The CSI community is comprised of individual changemakers, nonprofits, volunteer groups, charities, and for-profits. Wait a minute – you may be wondering – aren’t nonprofits and charities the same thing? No, they are not! We take a deep dive into the differences between nonprofits and charitable organizations in Canada and look at it through the lens of CSI Member Canadian Connections, who recently transitioned from being a nonprofit to a registered charitable organization.
If you’ve been to CSI Annex in the last nine years, chances are you’ve met Marcella Tomas. After four decades working in various sectors, Marcella found herself questioning how she would spend the remainder of her career. Enter: CSI’s Community Animator Program (formerly known as the Desk Exchange Community Animator Program). Marcella joined CSI as “Act 5” after working in four different sectors previously, and has stuck with the Animator Program ever since. “CSI gave me the opportunity to dream big. Through all the turmoil, CSI has been a constant rock,” Marcella said. “And the networking here is unparalleled!”
Throughout her tenure at CSI, Marcella has volunteered with the settlement services sector numerous times. During the 2015 Syrian refugee crisis, she and many others volunteered with The Clothing Drive, which allowed refugees to ‘shop’ for free from clothing donations.This then led Marcella to join Newcomer Kitchen, a fellow CSI Member, as a Volunteer Coordinator and founding Board member. In 2021, Marcella was deeply involved with the settlement of Afghan refugees as they arrived in Canada. As she and her fellow volunteers made trips to the hotels with essential items (diapers, feminine hygiene products, shoes, phone chargers, winter jackets), they also found themselves answering questions like “Can we drink the tap water” and “Can I have a kettle” – basic things that the team was surprised had not been answered for the refugees. The team continued to support the refugees in hotels and again when they moved to apartments throughout the city, bringing in furniture and housewares donations. From there, Canadian Connections was born as a nonprofit organization.
Their work was picked up by media outlets across the city, and monetary donation offers poured in. However, there was a problem – many donors were looking for tax receipts, which is something that only charities can offer, and the process to apply can be slow. And suddenly, the urgency for that shift changed – Canadian Connections had an offer of a $40,000 donation from an anonymous donor. Marcella found herself at a crossroads. One day while at CSI Annex, she ran into Tonya Surman, CSI CEO, and shared the dilemma with her. Tonya suggested that Marcella reach out to fellow CSI Member Burkhard Mausberg of Small Change Fund, who could act as a charitable trust partner to receive the money and issue a tax receipt. It’s an avenue that Marcella had explored in the past with three other organizations, but which had never been successful. However, within three weeks of her initial connection to Small Change Fund via Tonya, Canadian Connections had an MOU signed, and had received the $40,000 donation to continue their work with refugees.
Since then, Canadian Connections has continued to work with Small Change Fund through their Afghan Project (focused on poverty reduction), and in June of 2023, Canadian Connections officially became a charity. “It was tough to decide how to proceed,” Marcella said of the decision to apply for charitable status. “I spoke to many people about the pros and cons before we made the decision.” Canadian Connections will continue their relationship with Small Change Fund; “they’ve been unbelievable, and we’re so grateful to them, especially Kim Bilous, VP of Development. Kim has taught me so much. And on those days when the challenges seem insurmountable and I’m ready to pack it in, she’s always been there to give me a pep talk. Our partnership has brought Canadian Connections so many intangible benefits,” Marcella says. And now, with their charitable status, they have the opportunity to apply for grants on their own. The option of additional funding streams has enabled them to hire three Afghan refugee women to the team, which Marcella is eager to continue to do. Marcella also encourages groups to consider Canadian Connections for their year end giving, so that they can continue to support the refugee community.
So, what are the important things to consider when debating nonprofits vs charities for your organization or project? Marcella’s advice: “It depends – the context is so important. It’s expensive; we used a lawyer, and we also have to ensure we stay Canadian Revenue Agency (CRA) compliant. If your intent is to stay small, it might not be worth it. But if you’re looking to grow, it’s worth considering.” Read on below for more information about the differences between nonprofits and charities, and other items to consider!
Nonprofits Vs. Charities
What is the difference between nonprofits and charities?
All nonprofits, including foundations, charitable, and non-charitable organizations, must serve the public or its members. They all have a volunteer board that acts as the ultimate governing body of that organization, providing oversight and approval for major decisions. However, there are some core differences between the two:
- Nonprofits can have any purpose other than profit – how apt! Registered charities can only serve a charitable purpose. Also apt!
- Only registered charities can provide tax receipts.
- They file taxes differently!
Who can be a charity and who can be a nonprofit?
That’s up to the CRA! To become a charity, your organization’s goals and objectives must fall within one of four charitable purposes:
- relief of poverty
- advancement of education
- advancement of religion
- certain other purposes that benefit the community in a way the courts have said is charitable
This also means that your organization’s services must go towards supporting those purposes. The CRA measures this through a public benefit test, which essentially asks:
- Does the work of your organization provide a measurable benefit to the public?
- Does it benefit the public as a whole, or at least a significant part of it?
The threshold for becoming a nonprofit organization is lower: as long as you have any purpose other than profit (such as recreation, festivities and parades, and social welfare) you can incorporate and take the next steps to becoming a registered nonprofit. Notably, an organization can only meet one of the definitions – you cannot be both a nonprofit and a registered charity.
What are the pros and cons of nonprofits vs charities?
There are advantages and disadvantages to both types of incorporation, and ultimately the decision to become either a nonprofit or a charity should be contextualized within the work and goals of your organization. At a high level (note – not legal advice!), here are some considerations:
- Generally exempt from paying income tax, and may receive some exemptions or rebates in other areas
- Lower threshold for registration
- No minimum spending requirement amount on activities
- May have to pay tax on property income or on capital gains
- Calculates net GST/HST tax the regular way
- Exempt from paying income tax, and generally exempt in other areas
- Qualified to receive funds from other registered charities (e.g. foundations)
- Must meet a higher threshold to become a registered charity
- Organization’s scope may be limited by registration requirements
- Minimum spending requirement amount on charitable activities
What are the initial steps to becoming a nonprofit or charity?
If you’ve decided that your organization’s work is better suited to a nonprofit status, the first step is incorporation, which can be done online; if successful, the CRA will provide your organization with a Business Number. Following that, you’ll need to gather your directors, gather your members to make some collective decisions, and register in the provinces or territories where you conduct your business. The CRA provides a full breakdown of what you’ll need to do.
If you’ve decided to become a registered charitable organization and have determined that you will qualify, prepare for a lengthier process. You’ll need to ensure you have the proper documentation, describe your organization’s activities, and submit your application. The CRA outlines this four-step process to registration.
As Marcella of Canadian Connections shared, the decision to become a nonprofit vs a charity really depends on the goals of your organization, and the choice should not be taken lightly. Luckily, CSI is full of member organizations who fall into both categories, and who are happy to chat with fellow members about their decision! The connections within the CSI community bring endless benefits – just look at the work that Canadian Connections and Small Change Fund were able to do together! This community of changemakers is an ecosystem, providing resources, knowledge, support, opportunities, and kinship to one another.