Topics related to the Foundation’s support
This first section answers questions from our partners related to our funding. For example:
- What roles can a fiduciary play in an initiativeⓘ?
- What are the tax law requirements for audited financial statements?
- What kind of financial package is required as part of a funding application?
- When an application is accepted, which annual financial reports need to be provided?
For specific situations not covered in this section, please contact your Lead, Partner Relations.
1. Fiduciaries and partner groups
The roles and responsibilities of fiduciaries and partner groups differ from one initiative to another. Because of this variability, we will not attempt to provide an exhaustive list or impose specific roles and responsibilities. Instead, we will present the relationships and commitments that need to be clarified between initiative stakeholders.
Roles of partner groups
We support collective initiatives that are often led by partner groups that, in addition to organizing the initiative itself, are able to manage its governance, internal policies and practices, communications, personnel management, and more.
Main types of fiduciary
The initiatives we support can take many forms and, as a result, can be managed by a variety of operating models. It is therefore important to understand the different types of fiduciary that can be involved in the initiatives we support.
1. Fiduciary and partner
The organization that receives the funding is also responsible for achieving the initiative’s objectives.
2. Fiduciary
The organization that receives the funding redistributes it, in whole or in part, to various partners or to members of a network or regional association (of which it is a member) in order to achieve the initiative’s objectives.
Fiduciary roles and responsibilities
- The roles and responsibilities of a fiduciary are significant. Depending on the type of fiduciary, they help carry out the initiative and may be involved in any number of areas.
- The partners establish and define a fiduciary’s role and responsibilities.
- Here are a few examples of the roles and responsibilities a fiduciary could assume, depending on its type:
Collective interest responsibility
- The fiduciary acts on behalf of the regional association or partner group. They are chosen by members of the network or group to act as fiduciary and support the collective’s work.
Legal and contractual responsibilities
- The fiduciary must have a legal existence to engage in legal responsibilities.
- In this role, they manage contracts with suppliers and employees, as well as agreements with financial backers, network members, or regional associations, where applicable.
Financial and administrative management capabilities
This role may involve:
- Payroll management
- Financial, accounting, and tax management
- Budget management and tracking
Reporting
- It is responsible for producing activity reports.
- It is responsible for producing financial reports and financial
Examples of best practices
Tripartite agreement
- For the second type of fiduciary, a tripartite agreement can be drawn up between the fiduciary, the partner group, and the Foundation.
- If the partner group is a legally constituted entity, the addition of its signature is legally binding. This tripartite agreement would enable each signatory to make specific commitments and clarify roles.
- If the partner group is not a legally constituted entity, the group’s signature can be added as a moral engagement.
Change of fiduciary
What should we do if we’re planning a change of fiduciary?
Administrative
The partner group must decide on a termination date with the outgoing fiduciary and send the Foundation written notice, such as an email, as soon as possible.
Legal
- The Foundation must draft a tripartite letter, signed by the former fiduciary, the new fiduciary, and the Foundation, attesting to the change and transferring the terms of the agreement to the new fiduciary.
- The new fiduciary must have a legal existence at the time the tripartite letter is signed in order take responsibility for the legal commitments that will be incumbent upon them.
Financial/tax
- The former fiduciary must send the Foundation its activity and financial reports, as well as financial statements covering the period up to the end of their mandate.
- The former fiduciary must transfer the unused and uncommitted balance of the Foundation’s contribution to the new fiduciary.
- Although the former fiduciary is released from all obligations to the Foundation as a result of the change, they must keep all documents relating to the agreement for six years after the last tax year for which they produced the reports.
2. Financial Statements
What are the differences between the various types of financial statement review?
There are three levels of financial statement (FS) review. They differ in their level of assurance, methods of analysis, and depth of work.
1. Audit
- A chartered professional accountant provides an opinion as to the fair presentation of the financial statements.
- The audit provides the highest level of assurance regarding the accuracy of the financial statements.
- To ensure the quality of financial information, the auditor analyzes, inspects, assesses internal control systems, tests major processes, consults supporting documentation, and provides external confirmation of major transactions.
