Glossary

The definitions included here are intended to provide an overview of the defined terms and, as such, are not comprehensive. For further information, refer to the definitions of these terms in the Income Tax Act.

Accumulated property

Sometimes registered charities will want to set aside funds to make certain major expenditures, such as the purchase of a building or costly equipment, at some future date. By saving the funds rather than spending them on charitable programs, the registered charity may have difficulty meeting its disbursement quota. If that is the case, the registered charity may want to take advantage of a special provision of the Income Tax Act to accumulate property. Under this provision, amounts are considered applied against the disbursement quota as they are saved rather than when they are actually spent.

To accumulate property, a registered charity must apply in writing to us for permission. The letter must specify the amount of funds the registered charity wishes to accumulate, how long the registered charity will need to accumulate the funds, and why the registered charity wishes to accumulate these funds. We will confirm permission to accumulate property in writing. For more information, see Asking for permission to accumulate funds.

Adjusted cost base

Generally, this is the amount the registered charity originally paid for the property, plus the costs (such as legal fees or surveys) associated with the purchase, plus the cost of improvements to the property.

Advantage

An advantage is what a donor may receive in return for his or her donation (for example, a meal, tickets to a show), and it must be taken into consideration when determining the eligible amount of a gift for receipting purposes.

Determining the fair market value of an advantage is similar to determining the fair market value of a gift in kind. However, while only donations of property can be receipted as gifts in kind, the fair market value of any type of advantage (for example services, accommodation, meals) must be taken into consideration when determining the eligible amount of a gift for receipting purposes.

An advantage also includes any limited-recourse debt in respect of the gift.

Annulled

Registration as a charity is declared null and void; cancelled as though it never existed. Annulments generally result when registration was granted in error.

A charity that has had its charitable status annulled can no longer issue donation receipts for income tax purposes. However, receipts issued while the charity was registered remain valid.

Arm's length

The term "at arm's length" describes a relationship where persons act independently of each other or who are not related. The term "not at arm's length" means persons acting in concert without separate interests or who are related.

Related persons are individuals who are related to each other by blood, marriage or common law partnership, or adoption. Examples of blood relatives include grandparents, parents, brothers, sisters, and children. Examples of persons related by spousal relationship include the grandparents of a spouse, the parents of a spouse, the brothers and sisters of a spouse, the spouse of a child, and the spouse of a grandchild. Generally, in determining arm's length relationships, common law partners are treated in the same way as legally married spouses. Adopted children are treated in the same way as blood-related children.

Related persons also include individuals or groups and the corporations in which they have a controlling interest. Persons related to these individuals or groups are also considered related to those corporations.

For more information on arm's length, see Interpretation Bulletin IT-419, Meaning of Arm's Length.

Associated charities

Associated charities are two or more registered charities that have applied for and received this designation from us. Associated charities can pass funds among themselves without being affected by the usual limitation placed on gift making by charitable organizations.

The Income Tax Act generally requires that charitable organizations spend no more than half their income as gifts to qualified donees, otherwise they will be re-designated as public foundations.

You must obtain written permission from us to have an associated status designation. For more information, see Asking for associated status.

Assurance clause

A provision in which the trustees give assurance that all the money received will be spent only for the purposes outlined in the trust document.

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Bequests

A bequest is property a registered charity receives from the will of a deceased person. Bequests are one form of enduring property. See "enduring property" for further information.

BN/registration number

The BN is used by the federal government to identify organizations and the various program accounts they have. A complete BN has two parts: the registration number (first nine digits) and the account identifier (two letters and four digits). The registration number is the same for all accounts you have with the federal government. The account identifier is assigned by the Canada Revenue Agency for each of its business programs including corporate income tax, import/export, payroll deductions, goods and services tax/harmonized sales tax (GST/HST), and registered charities. The registered charity account identifier always starts with the letters "RR".

When you deal with the Charities Directorate, you must use the RR number designation. If you are unsure of your registered charity's number, please contact us.

By-laws

By-laws, if adopted by an organization, form part of the governing documents. They set out the rules and regulations for the administration and management of the organization. For example, by-laws often identify the duties of officers, the fiscal year end of the organization, and when meetings must be held.

