How Much Surplus Can Canadian Charities Have?

How Much Surplus Can Canadian Charities Accumulate? 

Many charities wonder how much extra money they can accumulate while still being considered a charity. This is a common concern among Canadian charities. In simple terms, a surplus is when a charity ends up with more money than it needs, which goes against its primary goal.

Understanding Surplus: A surplus happens when a charity makes more money than it spends. Imagine having $100 to spend but ending with $120 at the end of the day. That extra $20 is your surplus.

Who Cares About Surplus? Three main groups are interested in how much surplus a charity has: the Canada Revenue Agency (CRA), donors, and the general public.

Canada Revenue Agency (CRA): The CRA is like the referee for charities. They want to ensure charities do what they're supposed to do with their money. The CRA says it's okay for charities to have a surplus if they have a good reason, like saving up for a big project. But if a charity is hoarding money for no good reason, that could be a problem. Let's say a charity wants to build a new community center. It's okay for them to save up money for that. But if they're putting money in the bank year after year with no plan, that might not be okay with the CRA.

Donors: Donors are the people who give money to charities. They want to know that their money is being used wisely. If they see that a charity has a lot of extra cash, they might think it doesn't need their donation. This could lead them to give their money to a different charity instead. Imagine you want to donate to a charity that helps homeless animals. If you see that they already have lots of money in the bank, you might give it to a different charity that needs it more.

Public Perception: The general public's opinion of a charity is important, too. If people hear that a charity has tons of extra money, they might question why it needs donations. This could hurt the charity's reputation and make it harder for them to raise funds in the future. For example, if a charity always asks for donations, but then people find out they have lots of money saved up, they might feel the charity is dishonest.

How Much Surplus Should a Charity Have? It's recommended that charities keep enough money to cover 6-12 months of their expenses as a surplus. If a charity spends $100,000 a year, they should aim to have between $50,000 and $100,000 saved up. If a charity spends $10,000 monthly on rent, salaries, and other costs, it should try to have between $60,000 and $120,000 in the bank as a safety net.

Managing Surplus: Charities should also plan for special projects. They must ask the CRA for permission to save money for something specific, like building a new playground. They must explain why they need the money, how much they need, and how long it will take to save up. For example, if a charity wants to build a new playground that will cost $50,000, it needs to tell the CRA why it's building it, how much it will cost, and how long it will take to raise the money.

Charities can benefit from a surplus, but they must avoid having too much. They must also be transparent about their savings and follow the CRA's rules. This will keep their donors happy and their reputation intact.

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