2. Review
- The chartered professional accountant reviews the financial statements to ensure that they are plausible, i.e., trustworthy.
- The review provides reasonable assurance that the financial statements do not contain any material errors.
- This is done mainly by obtaining information, carrying out comparative and ratio analyses, and holding discussions with management.
3. Compilation (notice to readers)
- The professional compiles unaudited financial information from the information collected.
- They state that they have compiled the financial statements, accounts, or data from information provided by management, that they have not performed an audit or review, and that they have not taken any other steps to ensure the accuracy and completeness of the information provided.
- They do not provide an opinion as to the fair presentation of the financial statements.
What are the tax law requirements for audited financial statements?
CRA tax requirements
- The organization must attach the financial statements when filing the annual T3010 Registered Charity Information Return or the T2 Corporation Income Tax Return for non-profits.
- If the organization’s annual income exceeds $250K, it is recommended that the financial statements be audited, but this is not a requirement.
Canada Not-for-profit Corporations Act
The level of financial review required of organizations is based on their gross annual income:
Note:
These various checks are required for soliciting organizations, i.e., when an organization receives revenues of more than $10K from public sources (bequests, donations from non-members, government grants, money received from another organization that has also received income from public sources). Most of our partners fall under this category, as the Foundation has already received revenue of more than $10K from public sources, in addition to the fact that, in most cases, we are not their only financial partner.
Quebec’s non-profit legislation
Part III of the Companies Act requires that directors present their financial statements to their members at an annual general meeting. These financial statements must be valid and accurate. The validation exercise that testifies to this fair presentation is designed to ensure the organization’s credibility. NPOs in Quebec are not required by the Companies Act to have their financial statements audited. However, it is possible that partners, governments or municipalities, or even the general bylaws of organizations, require the annual filing of audited financial statements.
In April 2024, the Minister Responsible for Social Solidarity and Community Action, Chantal Rouleau, announced a lightening of reporting obligations for community organizations. The threshold for filing audited financial statements was raised from $150K to $500K for organizations receiving government or municipal funding.
The Foundation’s Perspective
Given the high cost of auditing and the shortage of manpower in accounting firms and the organizations we support, a reduction in reporting requirements would enable them to focus their efforts on achieving their mission. To this end, the Foundation will accept either reviewed or audited financial statements from its fiduciary partners.
That said, we recognize the added value of an audit for certain organizations. Chartered accountants provide expertise and an external perspective on the organization’s financial situation. They can also provide the organization with recommendations related to controls, financial management, and tax compliance. In terms of credibility, using a chartered accountant can even help attract volunteers and directors who want to support organizations with best practices in governance, and can multiply an organization’s funding opportunities.
It should be noted that the Foundation’s request for its partners’ financial statements is not for the purpose of carrying out an audit, since this work has already been done by a chartered accountant. Rather, the request is meant to support fiduciaries in their obligation to maintain a balanced budget and ensure long-term financial health.
Notes
The fiduciary must provide financial statements for the duration of the agreement. If the agreement is extended, the financial statements must cover the period up to the new end date.
3. Budget
What financial package is required as part of a funding application?
In the following sections, we’ll look at some examples of what to include in the budget. That said, budgets will vary from one initiative to another, so it’s important that you adapt the financial package to the intent of the funding application. Given that the budget is an integral part of the application, there needs to be a link between the financial package and the funding objectives described in the application.
Dialogue-based initiatives
Income
Include only the Foundation’s contribution in the budget.
You do not have to include non-monetary contributions.
Expenses
Examples of the most common expenses, other than those related to the initiative’s objectives:
- Organizational capacity building
- Coordination, consultation, planning, mobilization
- Communication, outreach
- Meeting and travel expenses
- Management costs
All other initiatives
Income
The contributions of all partners must be included, with a note as to whether they are confirmed or unconfirmed.
Monetary contributions
- Identifying all monetary contributions enables us to enhance the financial contribution of the initiative’s various financial partners and see the leverage effect of funding, where applicable.
