally Published: Dec 18, 2019

While it is commonly believed that charities and nonprofit organizations are synonymous, there are a few important differences between these types of organizations that should be noted before you begin the incorporation process.

A Not For Profit organization has many also known as (AKA) names, including NFP, NPO, NGO, Not-For-Profit, NonProfit, and NonShare. These words are all common terminologies for the same type of legal entity, which is a corporation without share capital.

The Charities and Nonprofit incorporations are both registered in the same process, with some key differences for registered charities, which are essential to be included to obtain charitable status. The first step in determining whether you are a notforprofit vs charitable organization is determining whether your purposes are considered charitable purposes or not.

The charitable status is only available to those corporations where the object or purpose clauses of the corporation are deemed to be a charitable organization.  The Canada Revenue Agency ultimately reviews those organizations who apply for Charitable status in Canada and determines whether the corporation is considered a charitable organization. If this charitable status is approved, the corporation is able to obtain a charitable tax number to provide donation tax receipts to those who provide financial support to the organization.

A non-charitable not for profit, in the simplest terms, provides to the community as a public benefit, and its focus is not on obtaining donations to support those endeavours. A non-charitable nonprofit organization cannot issue official receipts for income tax purposes, even when donations are received. With registered charities, much of the focus is to gain financial donations to be used exclusively for charitable purposes.

Our team at Ontario Business Central assists individuals who wish to start a business as either a Not For Profit or Charitable Organization for both the Provincial incorporations in Ontario and the Federal Incorporations for Canada.  We hope you find this information a beneficial resource.

We are able to assist you to complete either the Ontario or Federal Not For Profit or Charitable organization, and our staff are available to answer any additional questions you may have related to this topic.

What is a Not For Profit?

A Not For Profit corporation is incorporated to the benefit of a community and is a separate entity to those who are directors or members of the corporation, who cannot receive personal benefits from the organziation. The directors or members who oversee the corporation do so for the benefit of the community and not for the personal benefit of themselves as individuals.  These individuals do not own the corporation but work for and by the corporation. A Not For Profit organization cannot apply for charitable status with the Canada Revenue Agency.

Taxation
The corporation will be required to file a T2 return within 6 months of the fiscal year end and is generally exempt from paying income tax unless the corporation owns property and has capital gains from that ownership.

GST and HST
The Not For Profit corporation is required to pay GST and HST on purchases made on behalf of the corporation and may claim a partial rebate on GST or HST paid out.

Types of Not For Profit objects are as follows

• Associations – professional, trade, ratepayers, residents, merchants
• Athletic, Hobby and Sports Organizations – golf, curling, health club, skating
• Social clubs/social nature – meetup, flying clubs, yacht clubs, fraternity clubs
• Service clubs – Elks Canada, Kinsmen, Lions
• Arts – dance, music literary, photography, theatre
• Community – Association, Centre, Club
• Conservation, Ethnic, Historical, Lobbying and Research and Scientific

What is a Charitable Organization?

A Charitable Organization is an entity organized and operated exclusively for the purpose of supporting the community and has the ability to take in donations and issue official tax receipts to those who provide financial contributions. The charity must spend a minimum amount through its own charitable activities or as gifts made to qualified donees. A qualified donee, as described by Revenue Canada, is as follows: https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/charities-giving-glossary.html#qualdonee.

Types of a Charitable Organization purposes are as follows

• Relief from poverty
• International development – health, drinking water, agriculture, disaster relief
• Advancement of Religion
• Advancement of Education
• Private Foundations – to receive funding and provide to other charitable organizations
• Services for seniors
• Programs for physically or mentally disabled
• Animal shelters
• Libraries
• Promotion of health
• Preservation of the environment
• The arts
• Community centres, immigrant services, literacy and employment training

The Charitable registration is approved by the jurisdiction in which you incorporate.  When the charitable incorporation has been approved, there is a secondary process to gain a charitable tax number through the Canada Revenue Agency.  When the charitable status has been approved, the Government of Canada will provide the charitable tax number to the organization and, at that point, the organization can take in funding and provide the official tax receipts for the financial contributions.

Naming
There are several words that are reserved specifically for registered charities, and would undergo review any time they are used. These would include the words Foundation and Charity, and any variation of this word. If either of these words are included in the name, there is an additional step in the registration process to have the name approved. The Public Guardian and Trustee would review the name and ensure it is inline with the charitable purposes listed on the registration. 

Taxation
A Charitable Organization must file an annual information return (Form T3010) within 6 months of the corporation’s fiscal year end and is exempt from paying income tax. 

GST/HST
The organization must pay GST/HST on purchased goods and may claim a partial rebate on purchases.  Most supplies made by charities are exempt.

Ontario Business Central has been assisting clients with the registration process for their Not for Profit or Charitable organizations since 1992. If you would like to proceed, see the links below:

Order an Ontario Not For Profit / Charitable Incorporation

Order a Federal Not For Profit / Charitable Incorporation

If you would like our assistance or have further questions to ask, please feel free to reach out to us directly.

inquiries@ontariobusinesscentral.ca
Toll-Free: 1-800-280-1913
Local: 1-416-599-9009
Fax: 1-866-294-4363
Office Hours: 9:00am – 5:00pm
Monday – Friday E.S.T.

Ontario Business Central Inc. is not a law firm and cannot provide a legal opinion or advice. This information is to assist you in understanding the requirements of registration within the chosen jurisdiction. It is always recommended, when you have legal or accounting questions that you speak to a qualified professional.