Head bodies and their internal divisions
Guidance
Reference number
CG-028
Issued
September 22, 2017
Purpose:
To clarify the Canada Revenue Agency’s (CRA) requirements for the potential charitable registration of head bodies and their internal divisions.
1. What is a head body?
For the purpose of this guidance, a head body is a registered charity that has authority over its internal divisions, and is resident in Canada, and was either created or established in Canada.
2. Registering a head body
Organizations can become registered charities if they meet the requirements of the Income Tax Act and common law.
The governing documents of the head body must show that it has authority over its internal division(s) through articles that permit it to do the following actions:
- create and close internal divisions
- own the property of the internal division
- appoint and control the board of the internal division
- approve the budget of the internal division
- exercise a measure of control over the activities of the internal division
3. What is an internal division?
The term internal division is not defined under the Act. However for the purpose of this guidance, we consider an internal division to be a branch, section, parish, congregation or other division of a registered charity that is established in Canada and that receives donations on its own behalf. It operates as an extension of and under the authority of the head body and it must further the charitable purpose of the head body. It is not a legal entity in its own right and does not have its own governing documents, but instead operates under the governing document of its head body. An internal division is registered separately with the CRA from its head body but remains in a subordinate position to the head body.
The internal division will be given a registration number that includes the nine digit Business Number (BN) of its head body followed by the program identifier "RR". The difference between an internal division’s registration number, and its head body’s registration number is the last 4 digits, referred to as the reference number. Each will have its own reference number. For example, when a head body has the registration number 123456789RR0001, its internal division might be given the registration number 123456789RR0002. This is consistent with the CRA’s policy of one BN per legal entity.
4. Registering an organization as an internal division
For registration purposes, an internal division must provide a letter of good standing from the head body detailing its relationship with the head body. A letter of good standing has to include the following information:
- the date of the letter
- the name of the internal division
- the legal name of the head body as it appears on its governing document
- the operating name of the head body if it is different from the legal name
- confirmation that the applicant is an internal division of the head body
- the date the internal division was established
- the name, position and signature of a director, trustee, or like official who is permitted to sign for the head body
In addition, an internal division should provide, with its application for registration, the governing document under which the head body was created or established. The governing document gives the head body its legal existence. The document identifies the head body's name, states its purpose(s), and describes its structure and internal procedures.
5. Requirements after registration
- Head bodies and internal divisions all have to file their own Form T3010, Registered Charity Information Return, and financial statements every year.
- An internal division must have the same fiscal year-end as its head body.
- The head body must maintain its registered status for its internal division to retain its registered status.
- The registration number that the CRA issues must be included on all official donation receipts and on all T3010 forms that are filed.
- Head bodies must inform the Charities Directorate of any changes to their mode of operations or legal structure. This includes changes in address, directors, legal or operating name, purposes, activities or governing documents.
| Topic | Registered charity | Head body | Internal Division |
|---|---|---|---|
| Purposes | Must be established and operate for purposes that are exclusively charitable | Must be established and operate for purposes that are exclusively charitable | Must operate to advance the head body’s charitable purposes |
| Registration | Must apply to the CRA and be approved for registration as a charity | Must apply to the CRA and be approved for registration as a charity | May apply to the CRA and be approved for registration as a charity |
| Governing document | Must be legally established by a governing document such as: • articles of incorporation • a constitution • a trust document |
Must be legally established by a governing document such as: • articles of incorporation • a trust document |
Does not have its own governing document but operates under the governing document of its head body: • must provide a letter of good standing issued by its head body detailing relationship between internal division and head body |
| Property ownership | Must be established by a trust or incorporation | Must be established by a trust or incorporation | Does not own property (head body owns or holds title to the property of the internal division) |
| Legal entity | Yes | Yes | It is part of the head body and does not have its own governing document so its not considered a separate legal entity |
| Charitable registration number | Gets a charitable registration number once approved by the CRA | Gets a charitable registration number once approved by the CRA | Gets a charitable registration number once approved by the CRA. The difference between an internal division’s BN and its head body’s BN is the last 4 digits referred to as the reference number. Each will have its own number. |
| Tax receipts | Can issue official donation receipts for income tax purposes | Can issue official donation receipts for income tax purposes | Can issue official donation receipts for income tax purposes |
| Designation | Is designated by the CRA as a charitable organization, a public foundation, or a private foundation | Is designated by the CRA as a charitable organization, a public foundation, or a private foundation | Is designated by the CRA as a charitable organization, a public foundation, or a private foundation (which is the same designation as the head body) |
| Returns | Must file an annual information return within six months of its fiscal period-end | Must file an annual information return within six months of its fiscal period-end (some head bodies also choose to file a return on behalf of their internal divisions) | Must file an annual information return within six months of its fiscal period-end (which is the same year end as the head body) |
| Tax exempt status | Exempt from paying income tax | Exempt from paying income tax | Exempt from paying income tax |
Internal division: Yes or No? Sample scenarios
- An organization applies for charitable registration. It provides the legal name of its head body (an existing registered charity), and attaches both a letter of good standing and a copy of the head body’s governing document with its application. The letter of good standing describes the relationship between the internal division and head body. The governing document of the head body shows its authority over its internal division. This is an acceptable head body/internal division relationship.
- An organization applies for charitable registration. It provides the legal name of its head body (a registered charity), and attaches a copy of its incorporating document with its application. The organization is established under its own incorporation and is therefore a legal entity in its own right and cannot be considered an internal division.
- A head body has its status as a registered charity revoked. Its internal division(s) no longer qualify as charitable, and will also be revoked. The internal division may re-apply as separate legal entities with their own governing documents in the future.
References
- Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, ss. 248 (1)
- Operating a registered charity
- T3010 charity return – Filing information
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