Capital gain

A capital gain is realized when a capital property (for example, a share or land) is sold or considered to have been sold for more than the total of its adjusted cost base and the outlays and expenses incurred to sell the property. Outlays and expenses include fixing-up expenses, finders' fees, commissions, brokers' fees, surveyors' fees, legal fees, transfer taxes, and advertising costs.

Capital gains pool

The definition "capital gains pool" applies for the purpose of the definition "disbursement quota" and is applicable to fiscal periods that begin after March 22, 2004.

The capital gains pool of a registered charity for a fiscal period is the amount by which the total amount of declared capital gains of the charity from the disposition of enduring property (other than a capital gain from the disposition of a bequest or an inheritance received by the charity in a fiscal period that included any time before 1994) after March 22, 2004, exceeds the amount claimed by the charity as a capital gains reduction.

The annual calculation of the capital gains pool is voluntary, nevertheless the charity should declare its capital gains realized on the disposition of enduring property which will preserve its right to do the calculation and claim a reduction in the disbursement quota in a subsequent fiscal period. See "Calculating the disbursement quota" in the T4033B guide for instructions on how to calculate the capital gains pool.

Capital gains reduction

The capital gains reduction is a calculation that allows a registered charity to use its capital gains from the disposition of enduring property to assist it in meeting the element of its disbursement quota obligation based on the average value of its assets not used directly in charitable activities or administration.

If the amount identified on line 5900 of the T3010 return (i.e., the average value of property owned by the charity at any time in the 24 months immediately preceding the fiscal period that was not used directly in charitable activities or administration) is $25,000 or less, the capital gains reduction is deemed to be nil.

Where the amount at line 5900 is more than $25,000, the capital gains reduction is the lesser of:

• 3.5% of the amount at line 5900; and
• the capital gains pool of the charity for the fiscal period.

See "Calculating the disbursement quota" in the T4033B guide for instructions on how to claim a capital gains reduction.

Capital property

This includes depreciable property, and any property that, if sold, would result in a capital gain or a capital loss. Capital property is usually bought for investment purposes or to earn income. It does not include trading the assets of a business, such as inventory. Some common types of capital property include:

• securities, such as stocks, bonds, and units of a mutual fund trust; and
• land, buildings, and equipment used in a business or a rental operation.

For more information, see Pamphlet P113, Gifts and Income Tax and the Guide T4037, Capital Gains.

Certificate of good standing

A document issued by an incorporating authority (federal, provincial, or territorial government) stating that the organization is duly incorporated and that it is in good standing with the authority. The name of the document may vary from jurisdiction to jurisdiction.

Charities Registration (Security Information) Act

Law enacted by Parliament in 2001 as Part 6 of the Anti-terrorism Act. It provides a mechanism for revoking the registration of any charity or denying registration of an applicant when security information is used to establish that the charity or applicant is involved in supporting terrorism. Under the act, two ministers may sign a special certificate when they have reasonable grounds to believe that a charity or applicant is implicated in supporting terrorism. A court then reviews the evidence. If it confirms that it was reasonable to issue the certificate, the charity’s registration is revoked or the applicant’s registration is denied on the date of the court’s determination.

Compensation

Compensation, for persons (employees) working full-time or part-time for a registered charity, includes salaries, wages, commissions, bonuses, fees, and honoraria, plus the value of taxable and non-taxable benefits.

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Directors/trustees

Directors and trustees are persons who make up the registered charity's elected or appointed governing body. This generally means persons who hold positions identified in the registered charity's governing documents, such as chair, treasurer, secretary, or past president. The registered charity's governing board includes all its directors and trustees.

Disbursement quota

The disbursement quota is the minimum amount a registered charity has to spend on charitable activities or on gifts to qualified donees to keep its registered status. In general, it is an expenditure test based on tax-receipted gifts and amounts received from other registered charities in the previous fiscal period. The value of enduring property spent in the fiscal period or transferred to qualified donees as well as certain properties must also be considered.

The purpose of the disbursement quota is to ensure that registered charities actively use their tax-assisted donations to help others according to their charitable purposes. For more information, see What is the disbursement quota?

