Canada: CRA Publishes First Ever Report On The Charities Program 2015-2016 – Summary And Commentary

Last Updated: January 16 2017
Article by Natasha Smith

On December 30, 2016, the Canada Revenue Agency ("CRA") published its Report on the Charities Program 2015-2016 (the "Report").  Referred to by Bob Hamilton, Commissioner of the CRA, as a "means for CRA to improve its own transparency" on the regulation of charities, this is the first document of its kind released by CRA summarizing the programs and achievements of the Charities Directorate (the "Directorate") for 2015-16 and setting out the Directorate's future plans for regulating the charitable sector. Below is a summary of and commentary on the Report.

The Sector – Statistics and Registration

The Report provides readers with some interesting statistics about Canada's charitable sector:

  • There are 86,193 charities in Canada
  • Receipted donations total $15.7B (including $2.4B in non-cash gifts)
  • Over 40,000 charities operate using only volunteers
  • 5,395 charitable organizations engage in foreign activities
  • $3.2B was spent on foreign activities

The Report states that in 2015-16, of the 3,484 applications it received requesting charitable status, CRA granted registration to 1,670 new charities. The Report states that the primary reason for declining an application is the applicant's failure to provide CRA with sufficient information to determine whether the proposed activities are charitable at law. This is consistent with our experience in which CRA almost always requests additional information after first processing a charitable application.

As the Directorate's mandate is to ensure that the activities engaged in by registered charities are in fact charitable and because registered charities are provided with significant benefits (e.g., exemption from tax and the ability to issue donation receipts), organizations applying for charitable status should not be surprised when their applications are not immediately approved. CRA reviews applications for registration in considerable detail. Before applying for charitable status, a charity should have a firm idea of its activities and be prepared to provide CRA detailed descriptions of its programs. It is our recent experience that CRA now expects more detail in charitable applications than it has in the past.

Audits

Education First Approach

The Report confirms that, where appropriate, CRA will use an education-first approach when a charity under audit is found to be non-compliant. That means that CRA will look to educate charities on the rules before imposing a penalty or sanction. The Report confirms that 1% of registered charities are audited every year and that the most common reasons for audit include:

  • random selection;
  • complaints from the public;
  • media articles and other public sources;
  • information included in T3010 annual returns; and
  • past non-compliance.

Depending on the size and complexity of the charity, CRA will either conduct (i) an office audit, whereby CRA examines the charity's file, publicly available records, and some books and records at CRA offices; or (ii) a field audit, whereby CRA examines all books and records at the charity's place of business.

Upon the conclusion of an audit, the Report confirms that CRA will issue an education letter for minor concerns, a compliance agreement for moderate concerns and, where it has serious concerns, CRA may impose an intermediate sanction or propose revocation of registration or annulment of registration. Unfortunately, the Report does not provide any insight into what CRA considers to be "minor", "moderate", or "serious" concerns.

The degree of non-compliance (e.g., the value of improperly issued receipts, or the extent of the inaccuracy in T3010 filings) will often determine the severity of CRA's action. Historically, we have seen CRA issue education letters for non-compliance issues such as technical errors in T3010 filings, minor errors in the information listed on official donation receipts, and failing to provide CRA with updated governance documents. CRA has sought to have charities enter into compliance agreements for non-compliance issues such as providing funds to non-qualified donees, backdating donation receipts, and issuing donation receipts for gifts in-kind without proper appraisal of the gift. We have seen sanctions and penalties imposed for issues such as improper receipting (i.e., issuing receipts for services or secular tuition fees), failure to maintain adequate books and records, and failure to maintain direction and control over resources.  Again, CRA maintains full discretion as to the intermediate sanction or final penalty proposed.

In some cases, a charity's obligations under a compliance agreement may be negotiated, but it is important to note that, on a subsequent audit, CRA will consider whether an executed compliance agreement has been breached.

Objections and Appeals

The Report confirms the objection and appeals process for cases in which a penalty or sanction is formally imposed. Specifically, the charity has 90 days within which to file an objection with CRA's Appeals Branch and, should the charity disagree with the decision of the Appeals Branch, it can appeal to the Federal Court of Appeal or the Tax Court of Canada within 30 days of the decision of the Appeals Branch. A charity must appeal to the Federal Court of Appeal where the Directorate has issued a Notice of refusal to register, Notice of intention to revoke, Notice of designation or Notice of annulment and to the Tax Court of Canada where the Directorate has issued either a Notice of assessment or Notice of suspension of receipting privileges.

During the period June 12, 2005 to March 31, 2016, the Report confirms that only 10 Notices of intention to revoke for cause were vacated on objection, while 100 were confirmed.  Interestingly, however, where CRA imposed a revocation tax, 19 decisions were confirmed while 58 were vacated on objection.

