Canadian not-for-profit agencies and their donors are generally not subject to paying income taxes, property taxes, or the GST. But, your not-for-profit in Calgary needs to demonstrate this tax-exempt status in order to qualify. Although the rules governing not-for-profits in Alberta and other provinces generally provide for tax relief, you need an accountant who is familiar with not-for-profit accounting, like Versatile Accounting of Calgary, who knows the rules and does your accounting services Calgary the most-advantageous fashion for you.
Accounting for Not-for-profit Organizations in Calgary
A not-for-profit organization has a different tax status that an individual or a corporation. It generally does not pay personal or corporate income taxes. While a normal business makes money by selling goods and services, a not-for-profit receives charitable contributions. A charitable donation may come with no string attached or may have qualifications. Many large charitable foundations disperse money to many not-for-profits and expect yearly reports on activities and the status of their donations. If you want to lose your yearly donation from the Azrieli Foundation, the George Cedric Metcalf Charitable Foundation, the US-based McKnight Foundation, and others, simply neglect to provide reports of your activities and accurate accounting of their money!
Not-for-profit accounting by Fund
A common approach is to break down donations and their management into funds. These are the four types:
These are donations which your not-for-profit can use for whatever purpose you decide. There are no restrictions on the use of the money, but the donor may still request a yearly report.
Current Restricted Funds
Such donations are designated for the charitable activities of the not-for-profit but may be limited to some of your activities and not all of them.
Restricted Endowment Funds
Restricted funds contain donations that are given with specific rules as to how the money can be used. For example, a donation may be made with the stipulation that only interest earned from the funds can be used each year and that the donation itself be left intact.
Fixed Asset Funds
This is a fund for building, land, and fixed-asset costs and is generally kept separate from the unrestricted fund. This fund deals with “overhead” while the unrestricted fund deals with the charitable purposes of your organization.
Another aspect of accounting for not-for-profits is the use of the restricted fund method versus the deferral method. All not-for-profits are different. At Versatile Accounting in Calgary, we understand the differences and the right accounting approaches for each unique not-for-profit situation. We are familiar with the deferral method which is typically used with restricted donations (which may be refundable if not all of the money is used).
With a restricted fund, donations may not be recognized for accounting purposes until the money is used for one of your not-for-profit projects.
The Building Blocks of Accounting for Not-for-profit Organizations
Although any given not-for-profit will have its own specific needs, all of them require the following:
- Audits of Financial Statements
- Audits of special programmes or projects
- Preparing information returns for registered charities
- Preparing information returns for not-for-profit organizations
- Filing corporate tax returns (when required)
Accounting for the money with a not-for-profit
Not-for-profit agencies need to keep track of what they receive, how they spend the money and how much is on hand at the end of the year. This requires the creation of separate funds or some other mechanism to track everything correctly. It does not necessarily require separate bank accounts unless specified by a restricted gift.
Ask us how to do this in your case. We have years of experience working with not-for-profit organizations.