Non-profits automatically have a special status that allows donors to get a tax receipt.
When friends or colleagues hatch a great idea for a non-profit organization, the last thing they want to think about is legal compliance. But the fussy details are important. Choosing the right structure for the organization, getting everyone aligned on its purpose, and setting out expectations for how members will contribute are essential steps to ensure your group’s long-term success.
What you should know
Before you get up and running, consider how you want your organization to be run. The fine details don’t matter yet, but having a high-level framework can be very helpful. Here are a few starter questions:
What skills do you need? Is your organization going to be handling a lot of donations and funding applications? Then you’ll want someone with financial experience on your board of directors. Will you be needing to build ties with government organizations or other companies? Consider a seasoned business person for your board.
Who will make the day-to-day decisions? Non-profits typically appoint an executive director (ED) to make key operational decisions. Ideally, the board and the ED will craft a decision-making template. Everyone can then just refer back to it to see what decisions the ED can make on their own, and what has to come to the board for approval.
Who's our community, and how do they fit into our plan? There might only be a few members (think: a society that advocates for a handful of digital education companies). Or many members (think: an advocacy group that gives a shared voice to an entire community of immigrants). You might need just one class of membership, or you might need several. For example, you might have voting members (who get to elect directors), and then a more arms-length group of members who can’t vote but can come to the annual general meeting. Start turning your mind to a communications plan. In it, you'll spell out when and how people will be informed of key decisions.
Where and how often should the board of directors meet? You can meet wherever you like: remotely, at a cafe, or in an actual boardroom. How often will depend on the nature of your organization, but at least quarterly is a good rule of thumb. What’s important is to schedule meetings in advance, along with what you want to discuss. You can also make decisions without meeting, so long as everything’s in writing.
How will we stay accountable to each other? Performance reviews should be conducted at least once per year — one for your ED and one for the board. This is especially important for non-profits with volunteer boards, where the level of commitment can vary (since nobody’s getting paid!). Good news though: you can design your own process for how your executive director and board members get evaluated. There are no hard rules on this in the Societies Act.
"I thought we’d need lawyers and forms to run our non-profit. But it was just me and three friends starting a small community garden, so we didn’t want the burden of extra costs. Turns out we didn’t have to incorporate — we’re now just an 'unincorporated' association, and we can still get a bank account with our local credit union.”
– Shelley, UBC Village
You can do pretty well as an unincorporated organization. You can arrive at a name to call yourself (for example, the Mt. Pleasant Bike Club) and you can get a bank account.
But incorporation has its advantages, like:
If you plan to own property, you’re better off holding it in the society’s name, rather than in the name of one of the members or directors. This makes sure that if a member is no longer involved that the society still keeps this asset.
If you’ll be entering into contracts (like a lease, or equipment purchases), being incorporated means a director or member isn’t personally liable for these contracts.
If you’re going to raise money or receive gifts or bequests.
If you’re going to ask for donations, you’ll seem more reputable. And you can’t get charitable status without incorporating (more on that in a moment).
It’s far easier to apply for funding grants.
If you’ve decided to incorporate, ask yourself:
What’s our purpose? Are we including the public or is this just something for our small group?
Are we just going to have operations in BC, or might we go Canada-wide (or worldwide)?
Once you’ve got those answers, there are typically three options in BC:
Provincial society. Here there’s a service dimension to your work. You’re helping the public for a specific purpose. BC societies are incorporated under the Societies Act, and must carry out activities only in BC.
Provincial cooperative association. These exist primarily for their members’ benefit. Think of a bicycle co-op as an example: members may (or may not) pay dues to be able to use the co-op’s shared space and tools. Co-ops in BC are incorporated under the Cooperative Association Act. Our coverage here focuses primarily on societies rather than co-ops — if you plan on going to co-op route, check out the BC government’s step-by-step guidance on setting up a co-op.
Federal society. Same as provincial, but with a national scope and operations in mind. These are more expensive to set up and maintain. The federal government has a detailed primer on them here.
If you decide to set up a BC society, check out our guidance on the steps to incorporate a non-profit in BC.
By default under the Income Tax Act, non-profit organizations don’t have to pay any income tax. To qualify for this exemption, they typically have to meet two key criteria:
they exist only for social welfare, civic improvement, pleasure, recreation or any other non-profit purpose, and
they don’t hand out money or assets to their members purely for personal gain (as in, you can pay people reasonably for their work, but you can’t just give them money).
Non-profit societies can lose this favorable tax treatment if either of those two bullet points no longer apply. For this to happen, the Canada Revenue Agency would typically make a formal assessment. This could happen if a non-profit:
is paying inordinately high salaries to workers who are also members of the society,
decides to hand out end-of-year “rebate” cheques to its members out of its profits, or
changes its purpose from being, say, an organizer of amateur sport leagues to an organizer of for-profit sports tournaments.
Being income tax-exempt doesn’t mean a non-profit escapes paying taxes altogether. They may have to pay property taxes or consumption taxes (like GST or PST). And they may have to file an annual income tax return, even if the tax owing is nil.
BC societies that are member-funded have fewer rules to deal with. For example, they don’t have to disclose to the public their financial statements or how much they paid their directors. Also, if they cease operations, they can distribute their assets to whomever they want. Societies that are funded by outsiders have to satisfy a few requirements. They have to be more transparent, have at least three directors, and are limited in terms of who they can give their assets and money to if they cease operations.
Note that a member-funded society can receive some public or government money and still be considered member-funded. But it’s a very low threshold — maximum of $10,000 over two years, or 10% of your gross income (whichever is more).
It’s important to make the member-funded distinction at the outset. Unlike with bylaws, which can be changed by a member vote, converting down the road to a member-funded non-profit requires a court order.
Charitable tax status in Canada basically means that people who donate to your charity are eligible for a tax rebate. You can still accept donations to your non-profit without charitable tax status, but it’s often a good hook to get people to donate.
Getting charitable status isn’t automatic. It requires an entirely different and far more involved application process than just incorporating. And it can take up to a year (or even longer). All in all, it requires careful planning before you incorporate.
Check out the federal government’s step-by-step primer on becoming a registered charity to get a flavour, and consider discussing the matter with a lawyer.
Non-profits tend to operate on smaller budgets. Getting legal advice isn’t always in the cards. But it should be, especially if you intend to apply for charitable status. A lawyer can make sure you set the right foundation.
Below is an option to access legal help for free. Alternatively, keep in mind your lawyer doesn’t have to do everything. Consider unbundling, which puts you in the driver’s seat for some, but not all, of your working relationship with a legal professional.
Access Pro Bono Program for Non-profits
Free legal help for BC-based charities and non-profits of limited means.
What next
Ready for the paperwork?
We walk you through the steps to incorporate a non-profit in British Columbia.
