Canadian for-profit social enterprises, non-profit organizations (NPOs) and registered charities face great demand to respond to the Covid-19 health crisis, while they also weather financial and operational challenges. Governments have introduced a variety of measures to help the social-cause sector.
Canadian philanthropic organizations are structured in a variety of ways, including as for-profit social enterprises and NPOs. These are revenue-generating businesses that have the purpose of achieving social, cultural, environmental or economic outcomes, and they earn revenue by selling goods or services.
The structure — corporation, trust or association of individuals — dictates annual CRA compliance obligations and the Covid-19 relief for which they qualify.
For-profit enterprises are taxable entities. An example is Toronto-based TurnAround Couriers, which hires youth who face labour market challenges, and provides financial support for their education.
NPOs are associations, clubs or societies that operate for social welfare, civic improvement, pleasure or recreation purposes. An example is the Lake Louise Ski Club, which provides alpine ski programs for youth. NPOs can’t operate for profit or exclusively for charitable purposes; they don’t have spending requirements and can’t issue official donation receipts. They’re generally exempt from income tax, though they may be taxed on capital or property income.
If an organization operates exclusively for charitable purposes, it may apply to the CRA for registration as a charitable organization, public foundation or 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 goods made by charities are exempt from GST/HST; the same is true for NPOs on a limited basis. All CRA registrants must submit GST/HST returns on a regular basis, but registered charities are subject to a different net tax calculation than non-charity registrants.
Deferred filing and payment deadlines
Registered charities must file the Registered Charity Information Return (T3010) annually within six months of their fiscal year-end. The filing deadline has been extended to Dec. 31, 2020, for charities required to file their returns between March 18 and Dec. 31, 2020. This is a one-time extension due to Covid-19; next year the usual filing deadlines will apply.
Incorporated NPOs must file annually a Corporate Income Tax Return (T2), plus a Non-Profit Organization Information Return (T1044) if certain financial thresholds are met. 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 proprietorships or partnerships and would be required to file a personal return (T1) or a Partnership Information Return (T5013).
The filing deadlines for these returns are deferred without penalties.
Where taxable social enterprises or NPOs have business income tax instalments or payments scheduled to be remitted between March 18 and Aug. 31, 2020, such payments can be deferred until Sept. 1, 2020, without penalties or interest.
All organizations that charge GST/HST for their programs, products or services can defer remitting GST/HST until June 30, 2020, without incurring penalties or interest.
Other relief and services
Federally incorporated charities and non-profits unable to hold virtual annual general meetings (AGMs), or those that don’t wish to, can submit an online form to Corporations Canada to delay their AGMs beyond the required due date. Similar administrative relief is available to provincially regulated organizations.
The CRA’s charities directorate call centre has resumed operations, and the agency 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.
The federal government’s support for businesses during the Covid-19 outbreak may extend to social enterprises and charities.
Other programs to support these organizations include the Emergency Support Fund for Cultural, Heritage and Sport Organizations and the Regional Relief and Recovery Fund, which provides nearly $962 million in funding to help organizations in sectors such as manufacturing, technology and tourism.
Rebecca Hett, CPA, CGA, TEP, is vice-president, Tax, Retirement and Estate Planning at CI Investments.