Non-monetary contributions
- Identifying non-monetary contributions, such as the use of an organization’s human resources, highlights the involvement of partners in collective mobilization, illustrates the sharing of power and responsibilities between partners in the process, and highlights the number of people involved in the initiative.
- Volunteer involvement is important in a number of areas, but is often difficult to quantify. As such, it is not always possible to include it in the budget. However, in cases where citizen or member involvement is essential to the approach, and is quantifiable (based on past experience, etc.), we recommend that it be included in the budget.
In some cases, an initiative will have an unused balance from the previous agreement. When this information is known at the time a new application is submitted for the same initiative, the balance must be added to the budget for the new application.
Expenses
Eligible expenses
Please refer to the eligible expenses of our support, as well as the exclusions.
Management costs
Definition and examples:
These are additional costs linked to the organization’s fiduciary role in the initiative. Costs may include administrative management, payroll, financial management, audit costs, legal and regulatory obligations, etc.
Estimate
- Depending on the type of fiduciary, management costs may differ. For example, fiduciaries who redistribute funding to the partners or members of a regional group may have costs related to the accountability of its partners or members.
- To correctly estimate management costs in the budget, the fiduciary must consider whether the contributions will generate management work, and therefore additional costs. For example, some contributions are part of the initiative and are allocated directly to the beneficiaries. This means no additional management costs for the fiduciary. On the other hand, other contributions must be redistributed to group members. In this case, management costs should be estimated.
Administrative and operating costs
Definition and examples:
These are indirect expenses linked to the initiative. They do not contribute directly to the implementation of the initiative and remain generally stable throughout its life cycle. For example: rental space costs allocated to the initiative coordinator, telephone and printing costs, insurance, and equipment rentals.
Estimate:
As the Foundation does not support fixed and recurring operating costs, administrative and operating expenses must be allocated in proportion to the number of resources assigned to the initiative.
A few details:
- Remember to factor in the annual indexation rate when preparing a multi-year budget.
- The fiduciary must provide the budget for the initiative, not the overall budget for the organization.
4. Budget tracking
When an application is accepted, which annual financial reports need to be provided?
Content of budget monitoring
Annual and cumulative financial reports (income and expenses)
This information reports on the financial evolution of the initiative since the beginning of the agreement.
It enables us to take stock of how expenses are being used and confirm that they are linked to the initiative’s objectives.
It is therefore important that the organization to maintain separate accounting for the initiative to track its financial progress.
- This is a financial management practice that makes it possible to analyze initiatives separately from an accounting perspective by identifying the balance sheets, i.e., the income and expenses associated with each initiative.
- Separate accounting is a good way of tracking the contributions and costs of an initiative throughout its life cycle.
- Separate accounting example document
The unused balance, if any, is carried forward to subsequent years to calculate the annual financial need.
Budget for next and subsequent years
- This information makes it possible to determine financial need for the following year, whether the amount is greater or less than the amount in the budget provided with the funding application, and update budgets for subsequent years if necessary.
- It enables us to discern any new financial needs and whether funds need to be reallocated.
Budget tracking format
The Foundation recommends using its budget tracking tool. Using the same format as the financial package submitted with your funding application makes it easier to track budgeted income and expenses.
A few details:
- Budget tracking is done for monetary contributions only.
- Financial reports must cover the entire term of the agreement. If the agreement is extended, they must cover the period up to the new end date.
- The organization must keep all documents relating to the agreement for six years after the last applicable tax year. For the second type of fiduciary, certain contributions are part of the initiative and are allocated directly to the beneficiaries. They do not go through the fiduciary. As such, these contributions are not subject to budget tracking.
Topics related to laws and regulations governing NPOs and charities
In this section, we’ll answer questions not directly related to our funding. For example:
- Do we have to incorporate as an NPO?
- Should our organization become a registered charity?
- What tax refunds are available to our organization?
- How can the organization ensure good cash management?