Eligible amount of gift

Under proposed legislation, this is the amount by which the fair market value (FMV) of the gifted property exceeds the amount of an advantage, if any, in respect of the gift.

The advantage is generally the total value of all property, services, compensation, or other benefits that a person is entitled to receive as partial consideration for, in gratitude for, or is in any other way related to the gift. The advantage may be contingent or receivable in the future, either by the donor or a person or partnership not dealing at arm's length with the donor.

An advantage also includes any limited-recourse debt in respect of the gift.

For more information, see Pamphlet P113, Gifts and Income Tax and Income Tax Technical News, Issue 26.

Eligible donee

An eligible donee is a registered charity:

• that is not subject to a suspension of tax-receipting privileges;
• that is not subject to a security certificate under the Charities Registration (Security Information) Act;
• that has no unpaid liabilities under the Income Tax Act or the Excise Tax Act;
• that has filed all of its information returns; and
• that has more than half of its directors/trustees at arm's length with each of the directors/trustees of the charity gifting to it.

Enduring property

The definition "enduring property" applies for the purpose of the definition "disbursement quota" and is applicable to fiscal periods that begin after March 22, 2004. The enduring property of a registered charity generally includes:

• a gift received by way of bequest or inheritance (which may include direct distributions of proceeds to a registered charity that is the designated beneficiary of a life insurance policy, a registered retirement savings plan, or a registered retirement income fund);
• a gift received by a charitable organization from another registered charity that is subject to a trust or direction to the effect that the property given, or property substituted for the gift,
  • is to be held by the charitable organization for a period of not more than five years from the date the gift was received by the charitable organization, and
  • is to be expended in its entirety over the period referred to in the trust or direction to acquire a tangible capital property to be used in charitable activities or administration, and/or in the course of a program of charitable activities of the charitable organization that could not reasonably be completed before the end of the first fiscal period;
• ten–year gifts; and
• a gift received by a charity from another charity that was a bequest or inheritance (which may include direct distributions of proceeds to a registered charity that is the designated beneficiary of a life insurance policy, a RRSP, or a RRIF) of the other charity.
• a gift received by a charity from another charity that was a ten-year gift or a one to five year gift of the other charity and is subject to the same condition and original term of the gift.

Gifts of enduring property are generally excluded from the charity's disbursement quota in the year they are received. However, the charity may subsequently have to consider these gifts when calculating the value of property for its 3.5% disbursement requirement.

When the charity spends or transfers some or all of the enduring property, the amount spent or transferred must be included when calculating the disbursement quota requirement.

Excepted gift

See definition under "Non-qualifying security".

Fair market value

Fair market value is usually the highest dollar value you can get for your property in an open and unrestricted market and between a willing buyer and a willing seller who are knowledgeable, informed, and acting independently of each other.

For more information, see Pamphlet P113, Gifts and Income Tax.

Financial statements

At a minimum, financial statements consist of a statement of assets and liabilities and a statement of revenue and expenditures for the fiscal period. They should show the different sources of a registered charity's revenue and how it spent its money. For more information, see Financial statements.

Gift

In most cases, a gift is a voluntary transfer of property without valuable consideration to the donor. However, under proposed legislation, for gifts made after December 20, 2002 a transfer of property for which the donor received an advantage will still be considered a gift for purposes of the Income Tax Act as long as we are satisfied that the transfer of property was made with the intention to make a gift. The existence of an advantage will not necessarily disqualify the transfer from being a gift if the amount of the advantage does not exceed 80% of the fair market value of the transferred property.

For gifts made after December 20, 2002, it is the eligible amount of the gift that is used to calculate the donor's donation tax credit or deduction.

For more information, see Pamphlet P113, Gifts and Income Tax and Income Tax Technical News, Issue 26.

Gifts-in-kind

Gifts-in-kind, also known as non-cash gifts, are gifts of property. They cover items such as artwork, equipment, securities, and cultural and ecological property.

A contribution of service, that is, of time, skills or efforts, is not property and, therefore, does not qualify as a gift or gift in kind for purposes of issuing official donation receipts.

