Understanding Canadian Charity Laws
Charity laws govern the operation and regulation of charitable organizations created and registered in Canada. They exist to maintain public trust, ensure donations are used appropriately, protect vulnerable groups, prevent fraud, and support the delivery of charitable work.
Canadian charity laws provide strict guidelines for organizations to operate honestly and ethically for the public’s benefit. Therefore, getting to grips with these laws is essential for anyone involved in charity work.
In this article, we offer a comprehensive guide to charity laws in Canada, discussing what they are, how to comply with them, and what this means for crowdfunding.
What Is Charity Law?
Charity law in Canada refers to the legal framework that dictates how charities operate and sets the criteria for how organizations become registered charities. Canadian charities must register under the Canada Revenue Agency (CRA) by meeting several general requirements under the Income Tax Act.
Applying to become a registered charity in Canada is a four-step process, which involves proving purposes that are exclusively charitable. Charitable purposes may include:
- Relieving poverty
- Advancing education
- Advancing religion
- Benefiting the community.
Canadian charity laws operate on both a federal and provincial/territorial basis, intending to ensure transparency, accountability, and public trust. At a federal level, this includes the Income Tax Act, the Canada Not-for-Profit Corporations Act, and the Charities Registration (Security Information) Act. Provincially, additional regulations may apply, such as those concerning fundraising and internal governance.
More information about each of these laws will be provided below.
Why Do Charity Laws Exist?
Canadian charity laws exist to ensure charitable organizations operate effectively and lawfully. Here are some of the main reasons in detail.
- Maintenance of public trust: Laws ensure charities demonstrate to the general public and donors that they’re using their resources responsibly and for their stated purposes – not for personal gain.
- Accountability to donors: Charity laws mandate clear reporting on how funds are collected and spent in Canada, ensuring donations from millions of generous Canadians achieve their intended goals.
- Enable tax benefits for charitable activities: By complying with regulations set by the CRA, charities can issue tax receipts to donors and benefit from income tax-free status.
- Protect vulnerable beneficiaries: Laws help to ensure that charitable services are delivered without discrimination or harm, so communities and vulnerable individuals receive the full benefit of donations.
- Uphold national security: In extreme cases, charity laws can also prevent organizations from exploitation and being used to finance illegal activities.
What Laws Apply to Charities in Canada?
In Canada, charities need to abide by federal and provincial/territorial laws. Federal laws apply to all charitable organizations operating in Canada, which we will explore in more detail below.
In addition to federal regulations, each province and territory has legislation for charities to follow. This involves regulating business activities, fundraising, internal governance, and the use of charitable property.
Income Tax Act
The Income Tax Act is administered by the CRA and is the central piece of legislation governing all registered charities in Canada. Ensuring all charities operate in the public interest, it defines the legal framework and criteria for charitable registration, regulates the benefits and ongoing obligations of charities, and sanctions for non-compliance.
Under the Income Tax Act, there are three types of registered charities in Canada:
- Charitable organization
- Public foundation
- Private foundation
The CRA decides which type of charity an entity falls under. All registered charities in Canada must operate according to a charitable purpose; relieving poverty, assisting education, advancing religion, or other purposes that benefit the community.
The Income Tax Act imposes ongoing obligations to maintain compliance and hold charitable organizations accountable. Any non-compliant organizations will face sanctions, which could include financial penalties or deregistration.
Canada Not-for-Profit Corporations (NFP) Act
The Canada Not-for-Profit Corporations (NFP) Act applies to all nonprofit organizations in Canada, setting a clear framework for how they’re structured, governed, and operated.
The Act ensures that organizations must adhere to rules for corporate governance, financial accountability and the maintenance of proper records, and the process for disbanding a not-for-profit organization.
The NFP Act aims to foster efficient, accountable nonprofit operations that align with Canadian law and public expectations.
Charities Registration (Security Information) Act
The final federal law to consider is the Charities Registration (Security Information) Act. This Act focuses on national security and ensures organizations comply with regulations to achieve and maintain registered status.
The main functions of the CRSI Act include denying and revoking charitable status through the Minister of National Revenue, defining terrorist activity, and allowing for information to be shared between government agencies to prevent the financing of terrorist activities in Canada or abroad.
This law states that the Canadian government can use national security and intelligence to decide whether an organization is eligible for charity status.
How to Comply With Charity Laws When Fundraising
Want to start fundraising? If you’re an individual fundraiser who wishes to raise money for a registered charity in Canada, you’re probably wondering what these laws mean for you.
Here’s our step-by-step guide to ensure you comply with Canadian charity laws as a fundraiser:
- Confirm the charity’s registered status: Make sure the organization is a registered charity with the Canada Revenue Agency. You can do this by searching the CRA’s list of charities and other qualified donees database.
- Get permission from the charity: Get in touch with your chosen charity and let them know about your fundraiser, as some have policies and guidelines for third-party fundraisers. It’s also a good opportunity to ask them any questions you have about how donations will be used.
- Use charity branding legally: Ask for permission before using the charity’s logo, name, and other branding materials to promote your fundraiser. Unauthorized use of their property can result in legal issues.
- Ensure transparency in fundraising efforts: You need to be clear with people about how their donations will be used and confirm that all funds raised will go directly to the charity. Make sure you keep accurate, comprehensive records of donations.
By following these steps, you can support your chosen cause while complying with Canadian charity laws.
Charity Laws and Crowdfunding
All crowdfunding platforms are affected by Canadian charity laws and donations for a specific purpose must be used as intended. If you wish to support a Canadian charity using a platform such as GoFundMe, you need to ensure you remain compliant.
Any campaigns that fail to comply with the laws outlined in this article risk potential penalties or allegations of fraud. Not to mention the backlash from donors.
Fortunately, at GoFundMe, we promote safe and legal crowdfunding, with tools, resources, and clear policies to support you every step of the way.
For example, all funds raised on a charity fundraiser will be processed through PayPal Giving Fund, who deliver the funds directly to the charity – PayPal Giving Fund is a charity registered with the Canada Revenue Agency (BN: 812867752RR0001). Plus, our platform uses verification tools to confirm the legitimacy of charitable campaigns and ensure funds are being used for charitable purposes.
Unacceptable fundraising activities may include:
- Not using contributions as intended by the donor
- Withholding funds
- Not getting consent before changing the conditions of a fundraiser
- Failing to deliver promised outcomes
- Not disclosing conflicts of interest.
For more information, read our Terms of Service and consult our Legal Contact Information.
Start a Safe, Legal, and Trustworthy Fundraiser With GoFundMe
For individual fundraisers, it’s vital to understand Canadian charity laws before choosing an organization to support. Not only does remaining compliant keep you out of trouble with the law, but it also leads to benefits such as building donor trust, protecting vulnerable groups, and supporting the long-term success of charity work.
For additional peace of mind, pick a safe, legal, and trustworthy fundraising platform like GoFundMe. Millions of people worldwide trust GoFundMe as the #1 online fundraising expert, offering an industry-first and only donor protection guarantee and Customer Care agents who are available 24/7.
With our support, you can stay safe, ethical, and compliant with charity laws in Canada.