We are often asked by Boards of community-based childcare centres whether or not they should try to obtain registered charitable status. This article points out some of the benefits and costs of having registered charitable status. As Revenue Canada is currently reviewing the whole field of not-for-profit and registered charity reporting the following benefits and costs may change.
Does your centre qualify for charitable status?
Childcare centres incorporated without share capital under the Ontario Corporations Act are all not-for-profit organizations. Not-for-profit status does not automatically qualify centres for federally registered charitable status. Centres must apply to Revenue Canada to become a registered charity for income tax purposes. Registration involves filling out forms, meeting specific tests and criteria and is best done with the help of someone knowledgeable with the process.
Most not-for-profit childcare centres are deemed charitable organizations in Ontario. Being a charity in Ontario has nothing to do with being a registered charity for federal income tax purposes. Being a charity in Ontario only brings you under the purview of the Public Trustee of Ontario and the Charities Accounting Act.
Benefits of Registration
Being a registered charity will enable your centre to issue donation receipts for donations of money and, in some cases, gifts-in-kind. Donation receipts may not be issued for regular childcare payments by parents. Donation receipts may only be issued for voluntary donations over and above regular childcare fees.
Donations to childcare centres generally make up a very small portion of total revenue. For example, many childcare centres routinely receive $20,000 or more a month from parent fees and related subsidies. These same centres are often fortunate to receive $2,000 a year in donations (less than 1% of total revenue). The ability to issue donation receipts will often not significantly increase the amount of donation revenue received. If your Board is considering charitable registration then it should first estimate the increase in revenue expected from being able to issue donation receipts for non-fee donations. This estimate will give you an idea whether or not registration is worthwhile.
Registered charities are automatically eligible for a refund of approximately 70% of HST paid. If your centre is currently not eligible (i.e. a not-for-profit organziation that is not a registered charity and has government funding more than 40% of gross revenue on average for the past two years) and if the recovery would be significant then you might consider registration.
If your organization is interested in using gambling or gaming for fundraising then you may find it advantageous to obtain registered charitable status in order to be given access to Bingo, Nevada ticket, and other revenue sources. Non-charitable organizations will find it difficult to become registered charities solely to obtain resources from gambling.
Some municipalities offer property tax rebates to registered charities that either own or rent property used to deliver their charitable services. This is generally a municipally run program. Please contact your municipal offices for information in your area. Registered charities operating in the City of Toronto can go to http://www.toronto.ca/taxes/property_tax/tax_rebates.htm for information on the program in Toronto.
Costs of Registration
Obtaining registered charitable status can be costly. The process generally takes at least six months and can take up to several years. Some legal costs may be incurred during the process and there is no guarantee that Revenue Canada’s approval will be obtained. For more information on registration please go tohttp://www.cra-arc.gc.ca/tx/chrts/
Once you are registered you must annually complete a Charitable Organization Information Return (T3010) and file it with Revenue Canada. Some of the information you supply in the Information Return is then available to the public. Failure to complete and file this form within six months of your fiscal year end can lead to deregistration.
The costs to community based not-for-profit childcare centres of obtaining registered charitable status generally exceed the benefits. If your centre already has charitable status then you should ensure that annual reporting requirements are met to prevent deregistration.