Interestingly, the Income Tax Act does not define what a ‘charitable purpose/activity’ is. One exception is the “the disbursements of funds to a qualified donee” (subsection 149.1(1)). Considering Charity Law is mostly developed by the courts, Commissioners for Special Purposes of the Income Tax v. Pemsel, [1891] A.C. 531 (P.C.) (“Pemsel”) established four charitable purposes categories used today.
ELEMENTS OF A PURPOSE
You should know that a charitable purpose should identify or be comprised of three (3) elements:
1) Charitable Purpose;
2) The Means of Providing the Charitable Benefit (Activities); and
3) The Eligible Beneficiary Group.
PURPOSE
According to Pemsel, the following are the four charitable purposes categories used today:
1) Relief of Poverty;
2) Advancement of Education;
3) Advancement of Religion; and
4) Other Purposes Beneficial to the Community.
Think of these charitable purposes as the goal the charity intends to accomplish.
ACTIVITIES
Once you know what purpose or goal your charity intends to accomplish, you must know that your charity must also carry out its purposes with a charitable activity. According to case law, charitable activities are activities that are not profitable. For instance, if I want to help relieve poverty by providing medical attention and food to disabled veterans, I need to provide medical attention and food in a way that is not profitable. Does this mean that profits cannot be incidental to the activity? Not necessarily. What you should know is that activities cannot operate like a for-profit corporation and all its resources must be devoted to furthering the charitable goal/purpose.
What are some examples of charitable activities? According to case law, CRA and the ITA, these are some examples:
1) The disbursements of funds to a qualified donee;
2) Public Policy Dialogue and Development Activities;
3) A Charity’s Own Charitable Activities; and more.
ELIGIBLE BENEFICIARY GROUP
It is also important to note you cannot have a charity without naming the eligible beneficiary group. Someone must receive the charitable benefit. As a result, it is important that your purpose identifies who the charity intends to benefit. Sometimes, you may have to restrict the beneficiaries of your charity and at other times you may want to openly benefit the public. For instance, poverty relief purposes must be restricted to the ‘poor’ (i.e. disabled veterans) and general hospitals may want to be available to the ‘public’ as a whole.
CONCLUDING REMARKS
If you are considering creating a charity, we recommend you speak with a lawyer. Charity Law is complicated. If not done right, multiple amendments may need to be made. Not only can this be costly, but time consuming. Consider these costs as it could limit your charity’s financial abilities.
Let us know how we can assist you. We’re happy to assist you in making your charitable goals a reality.
RESOURCES
For more information, please feel free to read:
- CG-019 CRA Guidance; and
- https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/operating-a-registered-charity/activities/charitable-activities.html