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Co-ops and charitable status

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. There are four categories of charitable purpose:

  • Relief of poverty (e.g. low-income housing)
  • Advancement of education (e.g. educational institutions)
  • Advancement of religion (e.g. churches)
  • Other purposes that benefit the community (e.g. animal welfare)

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:

  • Education
  • Youth
  • Healthcare
  • Skills development
  • Art and Film
  • Economic Development
  • Cemeteries
  • Transit
  • Personal care housing
  • Seniors clubs
  • Foundations
  • Support for disabilities

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:

  • The cost to become a member should be relatively low to ensure membership is accessible.
  • Membership in the co-operative should be relatively open and not restrict access to a specific group.
  • There should be no patronage issued to shareholders. Revenue should be used to further the charitable purpose and surplus should be set aside in reserves or re-invested in the organization.
  • Directors should not receive compensation for their service other than reimbursement for expenses.
  • Dissolution of the co-operative should see any remaining assets being donated to a registered charity.

While becoming a registered charity may offer potential donors an tax break incentive, there are several drawbacks to charitable status:

  • The co-op will be unable to issue patronage dividends to its members.
  • The co-op cannot issue investment shares, limiting its capacity to raise capital.
  • The co-op is limited in the work it can do. All revenue must be used to further the organization’s charitable purpose.
  • The co-op is limited in the organizations it can award a financial contribution. Registered charities can only give funds to qualified donees, which, typically, are other registered charities.

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:

  • Is the work that our co-op does considered charitable?
  • Would our co-op have to change to be eligible for charitable status?
  • Would becoming a charity further our mandate and benefit our members?
  • Is there someone on our team willing to develop and apply for charitable status?
  • Are we able to dedicate time and resources each year to complete the charity file to maintain our charitable status?

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