For more information, see Pamphlet P113, Gifts and Income Tax and Income Tax Technical News, Issue 26.

Governing documents

These are the documents that formally establish an organization and govern its operations. Some examples of governing documents are letters patent, certificate of incorporation, memorandum or articles of association, a constitution, trust documents, and bylaws. For more information, see Governing documents

Internal division

An internal division is an internal branch, section, or other division of a registered charity. An internal division does not have its own governing documents.

Letter of good standing

This is a document that is provided by a parent body or a head body, which confirms the name of an internal division and its status as a branch, section, parish, or congregation. The document must give the date the internal division was established, the name of the governing document under which it was established, and the name of the governing document it currently follows. The document must be dated and signed by a director or trustee of the parent body or the head body, and must show their position.

Like official

A like official is a person who has governing responsibilities for the registered charity similar to those of a member of the governing board or a trustee. This should be interpreted broadly to include anyone having control and management of the administration of the registered charity. These people generally hold positions such as chair, vice-chair, treasurer, secretary, or past president.

Linked charities

A linked charity is a registered charity with its own governing documents that is, at least in some respects, in a subordinate position to a head body.

The head body usually has policies that govern the charitable programs the linked charities deliver and that regulate their administrative and financial affairs. It may also require dues from the linked charities.

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Loanbacks

Special rules may apply to reduce the fair market value of a gift in the following cases.

In the first case, a donor makes a gift and within 60 months of making the gift the charity holds a non-qualifying security of the donor (see definition of "non-qualifying security") that was acquired by the charity within the 60 month period before the gift was made. In this case, the fair market value of the gift is reduced by the amount paid by the charity to acquire the non-qualifying security.

In the second case, a donor makes a gift and within 60 months of making the gift, the following things happen:

• the donor is not dealing at arm's length with the charity;
• the donor, or a person or partnership not dealing at arm's length with the donor, uses the charity's property under an agreement made no earlier than 60 months before the gift was made; and
• the property is not used in the charity's charitable activities.

Here, the fair market value of the gift is reduced by the fair market value of the property used, even if the donor is compensating the charity for the right to use the property.

In either of these cases, the charity may issue an official donation receipt for the gift in the usual way, however, when donors in a loanback situation claim the gift on their income tax returns, they must reduce the amount by the fair market value of the consideration given to acquire the non-qualifying security or by the fair market value of the charity's property they were allowed to use.

If the gifted property is a non-qualifying security, the gift must be an excepted gift (see definition under non-qualifying security) before these special rules will apply. Otherwise the rules relating to a donation of a non-qualifying security apply.

Non-arm's length

See "arm's length".

Non-cash gift

See "gifts-in-kind".

Non-profit clause

A provision stating that the organization shall be carried on without purpose of gain for its members, and any profit or other assets of the organization shall be used solely to promote its objectives.

Non-profit organization

A non-profit organization is an association, club, or society that is operated exclusively for social welfare, civic improvement, pleasure, recreation, or any other purpose except profit. It is not a charity. No part of the organization's income can be payable to or available for the personal benefit of any proprietor, member, or shareholder, unless the recipient is a club, society, or association whose primary purpose and function is to promote amateur athletics in Canada.

Non-qualified investment

This applies to private foundations only.

A non-qualified investment is:

1. a debt, other than a pledge or an undertaking to make a gift, owing to the foundation by:

a) a person, other than an "excluded corporation", see below, who:

i) is a member, shareholder, trustee, settlor, officer, official, or director of the foundation;

ii) has contributed more than 50% of the foundation's capital or who is a member of a group of persons not dealing with each other at arm's length who have contributed more than 50% of the foundation's capital; or

iii) does not deal at arm's length with any person described in i) or ii);

or

b) a corporation, other than an "excluded corporation", controlled by:

i) the foundation;

ii) any person or group of persons described in a) above;

iii) the foundation and any other private foundation with which it does not deal at arm's length; or

iv) any combination of i), ii), and iii);

2. a share of a class of the capital stock of a corporation, other than an "excluded corporation", described in 1 above that the foundation holds. However, the law excludes from non-qualified investments any share listed on a designated stock exchange or a prescribed share of the capital stock of a taxable Canadian corporation.

