When it comes to non-governmental organizations in Canada, there are some important distinctions between nonprofits and charities. While both fall under the category of “not-for-profit organizations”, their similarities end when it comes to their tax designations. Specifically, charities must adhere to specific guidelines set by the Canadian Revenue Agency (CRA).
CRA guidelines for charities can seem complicated because legal jargon is usually tough to follow. While looking through CRA guidelines, you may find yourself asking “where can things go wrong?” or “how can I stay compliant?”.
That’s why we pulled together the most important guidelines you need to know to remain compliant as a Canadian charity.
1. PROTECT YOUR REGISTRATION NUMBER
Each Canadian charity is issued an official registration number. These numbers, which are used to track donations for annual information returns, are exclusive and should not be shared with anyone.
Picture this: you’re contacted by an organization looking to help you raise more for your charity in a few quick-and-easy steps. All they need is your registration number. If you’re ever confronted by a situation like this, be careful! You’re likely dealing with a tax scammer.
As a best practice, you should keep your full registration number on a need-to-know basis. Under no circumstances should you share your charity’s registration number to another nonprofit or entity. Doing so can result in losing charitable status or receipting privileges.
2. KNOW WHAT CONSTITUTES A GIFT
Only certain donations qualify for charitable tax credits under Canadian law. Typically, these consist of solid, tangible assets, such as money, merchandise, and land.
To receive a receipt — and, a charitable tax credit — gifts must meet certain requirements.. These include the following:
- Gifts must be made freely and voluntarily
- They must consist of a gift of property (meaning money, merchandise, or land)
- They also can’t be designated for use on a specific beneficiary or non-qualified donee
Service-based gifts, like time spent volunteering or using skills for a charity, do not count as gifts for tax purposes.
For a full list of designated gifts, visit the CRA website.
3. KEEP PRECISE RECORDS
If you are selected for an audit by the CRA, it’s important to be able to provide them with comprehensive records on your revenue and resource spending. You also need to prove that your purpose has remained charitable in nature.
To meet all established CRA requirements, your charity records should be kept at an on-record Canadian address. Storing information at a foreign address is illegal, and that includes digital information as well.
#NeonNonprofitTip: When considering a software platform, make sure they operate with servers on Canadian territory.
Books and records should be kept for varying lengths of time. Most items – like donation receipts, meeting minutes, and governing documents – should be held for a minimum of two years, though some require six.
Like other compliance infractions, improper record keeping can result in a loss of receipting and registered status. Thankfully, records are able to be stored and accessed digitally, which can help keep them organized.
4. PROVIDE ACCURATE RECEIPTS
Inaccurate receipts, such as those with inflated amounts, can be classified as abusing the tax system. When it comes to non-cash gifts, however, ensuring the fair market value of a gift can be difficult.
To aid in solving these discrepancies, the CRA provides an article on determining fair market value of non-cash gifts.
Depending on the type of gift, receipts may require different information to remain compliant. Visit the CRA website for a full list of requirements for receipting. This process may seem taxing (no pun intended!), but a good software solution can help you automate your process while remaining CRA compliant.
Neon CRM is proud to offer solutions that cover all the needs of Canadian charities, and then some. With our CRA receipting module, it’s easier than ever before to keep accurate receipts and records.
To learn more about how Neon CRM can help you keep your charity compliant, schedule a demo. A member of our team will be happy to walk you through software solutions that work for you.