Income Tax Act S. 149.1 — Definition of a Charitable Organization

A charitable organization, at any particular time, means an organization, whether or not incorporated,

• (a) constituted and operated exclusively for charitable purposes,
• (a.1) all the resources of which are devoted to charitable activities carried on by the organization itself,
• (b) no part of the income of which is payable to, or is otherwise available for, the personal benefit of any proprietor, member, shareholder, trustee or settlor thereof,
• (c) more than 50% of the directors, trustees, officers or like officials of which deal at arm's length with each other and with each of the other directors and with major contributors, and
• (d) that is not controlled directly or indirectly by a person who has contributed more than 50% of the capital of the organization.

What This Means in Plain English

A charitable organization under the Income Tax Act is an organization that exists exclusively for charitable purposes and carries out those purposes through its own activities — not primarily by giving money to other organizations (that is the role of a foundation). Its income cannot benefit any private individual, and its board must be majority arm's-length, meaning most directors must be independent of each other and of major donors.

This definition is the legal foundation of charitable status in Canada. If your organization does not meet each element of this definition, the CRA will not register it as a charitable organization — it may instead qualify as a public or private foundation, or not qualify for charitable status at all. Understanding which category fits your organization is the first step in the charity registration process.

B.I.G. Charity Law Group has helped over 5,000 founders navigate the CRA registration process. Learn about our fixed-fee charity registration service.

Frequently Asked Questions

What is the difference between a charitable organization and a foundation?

A charitable organization primarily carries out charitable activities itself. A foundation (public or private) primarily makes grants to other qualified donees. The distinction affects which rules apply and how much control founders can exercise over the organization.

Does a charitable organization have to be incorporated?

No. The Income Tax Act definition explicitly includes unincorporated organizations. However, incorporation provides significant benefits including limited liability for directors, name protection, and better access to grants. Most charity lawyers recommend incorporating before applying for charitable status.