Issue 2024-37

In brief

On December 16, 2024, the federal government presented its 2024 Fall Economic Statement (economic statement). To improve transparency in the non‑profit organization (NPO) sector, the economic statement proposes to broaden the number of NPOs that are required to file an annual information return. Effective for the 2026 and subsequent taxation years, the proposals will:

• extend the requirement to file an annual information return if an NPO has gross revenues over $50,000 in a fiscal period
• require a “small” NPO that otherwise does not meet the thresholds for filing the annual form T1044 “Non‑Profit Organization (NPO) Information Return,” to file a new, short‑form return that contains basic information about the organization

If these proposals are enacted, all NPOs that claim an income tax exemption for federal tax purposes will be required to file either a regular NPO information return or a short‑form information return.

In detail

Background

Paragraph 149(1)(l) of the Income Tax Act (ITA) provides an exemption from income tax for organizations that meet the conditions described therein (generally, any club, society or association that is organized for any other purpose except profit and does not make income available to its members for personal benefit). Registered charities are exempt from income tax under separate rules and therefore, are not subject to these particular tax reporting requirements for NPOs.

Currently, subsection 149(12) of the ITA requires an NPO that claims an exemption from income tax to file an annual information return if:

• the total of all passive income in the fiscal period exceeds $10,000
• the organization's total assets at the end of the preceding fiscal period exceeded $200,000, or
• an information return was required to be filed by the organization for a preceding fiscal period

Because many NPOs did not meet the above identified thresholds, only a limited number of NPOs were required to file an annual return.

Changes to the annual return filing requirement

The economic statement proposes to extend the requirement to file the annual NPO information return to NPOs with total gross revenues over $50,000. This new threshold will require many more NPOs to file an annual return.

New filing requirement for small NPOs

The economic statement also proposes to require NPOs that do not meet the thresholds for filing the annual NPO information return (see above) to file a new, short‑form return that contains basic information about the organization, including:

• the NPO’s name, mailing address and business (or trust) number
• the names and addresses of the NPO’s directors, officers, trustees or similar officials
• a description of the NPO’s activities, including whether it conducts activities outside Canada
• the NPO’s total assets and liabilities and annual revenues
• other prescribed information

This new filing requirement for small NPOs will mean that all NPOs will be required to file an annual information return with the Canada Revenue Agency.

The takeaway

In light of these proposals, an organization that currently claims an income tax exemption as an NPO, but does not currently file an NPO information return, should review the proposed changes to determine whether it will be required to file an annual regular or a short‑form information return. The expanded filing requirements are proposed to be effective for 2026 and subsequent taxation years; this gives NPOs time to prepare (and gather the information) to meet these new tax reporting requirements.

Although not explicitly identified in the economic statement, we understand that the federal government is motivated to better understand this subsector of tax‑exempt organizations, because the subsector represents a diverse and varied group of organizations. The collection of data on these organizations will help the government determine whether it needs to pursue legislative reform of the current tax rules that govern NPOs. Parliament has not made any substantial changes to the tax legislation governing NPOs since its introduction in 1917.