Charitable status is a legal designation granted by the federal government to organizations that apply and meet the requirements to become a registered charity. Charitable organizations are those that dedicate their resources to purposes deemed charitable by the federal government — and often co-ops and charitable status are spoken of together. There are four categories of charitable purpose:
Any organization, including a co-operative, can apply to become a registered charity. There are, however, very strict regulations governing the type of organization that can be given charitable status. The application process can also take a long time. Not surprisingly, a for-profit organization would not likely be considered a charity given that their primary objective is to create profit. An organization that distributes its surplus revenue to its members/shareholders/investors would most likely not gain charitable status. In fact, very few co-operatives have charitable status, only 249 out of over 85,000.
Worker co-ops and producer co-op that operate on a non-profit basis (i.e. will not issue dividends) are also ineligible. This is because they are intended to benefit a select group of individuals rather than the public. A consumer co-operative that operates on a non-profit basis (i.e. does not issue patronage rebates) may be considered for charitable status, but as far as we know there are no such charities in Canada currently.
Of the approximately 249 Canadian co-operatives that have charitable status, the vast majority appear to be non-profit community service co-operatives. Over half of those with charitable status are childcare co-operatives with large concentrations in Ontario and Saskatchewan. Another large group of co-operatives manage community halls, arenas and rinks, or offer recreational programming. Other charitable co-ops fall into the following categories:
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For a co-operative to become a registered charity, a number of steps can be taken by its members in its early development to help comply with CRA regulation. When completing incorporating documents ensure provisions in the articles and bylaws comply with CRA’s standards. In the ‘Other Provisions’ or ‘Restrictions on Business’ sections, state clearly that the co-op will operate in the interest of the public good, will support charitable purposes, and/or will not generate benefit for any single individual or group. The articles should also indicate that the co-op will have an open membership, which will involve having unlimited membership shares.
To further align with CRA’s requirements, the bylaws should reinforce the co-op’s charitable function. These tips will help position the co-op to align with CRA’s requirements:
While becoming a registered charity may offer potential donors an tax break incentive, there are several drawbacks to charitable status:
The CRA is very strict when it comes to compliance with charitable regulations. Each year the CRA receives thousands of new registrations, many of which are never completed. Over 1,000 charities lose their status each year for failure or inability to comply with the requirements. Before applying for charitable status ask the following questions:
Enjoy this tool on co-ops and charitable status? Then you’ll enjoy our tool on choosing a business structure or our article that answers if getting charitable status for your co-op is a good idea or not.
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