Not-For-Profit Accounting In Canada

Nonprofit organizations are often run similarly to businesses in that they may have employees, directors, clients, revenue and expenses.

However, there is one huge exception: These organizations do not earn a profit. If you are starting a nonprofit, it’s important to understand your obligations under the law and the key differences between business and not-for-profit accounting.

Accounting Basics

When you run a for-profit business, all of your sales are revenue. With a nonprofit, however, revenues consist of donations, grants and investments, but may also include membership fees, or fees for services or tickets for events.

In most cases, expenses are the same as they are for a for-profit organization. Rent, utilities, payroll, and related costs are included among the expenses of a nonprofit. Note revenue and expenses in your accounting software, just as you would if you ran a for-profit business.

Different Terms

In many cases, nonprofits embrace different accounting terms than their profit-based peers. While businesses tend to create balance sheets, not-for-profit organizations prefer the statement of financial position. This details the assets and liabilities of the organization as well as its net assets.

Instead of using traditional accounting methods, nonprofits sometimes use fund accounting. Rather than focusing on profits, this type of accounting focuses on accountability. It has stipulations in place to restrict funds and how they are spent. It also helps with transparency issues by organizing the information these organizations need to create reports for their donors.

Choosing Accounting Software

Although you don’t bring in a profit, nonprofit accounting can prove quite complicated. After all, you need to keep track of all the money that flows in and out of your organization. This could include:

  • Individual donations
  • Endowments
  • Membership dues
  • Rental costs for fundraising events
  • Volunteer snacks and supplies
  • Office supplies
  • Grants and loans
  • Staff salaries
  • Office rental
  • Revenue from fundraisers

On any given day, your staff might handle a wide variety of transactions. The Canadian Revenue Association (CRA) requires you to keep track of each one so you can report it at the end of the year — even if you’re tax exempt.

Are you wondering how to keep track of all these transactions with a limited staff and a tight budget? That’s where accounting software comes in handy. The right program can make your life easier. As you search, look for programs that offer features such as:

  • Mobile app for on-the-go expense tracking and receipt scanning
  • Transaction categories for donations, grants, and purchases
  • Audit trail function to track all changes to your financial data
  • An option to record the value of donated goods
  • A way to log donors, members, employees, clients, and volunteers
  • Time-tracking integration for volunteers and employees


The government of Canada breaks nonprofits into two groups: registered charities and nonprofit organizations. While neither type operates for profit, registered charities may issue donation receipts to donors so they can claim the charitable tax credit on their tax returns; NPOs do not have that privilege.

As a result, registered charities must go through a registration process with the Canada Revenue Agency. NPOs may have to register for nonprofit status in their own provinces, but they do not need to go through a special registration process with the CRA.

Tax Requirements

Both registered charities and NPOs must file returns with the CRA, and the returns are due six months after the end of the fiscal year. For example, if you run an NPO with a calendar fiscal year, your returns are due June 1.

Registered charities file Form T3010 (Registered Charity Information Return), while NPOs file Form T1044 (NPO Information Return). However, if your NPO is incorporated, you must file a T2 (Corporation Income Tax Return).

Learn more about compliance requirements for non-profits.

Tax Liability

Registered charities do not ever have to pay income tax, but NPOs may have to pay income tax on property income or capital gains. Both types of organizations must pay sales tax; registered charities may be able to claim a rebate of goods and services tax and harmonized sales tax on some purchases, while NPOs may only claim a rebate if they received government funding for the purchase.

Creating a Budget for Your Nonprofit

When money is tight, your nonprofit lives and dies on its budget. This makes it worthwhile to spend some time developing a solid financial plan. As you create your budget, these steps can help:

1) Set your goals for the upcoming year.

2) Write down all the costs for each goal, and add in a buffer to cover unexpected costs.

3) Estimate how much your organization spends to operate, including things such as staffing, rent, utilities, and supplies.

4) Add your current funds, pledged donations, expected fundraising revenue, and other sources of income.

5) Compare your income to your costs. Using this information, you can find new fundraising options or make cuts to your expenses.

6) Define stretch goals — the things you want to do if you bring in more money during the year.

As the year progresses, you can use your budget as a guide. Before you start a new project, it’s a good idea to refer back to the budget to see how much money your organization has available. That way, it’s easier to avoid overspending or losing track of your finances. Keep in mind that your budget is a living document, so you might need to make changes during the year.

For instance, do you need to spend more than you expected on event marketing? If so, you might do so by cutting costs elsewhere. Did you receive a surprise donation? You might look to your stretch goals to decide how to spend it.

Streamline Payroll and Bookkeeping for Nonprofits

If your organization works like many nonprofits, it probably doesn’t have the funds for a large full-time staff. As a result, you might use a mix of full-time staff, part-time workers, and independent contractors to stretch each dollar.

This mix of employees and hours, however, can make paydays complicated. For example, what happens if you don’t have room in the budget for a full-time human resources (HR) worker? In most instances, you probably end up doing the payroll yourself.

Fortunately, plenty of options exist for streamlining your payroll. Time-tracking makes a great place to start. Do you currently spend time going through employee time sheets or tracking down each person to ask for their hours?

If so, you can save time and boost accuracy with a time-tracking tool. That way, every employee or contractor can log their time — often, right from their mobile phone. When it’s time for payroll, you can click right into the system to see everyone’s hours.

If you want to save money and time, it makes sense to choose time-tracking and payroll systems that integrate with your accounting software. That way, you can import hours, complete payroll, and record the payments.

If you want to make things even easier, you can choose an accounting program with built-in time-tracking and payroll. In QuickBooks you can:

  • Track billable hours
  • Set different pay schedules and rates for each employee
  • Calculate payroll
  • Send free direct deposits

This option keeps all your nonprofit bookkeeping tasks in one place, so you never need to worry about reconciling. Most importantly, it’s easy and saves valuable time. Do you want an extra burst of efficiency?

Consider direct deposit. It’s cheaper and less error-prone than traditional paper cheques. Plus, your employees get their salaries instantly without the need to go to the bank or deal with mobile cheque deposits.

Managing Donors and Ongoing Development

When you first start a nonprofit organization, you might be bringing in money from grants and a few donors. As you grow, your funding sources become more diverse. You might get gifts from corporations or you could start making money from investments. Your development workers also start to build relationships with current and potential donors.

At some point, your donor and development needs are likely to outgrow the capabilities of your accounting software. When that happens, it’s time to add development software into your technology mix.

These programs are specifically engineered to help your nonprofit track donations and maintain relationships with donors. They can:

  • Collect contact information for potential donors
  • Track communication with potential and current donors
  • Manage fundraising campaigns and events
  • Manage planned giving and endowments
  • Cultivate prospective donors
  • Handle email marketing
  • Monitor social media mentions

Most importantly, development software helps you create reports to analyze your data. You can see what percentage of donors you retain in a year, for example, or analyze campaigns to see which strategies work best for your audience. With that information, you can more easily create a powerful development strategy.

With the right tools, you can create a no-hassle strategy that makes nonprofit accounting a breeze. Do you need help? If so, 5.6 million customers use QuickBooks. Join them today to help your business thrive.

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