3. a right the foundation holds to acquire a share described in 2 above.

An excluded corporation is:

• a limited dividend housing company to which paragraph 149(1)(n) of the Income Tax Act applies;
• a corporation whose issued shares are all held by the private foundation; or
• a corporation, all of the property of which is used by a registered charity in its administration or in carrying on its charitable activities.

Non-qualifying security

In general terms, a non-qualifying security is:

• an obligation (such as a promissory note) from a donor or the donor's estate or any person or partnership not dealing at arm's length with the donor or the donor's estate;
• a share in a corporation that the donor or the donor's estate does not deal with at arm's length;
• any other security issued by the donor or the donor's estate or by any person or partnership not dealing at arm's length with the donor or the donor's estate.

The securities and obligations described above do not include those listed on a designated stock exchange. Special rules also apply with respect to trusts.

A registered charity can acquire a non-qualifying security either by receiving one as a gift or by buying one (or giving something in exchange for it).

When a registered charity receives a non-qualifying security as a gift, it should record the security's "fair market value" at that time for future reference.

A registered charity can issue a tax receipt to the donor of a non-qualifying security only if the security is an excepted gift. Otherwise one of two things must happen in the 60 month period after the non-qualifying security is acquired before a receipt can be issued:

• the registered charity disposes of the non-qualifying security. In this case, the fair market value of the gift is generally the lesser of the fair market value of the consideration received by the charity on disposition and the fair market value of the security at the time it was gifted; or
• the security ceases to be a non-qualifying security (for example, if a privately held company goes public and its shares become listed on a prescribed stock exchange). In this case, the fair market value of the gift is generally the lesser of the fair market value of the security at the time it ceased to be a non-qualifying security and the fair market value of the security at the time it was gifted.

After the 60 month period, the registered charity can never issue a receipt for the non-qualifying security.

A non-qualifying security is considered to be an excepted gift if it meets all of the following criteria:

• it is a share;
• the charity that receives the non-qualifying security is not a private foundation;
• the donor is at arm's length to the charity; and
• the donor is at arm's length to each of the charity's directors/trustees, officers and like officials.

Official copy

What we consider an "official copy" of the governing documents depends on how the registered charity is formed.

If the registered charity is incorporated, the appropriate provincial or federal incorporating authority usually has to approve changes to the registered charity's governing documents. In this case, the official copy we want is a photocopy of the amending documents displaying the stamp or other approval mark from the incorporating authority.

If the registered charity is not incorporated, the official copy we want is a photocopy of the amended documents showing the date the documents came into effect. Two people who are directors, trustees, or like officials of the registered charity must sign the photocopy.

Official donation receipt

Registered charities can issue official donation receipts (also referred to as "tax receipts") to acknowledge gifts. An official donation receipt is subject to particular requirements under the Income Tax Regulations including identification that it is an official receipt for income tax purposes. See the definition "eligible amount of gift" for further information. To view sample receipts see Samples - Official donation receipts.

Note that registered charities issue other forms of receipts to acknowledge acceptance of services or items that are not gifts. These are not tax receipts and should be clearly distinguished from the tax receipts issued to acknowledge gifts. Contributions of services, that is, of time, skills or efforts, are not property and, therefore, do not qualify as gifts for purposes of issuing official donation receipts. Accordingly, a charity cannot issue an official donation receipt for services rendered free of charge. For more information, see Policy Commentary CPC-017, Gifts of Services.

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Penalized

A financial penalty has been imposed on a charity because it was not complying with specific legislative obligations under the Income Tax Act. 

Planned giving

Planned giving is a fundraising program that involves arranging donations to serve the interests of the registered charity and that suits the personal, financial, and tax situation of the individual donor. Through a planned-giving program, a registered charity seeks to attract significant gifts by identifying potential donors and helping them with information and advice.

Examples of planned giving include bequests, annuities, life insurance policies, and residual interests or charitable remainder trusts.

