More NPOs will have reporting obligations—is your organization ready?

What are the current NPO reporting requirements?

For reporting purposes, an NPO is a club, society or association organized and operated solely for social welfare, civic improvement, pleasure or recreation, or any other purpose except profit. Charities are excluded, as they're subject to different reporting requirements.

An NPO is required to file an annual T1044 NPO information return with the CRA for a particular fiscal period if it:

• Received (or was entitled to receive) taxable dividends, interest, rentals and royalties totaling over $10,000,
• Owned assets with a value that exceeded $200,000 at the end of the previous fiscal period, or
• A T1044 was required for a prior fiscal period.

T1044 returns are due within six months after the NPO’s fiscal year end.

Incorporated NPOs must also annually file a T2 Corporation Income Tax Return, although most are able to claim an income tax exemption in the return. Most NPOs that primarily provide dining, recreational, or sporting facilities to their members must also file annual trust returns, which assess tax on property income and capital gains.

What are the new NPO reporting requirements?

Under the proposed legislation, an NPO is also required to file a T1044 return if total amounts received during the fiscal period, including capital receipts, exceed $100,000. 

In addition, NPOs that don’t meet any of the criteria for filing a T1044 must file a new short-form return unless their total receipts for the fiscal period are under $10,000 or they're not considered an “organization”.

Unincorporated entities and groups of individuals must be sufficiently organized to be considered an “organization”. According to the Explanatory Notes to the draft legislation, factors to consider include, but are not limited to, having:

• A defined purpose
• A constitution or bylaws
• A particular organizational structure or hierarchy
• Defined governance roles (such as members, directors, and officers)

Loosely organized recreational activities, such as certain hobby clubs, likely wouldn’t be considered an organization, but a careful analysis based on the facts of the situation is required to be certain.  

What must be reported in the new short-form return?  

The new short-form return for eligible NPOs hasn't yet been released, but would require:

• A description of the NPO’s activities, including whether any activities take place outside of Canada
• The total assets, liabilities, and amounts received for the period
• The names of the directors, officers, and trustees

What are the non-compliance penalties?

Both the T1044 and the new short-form return are due within six months of the fiscal year end. If an organization fails to meet the filing deadline, it will be subject to a penalty of $25 per day with a minimum penalty of $100 and a maximum of $2,500.

Takeaway

If enacted, these expanded requirements will create additional compliance considerations for most NPOs for fiscal periods beginning on or after January 1, 2027. To avoid potential penalties, organizations not previously required to file an annual return will need to assess whether they now have a filing obligation.

If you need assistance in determining your organization’s reporting requirements, contact your local advisor or reach out to us here.

Disclaimer
_{The information contained herein is general in nature and is based on proposals that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice or an opinion provided by Doane Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, specific circumstances or needs and may require consideration of other factors not described herein.}