It should be noted that this document addresses some of the most common situations encountered and does not present all tax requirements in detail. Please consult your advisors for specific accounting or legal advice.
1. NPOs
Do we have to incorporate?
Incorporating an NPO allows you to create a legal structure that’s distinct from its founder and considered a legal entity in its own right. An NPO must be “operated exclusively for social welfare, civic improvement, pleasure, recreation, or any other purpose except profit1.” You can incorporate your organization with the federal or provincial government.
Please note that incorporation is not an eligibility requirement for our support. However, the chosen partner or fiduciary must have a legal existence at the time the agreement is signed in order to take responsibility for the legal commitments that will be incumbent upon them.
Advantages
Incorporating your organization gives you access to certain tax advantages (NPOs are usually exempt from income tax and can claim partial reimbursement of GST and QST paid on eligible purchases — but only if the organization receives significant government funding).
Limits your financial risk, as the organization has a separate legal existence from its members. An incorporated NPO can sign agreements and open its own bank accounts. A legal entity can hold assets in its own name. If members change, ownership of the property remains in the name of the incorporated NPO.
Better funding capacity, as some funders will limit access to NPOs.
Disadvantages
Unlike registered charities, NPOs cannot issue official tax receipts.
Must comply with tax requirements (form T1044) and legal obligations under provincial or federal law, such as holding an annual general meeting at which members elect board members and approve the financial statements.
NPOs can engage in income- or profit-generating activities. However, the organization’s profits must be held in trust and used only for the purposes and objectives stated in its bylaws. Certain constraints are imposed on the types of activities in which organizations can participate. In addition, they must seek ministerial authorization to amend certain bylaws.
Before setting up an NPO, it’s important to consider whether incorporation is right for you. Here’s a list of questions to consider before you make a decision, courtesy of COCo (the Centre for Community Organizations). Some groups prefer to operate on an informal, voluntary basis, with their own internal rules and policies, or to form an association or cooperative. Others join forces with an existing organization to avoid having to set up and maintain the structure of a new one. You need to consider the pros and cons, consider your group’s objectives and make a decision accordingly.
For groups of individuals or organizations wishing to launch a new organization, a checklist (available in French only) created by Télescope is available to remind you of the important steps in the process.
2. Charities
Should our organization become a registered charity?
As with incorporation, charitable status is not an eligibility requirement for our funding. We believe that by developing partnerships with non-qualified donees (organizations without charity status), we expand the scope of our support by reaching groups from marginalized and isolated communities, thus ensuring greater equity among the organizations we support.
In addition, the 2022 federal budget introduced a new partnership framework (A toolkit for working with non-qualified donees) in the charitable sector called “qualifying disbursements.” This new framework allows registered charities to make qualifying contributions to both qualified donees and non-qualified donees (NQDs) under certain conditions in order to improve the equity and distribution of charitable assets in our communities. Although our support is not contingent on your organization holding charitable status, registered charities have certain advantages and disadvantages to consider.
Advantages
The organization can issue official donation receipts for income tax purposes, which can be used to reduce the tax burden of the individuals and companies receiving them.
It is exempt from federal and provincial income tax.
It may receive donations from other registered charities.
It can claim a partial refund of the GST and QST paid on eligible purchases, and many goods and services are exempt from GST and QST.
The organization’s credibility is enhanced by the fact that registered charities must comply with certain rules, particularly in financial matters, which can help reassure the public that the organization is indeed using its resources for charitable purposes.
Disadvantages
The organization must be established and operated exclusively for charitable purposes, and must devote all its resources (funds, personnel, and property) to charitable activities.
It must complete the registration process with the Canada Revenue Agency (CRA).
It must keep adequate accounting records and make them available to the CRA for review upon request.
It must comply with tax and regulatory requirements, such as meeting the disbursement quota and filing the annual information return (form T3010) within six months of its fiscal year-end. Failure to comply with these requirements may result in penalties or in the revocation of the organization’s charitable status.
The CRA has created an interactive tool to help you determine if charitable registration is right for you.
