Non-Profit Accounting

Both are tax-exempt under the Income Tax Act but operate under very different rules. A Registered Charity is registered with the CRA, can issue official donation receipts (giving donors a tax credit), must spend a minimum amount annually on charitable activities (the "disbursement quota"), and files a public Form T3010 every year. A Non-Profit Organization (NPO) is not registered with the CRA, cannot issue donation receipts, and operates under different restrictions: it can't have charitable purposes as its main goal, its income must be used solely for non-profit objects, and certain NPOs must file Form T1044 if they exceed financial thresholds (passive income above $10,000, total assets above $200,000, or having filed T1044 in any prior year). Charities have access to public fundraising and donor incentives but face stricter activity restrictions; NPOs are more flexible operationally but lack the donation-receipt advantage.

Form T3010 is due six months after the charity's fiscal year-end. It requires: detailed financial information (revenue by source, expenditures by program/admin/fundraising), description of charitable activities and their spending, breakdown of compensation for the highest-paid staff, list of directors and trustees, the balance sheet, gifts to qualified donees, political activities (if any), receipted donation totals, and the disbursement quota calculation. The return is publicly available through the CRA's charity listings, so the financial and governance information is visible to donors, regulators, and the general public. Late filing can lead to revocation of charitable registration after one missed year, which is catastrophic. Donors lose the ability to claim receipts retroactively, and the charity loses its tax-exempt status.

Restricted-fund accounting requires separate tracking. At minimum, separate general-ledger accounts (and ideally separate funds in your accounting software) for unrestricted, internally restricted, and externally restricted (donor-imposed) funds. Each restricted donation should be recorded with reference to the donor agreement or grant terms, and a register maintained showing balance remaining, allowable uses, and reporting deadlines. Restricted funds can only be released to unrestricted as the conditions are met (time elapsed, project completed, milestone achieved). Two methods are common in Canada: the Restricted Fund Method (multi-fund financial statements showing each fund separately) and the Deferral Method (restricted contributions deferred as liabilities until conditions are met). The chosen method must be applied consistently and disclosed in financial-statement notes.

Beyond CRA-required filings, boards typically request reports that show financial health and strategic direction. Common examples include revenue and contribution growth analysis, working capital reporting, and (for organizations that carry debt) debt servicing analysis. The exact mix depends on what the board oversees and the funding sources the organization works with.