The Income Tax Act confers on the CRA a broad
range of powers to audit Canadian taxpayers, including registered
charities and not-for-profit organizations ("NPOs"). Some
examples of those audit powers that have been conferred on CRA
include the power to inspect books and records, as well as to
compel taxpayers to respond to requests for information or obtain
third-party records at CRA's request (potentially subject to
CRA having received judicial authorization for the request).
Section 231.3 of the Act even provides that a judge may, on an
application brought by the Minister of National Revenue, issue a
search warrant that allows any person named in that search warrant
to enter into and search any building, receptacle, or other place
for any document that may afford evidence of an offence under the
In addition to being aware of the scope of CRA's audit
powers, charities and NPOs should be aware of the limits on those
powers as well as how to deal with CRA in the event that CRA
exercises its audit authority under the Act.
When a charity or NPO is selected for audit, CRA may conduct a
"desk audit", a "field audit", or in the case
of a registered charity, possibly a "headquarters field
audit". A desk audit essentially amounts to a request from CRA
Head Office to provide supporting documentation in respect of a
particular area of review. A field audit is an in-person visit from
an auditor who works in the CRA Tax Services Office that services
the area in which the particular taxpayer is located. A
headquarters field audit is an in-person visit from an auditor
assigned to the CRA Charities Directorate. For registered
charities, this is likely the most serious type of audit since that
division of CRA is responsible for ensuring that organizations
qualify as charities under the common law, that their operations
fall within the limits of the Act, that their receipting practices
are consistent and appropriate, among other things.
Once CRA has notified a charity in writing that it is the
subject of an audit, as well as the type and scope of that audit it
would be appropriate for the charity, as a matter of first course,
to consult an advisor to assess the audit risks and to devise a
strategy to deal effectively with the audit in a manner that is
consistent with the charity's legal obligations under the
One such legal obligation is the requirement that charities
provide "all reasonable assistance" to CRA in order to
assist CRA in carrying out its audit of the charity. Practically
speaking, this requirement means that charities should be civil and
cooperative with CRA auditors. Other ways in which a charity may
reasonably assist a CRA auditor is by having the relevant documents
at-hand upon the CRA auditor's arrival on the charity's
premises. Upon the arrival of the CRA auditor, the charity should
appear prepared and organized. A charity should also consider
providing a space for the CRA auditor to carry out his or her work,
and assign an employee of the charity to be the point of contact
for the charity to communicate with the CRA. The charity might also
consider doing an internal review of its relevant practices and
procedures so as to be in a position to be able to demonstrate to
the CRA auditor how the charity intends to ensure future compliance
with the Act.
Best practices that every charity can adopt include knowing the
rules in the Act and training staff and employees accordingly.
Charities should also be aware of CRA audit project (such as the
current CRA political activity audit project) as well as potential
audit triggers (such as the failure to complete annual compliance
requirements, for example). Charities should always keep accurate
and detailed books and records, and complete all of their annual
filings. Finally, as previously mentioned, if the charity has any
concerns in respect of how to comply with the Act, it should seek
professional advice, sooner rather than later.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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