June 11, 2020
Canadian for-profit social enterprise, non-profit organizations (NPOs) and registered charities face unprecedented demand to respond to the health crisis as they weather the storm of financial and operational challenges of COVID-19. All levels of government have introduced a variety of measures to help these organizations deal with the effects of the pandemic. This article summarizes the relevant federal measures that relate to the social cause sector.
Canadian philanthropic organizations are structured in a variety of ways including for-profit social enterprises and NPOs structured as corporations, trusts or associations of individuals. The structure dictates annual CRA compliance and the COVID-19 relief for which the organization qualifies.
Social enterprises are revenue generating businesses purposed to achieve social, cultural, community environmental or economic outcomes, and to earn revenue by selling goods or services. They operate as NPOs or for-profit enterprises, which are taxable entities. An example of a for-profit social enterprise would be Toronto based Turn Around Couriers, which hires youth facing labour market challenges, and provides financial support for their employees to continue their education.
NPOs are associations, clubs or societies that operate for social welfare, civic improvement, pleasure, sport or recreation purposes. An example would be the Lake Louise Ski Club which provides alpine ski programs for youth. NPOs cannot operate for profit or exclusively for charitable purposes. NPOs do not have spending requirements and cannot issue official donation receipts. NPOs are generally exempt from income tax though may be taxed on capital or property income.
If an organization is to operate exclusively for charitable purposes1, it may apply to the CRA for registration as either a charitable organization, a public foundation or a private foundation. These organizations are exempt from income tax, and while they must meet annual disbursement quota requirements, they can issue official donation receipts for tax purposes.
NPOs and registered charities generally pay GST/HST on purchases and may claim partial rebates on funding. Most supplies made by charities are exempt. The same is true for NPOs on a more limited basis. All registrants must submit GST/HST returns on a regular basis but charities that are registrants are subject to a different net tax calculation than non-charity registrants.
CRA Filing Deadlines
Registered charities must file the Registered Charity Information Return (T3010) annually within 6 months of their fiscal year end. The filing deadline has been extended to December 31, 2020 for charities that are required to file their return between March 18, 2020 and December 31, 2020. This is a one-time extension due to COVID-19 and next year the usual filing deadlines will apply.
Incorporated NPOs must file annually a Corporate Income Tax Return (T2) and a Non-Profit Organization Information Return (T1044) if certain financial thresholds are met2. Normally, both returns must be filed within six months of year end. If the NPO is structured as a trust, it must instead file a Trust Income Tax and Information return (T3), normally due 90 days after year end.
Note that social enterprises may also be structured as a proprietorships or partnerships and would be required to file a personal return (T1) or a partnership information return (T5013) as the case may be.
At the time of writing, the filing deadlines for the following forms and returns are deferred without penalties3:
CRA Payment Deadlines
Where taxable social enterprises or NPOs have business income tax instalments or payments scheduled to be remitted between March 18, 2020 and August 31, 2020, such payments can be deferred until September 1, 2020 without penalties or interest.
All organizations that charge GST/HST for their programs, products or services can defer remitting GST until June 30, 2020 without incurring penalties or interest.
Annual General Meetings (AGMs)
Federally incorporated charities and nonprofits unable to hold virtual AGMS, or those that do not wish to, can submit an online form to Corporations Canada to delay their AGM beyond the required due date. Provincially regulated organizations have similar administrative relief available.
The charities directorate call center has resumed operations. Other services and audit activities are resuming gradually. The CRA has resumed review of digital and paper-based applications for registered status and is prioritizing those that provide support to those impacted by COVID-19. Organizations wishing to apply for registered charity status should apply online.
COVID-19 Federal Responses Available to Social Cause Organizations:
The need is immense, the health crisis is evolving and though innovation and hard work of all levels of government and the social cause sector, support is ready to match demand.
1 The Canadian courts define charitable purpose as falling within in one or more of the following categories: relief of poverty; advancement of education; advancement of religion; certain other purposes that benefit the community in a way the courts consider charitable
2 Although NPOs are exempt from paying tax, according to subsection 149(12) of the Income Tax Act (ITA) medium to large NPOs are required to file Form T1044, “Non-profit Organization (NPO) Information Return, if it received taxable dividend, interest, rent or royalty income totaling more than $10,000 in the year; owned assets valued at more than $200,000 at the end of the year, or has ever previously had to file the form. The firm is subject to late filing penalties of $25 per day, up to $2,500 for each year of missed filing.
3 Unless otherwise noted, the extended June 1 filing deadline applies to other information returns, elections, designations and information requests that would have been due after March 18 and before May 31, 2020. The extended September 1, 2020 deadline applies to other information returns, elections, designations and information requests that would have been due on May 31, or in June, July, or August 2020. Penalties and interest will not be applied where the filing and payments are made by September 1, 2020.
iii https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy.html iv https://ceba-cuec.ca/
vi https://www.bdc.ca/en/pages/co-lending-program.aspx vii https://www.edc.ca/en/solutions/working-capital/bcap-guarantee.html
This communication is published by CI Global Asset Management (“CI GAM”). Any commentaries and information contained in this communication are provided as a general source of information and should not be considered personal investment advice. Facts and data provided by CI GAM and other sources are believed to be reliable as at the date of publication.
Certain statements contained in this communication are based in whole or in part on information provided by third parties and CI GAM has taken reasonable steps to ensure their accuracy. Market conditions may change which may impact the information contained in this document.
Information in this communication is not intended to provide legal, accounting, investment or tax advice, and should not be relied upon in that regard. Professional advisors should be consulted prior to acting based on the information contained in this communication.
You may not modify, copy, reproduce, publish, upload, post, transmit, distribute, or commercially exploit in any way any content included in this communication. You may download this communication for your activities as a financial advisor provided you keep intact all copyright and other proprietary notices. Unauthorized downloading, re-transmission, storage in any medium, copying, redistribution, or republication for any purpose is strictly prohibited without the written permission of CI GAM.
CI Global Asset Management is a registered business name of CI Investments Inc.