An organization's purposes (sometimes called objects) are set out in its governing documents. For example, a corporation will set out its purposes in its articles of incorporation or letters patent, and an unincorporated organization will set them out in its constitution or trust documents.
The organization's purposes or objects specify what the organization is legally able to do; they describe the aim, or main intent, of the organization. The purposes give the organization the authority to do activities that are within the scope of its purposes. Activities that are undertaken beyond the scope of an organization's purposes may not have legal force and effect, and may expose the board of directors to personal liability.
For this reason, organizations often want to have purposes that are very broadly worded. This can be a problem if the organization wishes to become a registered charity because the Canada Revenue Agency (CRA) has requirements for an applicant's purposes.
CRA's requirements for purposes
The Canada Revenue Agency (CRA) will only grant charitable registration to organizations that have purposes that are exclusively charitable.
Organizations that have purposes that could allow for non-charitable activities will be refused charitable registration, even if the organization intends to actually do only charitable activities.
When evaluating an applicant's purposes, CRA looks for purposes that are specific enough that it is clear that they fall completely within the definition of charitable. General or vague purposes that could be interpreted as being even partly non-charitable will cause CRA to decline the application for charitable registration.
Drafting the purposes is only one part of creating the governing documents for a charitable applicant. Careful consideration should also be given to drafting other parts of the governing documents, such as power clauses, and to the requirements of all applicable federal and provincial legislation. In addition to the requirements under the Income Tax Act, there may be other applicable federal and provincial legislation that you should consider.
It may be useful to draft the purposes at the same time as drafting the Statement of Activity (outlining your organization's planned charitable activities). This will assist in having compatible purposes and activities, even though these are not submitted at the same time, or to the same government body.
The assistance of a charity lawyer will be valuable in meeting CRA's requirements for purposes.
What purposes are charitable?
There is no definition of "charitable" in the Income Tax Act or similar legislation. What is charitable is determined based on the decisions of courts over more than 400 years.
Some things that benefit the public, or are "good," are not charitable. There are many beneficial activities undertaken in communities across the country that are not charitable, and so cannot be offered by registered charities. For example, sport and recreation activities do not generally fall within the definition of charitable.
The courts have identified four types of charitable activity:
the relief of poverty,
the advancement of education,
the advancement of religion, and
other purposes that benefit the community in a way the courts have said is charitable.