Canada: The CRA's First Report On The Charities Program 2015-2016

A: Introduction

On December 30, 2016, the Canada Revenue Agency (the "CRA") released its first " Report on the Charities Program 2015-2016" (the "Report"). The Report represents an effort by the Minister of National Revenue and the Charities Directorate to increase the transparency behind the regulation of charities in Canada. The Report contains much useful information relating to the Charities Directorate –the division of the CRA that administers the charity provisions found within the Income Tax Act (Canada) (the "ITA") and which has an operating budget of approximately $29 million and approximately 250 full-time employees as at the date of the Report. Various functions performed by the Charities Directorate include:

  • Providing client service;
  • Engaging in communications and outreach;
  • Examining charity applications;
  • Processing annual returns;
  • Audit and enforcement; and
  • Policy and technical guidance

The Report discloses some useful statistics:

  • The total amount of receipted donations and non-cash gifts for 2015-2016 was $15.7 billion and $2.4 billion, respectively;
  • As of December 30, 2016, there were 86,193 registered charities in Canada; and
  • 40,000 registered charities operate using only volunteers

B: Applications to Register Charities

The Report indicates that less than half of the applicants for charitable status are ultimately registered. As such, it is crucial for organizations to ensure that they fulfill the requirements for charitable registration and prepare a proper application before submitting it to the Charities Directorate. In 2015-2016, while 3,484 organizations registered to be a charity and 326 organizations applied for re-registration, only 1,670 organizations were actually registered. Of the 2,140 not successfully registered, the reasons were because the applications were either:

  • Incomplete (1,165);
  • Abandoned (473);
  • Withdrawn (278); or
  • Turned down (84)

Applications can be turned down for numerous reasons; such as for a lack of information, failing to be established exclusively for a charitable purpose (i.e.: for the relief of poverty, the advancement of education or religion, or for some other purpose beneficial to the community), or for distributing charitable funds to non-qualified donees or inappropriately using funds for non-charitable purposes. Proper planning in advance of submitting an application for charitable registration to the Charities Directorate can help ensure an application is received on a timely basis and is ultimately successful.

C: Audits of Registered Charities

The Report also outlines the five most common concerns arising from audits of registered charities. The concerns include:

  • Incorrectly issuing donation receipts;
  • Information return errors;
  • Inadequate books and records;
  • Non-charitable purpose and/or activities; and
  • Non-filing of T4 or T4A slips

Failing to file an information return is the most common reason charitable status is revoked. Failing to file an information return does not just mean failure to physically submit the application, but also includes filing an information return that contains significant inaccuracies. Charitable organizations submitting their information returns should not only ensure the information returns are completed on-time, but should also ensure they do not contain significant inaccuracies and omissions.

Registered charities must also keep "adequate books and records" in Canada, and make them available for review by the CRA on its request. The Report indicates that audits often find that registered charities do not maintain complete books and records. Common issues include:

  • missing copies of donation receipts;
  • missing expense receipts; and/or
  • banking and accounting details that do not match the information on annual returns

Other deficiencies in books and records relate to maintaining and retaining appropriate records in accordance with corporate record-keeping requirements (letters patent/articles, by-laws, resolutions, meeting minutes, director/officer/member registers, etc.).

Among its other outreach activities, the Charities Directorate is currently developing a high-impact animated video-series to educate charities on maintaining adequate books and records, as well as educating them on gifting and receipting, fundraising, and other charity topics.

D: Consequences of Having a Charitable Registration Revoked

i. Tax and Reputational Consequences

Having a charitable designation revoked can result in numerous undesirable consequences. The principal effects of revocation include:

  • The organization cannot issue official donation tax receipts;
  • The organization does not qualify for the income tax exemption as a registered charity;
  • The organization must transfer all of its assets to an eligible donee or pay revocation tax (equal to 100% of the value of all remaining assets, after debts have been paid); and
  • The organization will not be a charity for GST/HST purposes which could affect:
    • the tax status of the organization's supplies
    • the way the organization calculates its net tax
    • the organization's ability to claim a rebate for GST/HST;
  • The organization will have its name and the reason for revocation published in the Canada Gazette and in the Charities Listings

If the organization uses its remaining assets for its charitableactivities or transfers them to an eligible donee before it is too late (i.e.: during the period the organization is winding-up its operations), the revocation tax may be zero.

The CRA can also annul an organization's registered charity status. Annulment is sometimes sought by a charity that the CRA proposes to deregister, as a way of avoiding the revocation tax. Receipts issued prior to an annulment continue to be valid if they were valid when issued.

ii. Liabilities of Directors and Officers of Incorporated Charities

As a matter of general corporate law, directors and potentially officers who breach their duties to a corporation are liable to the corporation for any loss the corporation suffers as a result. With respect to income tax law, directors of registered charities may be personally liable if the charity fails to comply with the many reporting requirements under the ITA, such as, the requirement to file annual charity information returns.

iii. Ineligible Individuals

Individuals connected to the organization whose registration was revoked could be considered "ineligible individuals" for the purposes of re-registration. An "ineligible individual" is a person who, among other things, was connected to an organization whose registration was revoked for a serious breach of the requirements for registration and the connection was as a:

  • a director, trustee, officer, or like official;
  • an individual in a position of management or control; or
  • a promoter of a tax shelter, and participating in that tax shelter caused the revocation of an organization's registration

The ITA does not prohibit ineligible individuals from being a director or employee. However, the ITA allows the CRA to consider whether or not to take action in relation to a registered organization or an applicant in such circumstances. The following table summarizes actions the CRA may take against ineligible individuals:

The ineligible individual... The CRA may...
Made the application for the organization Refuse to register
Is a director, trustee, officer, or like official of the organization Refuse to register / suspend receipting privileges for 1 year / revoke registration
Controls or manages the organization Refuse to register / suspend receipting privileges for 1 year / revoke registration

E: Conclusion

As noted in the Report, charities play an essential role in our society by working for the social well-being of Canadians and delivering key programs, often to those in most need. It would be prudent for organizations to consider the information provided in the Report so they do not fall afoul of the various requirements that come with becoming and being a registered charity. If in doubt, lawyers who practice in this area can assist charities in registration and with ongoing compliance.

About BLG

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
 
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.