Audit Results

The Report confirms the results of the 726 audits completed in 2015-16, as follows:

  • 4 – Sanctions imposed
  • 21 – Notices of intention to revoke registration issued
  • 22 – Voluntary revocations
  • 25 – Other actions taken (i.e., imposition of revocation tax)
  • 40 – No action taken
  • 59 – Registrations annulled
  • 111 – Compliance agreements signed
  • 444 – Education letters sent

The Report further confirms that the most commonly identified areas of non-compliance following audits were:

  • incorrectly issued donation receipts;
  • errors on T3010 Annual Returns;
  • failure to keep proper books and records;
  • engaging in activities that are non-charitable and/or operating for non-charitable purposes; and
  • failure to file T4/T4A slips.

Additionally, the Report reveals that only 1.4% of the 1,429 charities that had their status revoked in 2015-16 incurred this sanction as a result of an audit.  The most common reason that CRA revoked a charity's status in 2015-16 was for failure to file its T3010 Annual Return.  Notably, as previously reported, in the recent case of Opportunities for the Disabled Foundation v. Canada (National Revenue), the Federal Court of Appeal confirmed CRA's position that a T3010 containing "serious" errors is considered to be a T3010 that has not been filed "as and when required" under the Income Tax Act.  Accordingly, it appears that a charity's charitable status may now be revoked on the basis of failure to file its T3010 where it has filed a T3010 containing serious errors.

Discussed below are measures the Directorate will be taking to try to curb instances of late filing/failure to file.

Going Forward

Outreach

The Report confirms that, upon reviewing the effectiveness of its sector outreach program, the Directorate will be taking action in the following areas:

  • Improving the Charities and giving webpages and online products;
  • Use of social media and other electronic communications; and
  • Working with the sector to increase the reach of its message.

The Report confirms that the Directorate has recently completed a post-implementation review of its arts and health guidance products which were issued in 2012 and 2013, respectively. Whether any changes will be made to these documents was not disclosed. As we do with all CRA Guidances, we will keep an eye on any new developments.

Political Activities

Audits

As previously reported, Minister Diane Lebouthillier announced in January 2016 that CRA would be winding down its political activities audit program. At that time, 30 audits had been completed, which resulted in five revocation decisions. The Report confirms that as of September 30, 2016, 42 audits have been completed. These additional 12 charities have been advised of CRA's findings and have been given time to respond. Accordingly, the Report does not reveal the initial outcome of the additional audits. Twelve audits are still underway.

Consultations

CRA has concluded its online and in-person consultations on the political activities rules. Now, a consultation panel, including Miller Thomson's Susan Manwaring, will be tasked with using feedback from the consultations to make recommendations to CRA in, what the Report states to be, early 2017.

Guidance

The Report confirms that the Directorate is currently working on a number of new guidance products, including updates to the following:

We will report on the updates to these products.

Compliance Initiatives

Late filing

Charities are required to file their T3010 annual returns within six months of their fiscal year end.  The Report confirms that late filing of annual returns is an "area of specific concern" for the Office of the Auditor General, as an internal review revealed that 1 in 4 charities do not file their annual returns on time. In an effort to encourage charities to file on time, the Report states that, beginning fall 2017, the Directorate will implement the following measures:

  • filing reminders will be emailed to charities before their fiscal year end (and will continue to be emailed to charities four months after their year end, as is the current practice); and
  • automated phone calls will be made to charities one month before their filing deadline (rather than two to three months after, as is the current practice).

Importantly, in order to receive email reminders, charities will need to provide their email addresses to CRA. We have found that CRA is now requiring charities seeking registration to provide a relevant email address at the application stage. For those charities already registered, an email address to which CRA will send these reminders (as well as other notifications) may be provided to CRA by contacting the Client Services Division of the Charities Directorate.

Ineligible Individuals

Pursuant to the Income Tax Act, CRA has the right to revoke the charitable registration of or refuse to register an organization that has one or more ineligible individuals on its board in senior management positions or in a position of control. The Report confirms that the Directorate intends to conduct an "in-depth review of the ineligible individuals issue", in order to:

  • determine the extent and impact of ineligible individuals;
  • provide outreach and education to charities about ineligible individuals; and
  • detect and address serious non-compliance of registered charities with ineligible individuals.

We query whether this last motive will result in an increase in the audit of charities.

Our summary of CRA's guidance on ineligible individuals can be found here.

The Charities Modernization Project (CHAMP)

As previously reported, the 2014 Federal Budget proposed to provide the Directorate with $23M over five years to enable it to modernize its information technology. The Report confirms the following IT projects are scheduled to be completed by the end of 2018:

  • launch of online application for charitable registration;
  • e-filing capabilities for T3010 Annual Returns; and
  • improved Charities Listings page.

Conclusion

The Report is a step in the right direction toward improving the transparency of the Directorate's regulation of charities. Providing insights to the public on topics of priority to the Directorate and confirming the Directorate's mandate to ensure compliance through proactive education is welcomed by charities and their administrators and legal/accounting services providers.

We will continue to update you as the Directorate progresses with the initiatives noted in the Report.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Natasha Smith
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.