Non-profit organizations face expanded tax obligations under draft legislation

Non-profit organizations (NPOs) could face increased compliance burden if the latest federal draft legislation proposals receive royal assent.

These changes are part of a wider batch of measures announced in August 2025 that build off last year’s fall economic statement. They will expand reporting requirements to include organizations that may not have previously been required to file, such as local community groups, family foundations and newly established or early-stage NPOs.

While the intent of these proposals appears to be improved transparency in the sector, recent developments suggest they reflect a broader shift toward more rigorous reporting obligations and heightened oversight by the Canada Revenue Agency (CRA). This could pose new challenges for organizations with limited administrative resources.

To stay ahead of compliance, NPOs should promptly consider reviewing their activities and internal processes. Early coordination with tax advisors can help clarify filing obligations and identify any gaps in record-keeping or organizational structure. Proactive planning in 2025 will be key to avoiding surprises in 2026 as organizations position themselves for long-term success under the new rules.

What’s changing

The Income Tax Act (ITA) provides an exemption from income tax for organizations defined as NPOs. NPOs may be a club, society or association organized for purposes other than profit, such as social welfare, civic improvement, pleasure or recreation.

Under the current rules, NPOs are required to file Form T1044—an annual information return—if any of the following apply:

• Its total passive income in the fiscal period exceeds $10,000.
• Its total assets at the end of the preceding fiscal period exceeds $200,000.
• An information return was required to be filed for a preceding fiscal period.

The 2024 fall economic statement proposed broadening the scope of filing requirements by also requiring disclosure if its total receipts, including capital receipts, in the fiscal period exceed $50,000.

Receipts may include operating income, membership dues, donations, grants, investment income, capital contributions and other receipts related to the organization’s activities.

New filing requirement for small NPOs

Last year’s fall economic statement also proposed a new, short-form annual information return for all NPOs that do not meet the above thresholds.

This return would require organizations to submit the following information:

• Business number or trust number.
• Organizational name and mailing address.
• The names and addresses of the directors, officers, trustees or similar officials.
• A description of its activities, including whether it conducts activities outside Canada.
• Total assets and liabilities and annual revenues.
• Other prescribed information.

Under the proposed rules, all NPOs will be required to file either a T1044 or the new short-form return annually—regardless of size or activity level.

Both proposed changes would apply to fiscal periods beginning on or after Jan. 1, 2026.

What this means

These proposed rules would introduce new compliance burden for many NPOs that could affect day-to-day operations and long-term planning.

The need for more structured record keeping would be felt almost immediately by NPOs under the new rules. Even smaller NPOs will need to maintain detailed financial and governance documentation to support their filings.

This would require additional time, effort and resources. Many organizations may see an increase in professional fees as they seek external support to navigate the new compliance standards.

Recent draft legislation intended to enhance the CRA’s enforcement powers also represents a shift in how tax-exempt entities are regulated. The CRA would be able to compel NPOs to provide structured data such as spreadsheets or charts, which further emphasizes the importance of robust documentation.

The CRA would also gain the ability to issue formal notices of non-compliance and associated penalties, which raises audit risk and the consequences of not co-operating. 

Next steps

With the new rules set to take effect in 2026, NPOs should consider preparing now to avoid last-minute surprises. Taking early action in 2025 will help organizations adapt smoothly.

Key strategies that could be beneficial include:

• Reviewing internal records to ensure financial statements and information related to directors, officers or other relevant personnel are up to date.
• Determining whether annual receipts are approaching or exceeding $50,000 or if the NPO received a large donation, grant or capital contribution within the year. This can help determine if the NPO could be subject to new reporting obligations.
• Engaging with tax advisors early to clarify the organization’s filing obligations. Proactive planning can help reduce the risk of non-compliance and manage future administrative costs.