Proceeds of disposition

This is usually the amount a person receives or will receive for property sold. When a registered charity sells a property such as land, buildings, securities, and works of art, it may have a gain or loss from the sale.

Property (3.5% DQ)

Property, for purposes of the 3.5% disbursement quota requirement for a registered charity, is property that:

• was owned by the registered charity at the beginning or end of the fiscal period covered by the return; and
• was not used directly in charitable activities or administration.

Qualified donee

Qualified donees are organizations that can, under the Income Tax Act, issue official tax receipts for gifts that individuals or corporations make to them.

They include:

• registered charities;
• registered Canadian amateur athletic associations;
• registered national arts service organizations;
• housing corporations in Canada set up exclusively to provide low-cost housing for the aged;
• municipalities in Canada;

• under proposed legislation, for gifts made after May 8, 2000, municipal or public bodies performing a function of government in Canada;

• the United Nations and its agencies;
• universities outside Canada with a student body that ordinarily includes students from Canada (these universities are listed in Schedule VIII of the Income Tax Regulations);
• charitable organizations outside Canada to which the Government of Canada has made a gift during the donor's taxation year, or in the 12 months immediately before that period; and
• the Government of Canada, a province, or a territory.

Registered

An organization has applied to the CRA and received approval as meeting the requirements for registration as a charity, and has been issued a charitable registration number.

A registered charity is exempt from paying income tax and can issue official donation receipts for gifts it receives. However, if a registered charity is under suspension, it no longer has receipting privileges during the suspension period.

A registered charity is designated by the CRA as a charitable organization, a public foundation, or private foundation.

Restricted funds

Restricted funds are funds tied to a specific use and not available for the general purposes of the organization (for example, a fund consisting of contributions that donors specifically direct the registered charity to use to buy a new building). Endowments are one type of restricted fund. Donors create them when they stipulate that the registered charity must maintain the principal amount and only use the income earned on it.

Revocation for cause summary

The summary is a brief description of the Charities Directorate’s decision to revoke a charity’s registration. In cases of non-compliance following an audit, a Notice of Intention to Revoke is sent to the charity detailing the non-compliance activities. However, only the revocation for cause summary is published on our Web pages.

Revoked

Registration as a charity has been cancelled and the privileges that go with it have been taken away. The organization can no longer issue official donation receipts.

Registration as a charity is officially revoked when a notice is published in the Canada Gazette.

Registration as a charity may be revoked because:

• the charity chooses to close (voluntary revocation);
• the charity does not file its annual return or does not file it on time (failure to file); or
• the charity is found to be non-compliant (revocation for cause).

Revoked for cause

Registration as a charity has been cancelled as the direct result of an audit. Generally, only the most severe cases of non-compliance, or cases where there is continuous non-compliance (despite attempts by the Charities Directorate to get offending charities on side), result in revocation for cause.

 

Revoked for failure to file

Registration as a charity has been cancelled for failure to file the Registered Charity Information Return (Form T3010) within six months of the charity’s fiscal period end.

Revoked voluntarily

Registration as a charity has been cancelled at the charity's request.

A registered charity may wish to wind up its operations and voluntarily revoke its registration for a number of reasons, such as:

• a lack of available resources;
• a lack of volunteers;
• a merger or a consolidation; or
• no further need for the charity's services (e.g., a charity established to build something in particular, such as a playground).

Sanction

A financial penalty or a suspension of the charity's ability to issue official donation receipts and of its status as a qualified donee.

Specified gift

A specified gift is a type of gift that one registered charity makes to another. A gift becomes a specified gift if the donor charity identifies it as a specified gift in its information return for the year the gift is made.

A specified gift will not increase the recipient charity's disbursement quota for the following year. The donor charity cannot use the specified gift to satisfy its own disbursement quota.

Suspended

Registration as a charity has been temporarily taken away because the charity was not complying with specific legislative obligations under the Income Tax Act. A charity under suspension cannot issue official donation receipts.

Tax receipt

See "Official donation receipt".

Ten-year gifts

Registered charities can receive gifts subject to a donor's written trust or direction that the registered charity hold the gifts for at least ten years. These gifts are one form of enduring property. See the definition of "enduring property".