3. Taxes
Did you know that the tax refunds your organization is entitled to vary according to several criteria? Answer the questions in this short questionnaire to find out.
A few definitions and examples:
Examples of NPO income subject to taxes:
Registration fees for conferences and symposia, training courses, meals sold by a restaurant, goods sold at a price higher than their direct cost.
Examples of goods and services acquired by an NPO to generate taxable income that could qualify for input tax credits (ITCs) and input tax refunds (ITRs):
- Goods purchased by the NPO intended for sale
- Goods purchased to manufacture other goods intended for sale
- Fixed assets used primarily for the NPO’s commercial activities
- Stationery, advertising services, telephone services, photocopier rental
ITC and ITR:
In the GST system, these are input tax credits, and in the QST system, they are input tax refunds.
General operating expenses:
Costs and expenses incurred in the day-to-day operation of an NPO, i.e., expenses related to the NPO’s management, administration, or support functions. General operating expenses include office and equipment rentals and the purchase of office supplies such as stationery.
Eligible NPOs:
NPOs with at least 40% of the current year’s income from public funding. If these revenues are less than 40% and this is not the NPO’s first fiscal year, at least 40% of the income from the two fiscal years preceding the current fiscal year (or, if this is the NPO’s second fiscal year, the revenues from the previous fiscal year) must come from public funding.
Small supplier:
- An NPO or registered charity is considered a small supplier if its total taxable sales do not exceed $50,000 in any single calendar quarter and in the last four consecutive calendar quarters. Total taxable sales include sales made worldwide by the NPO and those made by its associates during a given calendar quarter or in the last four consecutive calendar quarters. It does not include revenues from the sale of financial services, sales of capital property (e.g., a building or car), or goodwill from the sale of a business.
- A registered charity may also be considered a small supplier if it meets the gross revenue criterion of $250K or less, under certain conditions.
A few details:
- Records relating to taxes, source deductions, and tax returns must be kept for six years from the end of the tax year in question. A few exceptions apply.
- To claim tax refunds on your purchases, it’s important that supplier invoices are made out in your organization’s name.
- The non-refundable portion of taxes can be included in the financial package of a funding application.
- This document is specifically intended for NPOs and registered charities based in Quebec who do not legally qualify under another title (e.g., hospital administration, school administration, university, public college, municipality, specific public service organization, etc.). In these cases, other reimbursement factors may apply.
4. Cash flow tracking
Monitoring cash flowⓘ is essential to meet financial deadlines without disrupting day-to-day operations and anticipate financing needs, thus ensuring the organization’s long-term financial health. As grants and funds are rarely deposited on the exact dates as planned, this aspect of management is vital for NPOs. By actively tracking cash flow, you can prevent overdrafts and late payment charges. This involves recording cash deposits and withdrawals (cash inflows and outflows) in a spreadsheet.
- Here’s an example of a tracking tool
- You’ll get the most out of the tool by keeping the data up to date, so it’s important to track transactions weekly or monthly.
Toolkit
2. Resources
Additional links:
Differences between a registered charity and a non-profit organization
Introduction to registered charities
Canada Not-for-profit Corporations Act – Financial statements and review
Registered charities making grants to non-qualified donees
GST/HST for public service bodies
GST/HST for non-profit organizations
GST/HST for registered charities
3. Definitions
Initiative
The Foundation funds approaches and initiatives that have a broad and lasting impact, not stand-alone projects.
Cash and cash equivalents
Registered charity
Registered charity or registered Canadian amateur athletic association, within the meaning of the Income Tax Act and the Taxation Act. Note that, for matters related to GST and QST, a charity that is also a school administration, public college, university, hospital administration, or local government with municipal status is not considered a charity, but rather a public institution.
Non-profit organization (NPO)
An entity established and operated exclusively for non-profit purposes and whose revenues are not payable to, or available for the personal benefit of its owners, members, or shareholders. However, revenues may be paid to a member who is an association and whose primary objective is the promotion of amateur sport in Canada. An individual, estate, trust, charity, public institution, municipality, or government cannot be considered an NPO.