CRA Policy Statement - What is a Business?

CRA Policy Statement - What is a Related Business

Reference Number
CPS-019

Effective Date
March 31, 2003

Purpose

This policy statement outlines the Directorate's policy for determining whether an applicant organization or an existing registered charity is carrying on an acceptable business (a "related" one) or an unacceptable business (an "unrelated" one).

Statement

There are two kinds of related businesses:

1. businesses that are run substantially by volunteers; and
2. businesses that are linked to a charity's purpose and subordinate to that purpose.

Implementation

1. This policy applies to applicant organizations and registered charities that carry on a business.

2. The Income Tax Act says that charities can lose their registration if they carry on an unrelated business. By implication, the law allows them to carry on a related business. Charities designated as private foundations are an exception—they can lose their registration if they carry on any kind of business, whether related or unrelated.  The Income Tax Act does not define a related or unrelated business, apart from saying that a volunteer-run business is to be considered a related business, even if there is no link between the business and the objects of the charity.

3. Charity law, reinforced by provisions in the Income Tax Act, requires that charities have exclusively charitable purposes. Running a business cannot become a purpose in its own right—it must remain subordinated to the organization's charitable purpose.

Click here for the Policy Statement on the CRA Website