Blumbergs Professional Corporation is involved with many charity applications each year. In this series, CRA Charity Application Graveyard, we aim to provide groups considering charitable status applications with insights into common issues the CRA encounters, based on our analysis of access to information documents, CRA letters, and the CRA’s Charities and Giving website. These reasons given in the Charity Application Graveyard are not presented in order of importance.
CRA identifies the following issue:
Carrying on a related business
To be registered as a charity, an applicant must meet certain requirements under the Act. One of these requirements is that the applicant was established as a not-for-profit organization.
However, a charity may carry on a related business. A related business is a business that is either run substantially all by volunteers (substantially all means that at least 90% of the staff are volunteers) or is linked and subordinate to the organization’s charitable purposes. Typically, if a charity’s business is not run substantially all by volunteers, it should meet at least one of the following criteria to be considered linked to a charitable purpose:
- it supplements or improves the quality of a charitable program
- it is an off-shoot of a charitable program
- it is a use of excess resources
- its sale of items promotes the charity or the charity’s purposes
For a business activity to be subordinate, it must always be secondary to the organization’s charitable purposes. Since operating a business is not a charitable purpose, a registered charity should devote only a minor proportion of its time and resources to running a related business.
For more information about a related business, please see Policy Statement What is a Related Business?, CPS-019, by going to canada.ca/charities-giving, then clicking on “Registering for charitable or other qualified donee status,” followed by “Policies and guidance.”
Not everything is charitable, and sometimes, for some groups, depending on what they want to accomplish and what their sources of revenue are, it may not even be desirable to be a registered charity. One thing is clear – CRA spends a lot of time and resources reviewing charity applications, and unless your application meets all of the charity law requirements under the Income Tax Act and common law, they will not be able to register your organization as a charity.
If you require assistance with your charity application, you may be able to retain our law firm, and you can contact us here. It is best to contact us before establishing the entity and making an application to CRA, as this will minimize costs, changes and delays.