Editor's Note: Want to learn about the top 20 Canada Revenue Agency compliance issues for registered charities? We partnered with Mark Blumberg for a free webinar on January 28, 2016. Watch the recording today!
A great deal has been written about legal compliance surrounding charities in Canada. Much of that material however, is highly specialized, hard to understand and sometimes esoteric. As a result, it can be difficult for charities, employees and volunteers to focus in on the compliance issues that are generally most important for charities. On January 28, 2016, I will be delivering for CharityVillage a webinar entitled Top 20 Compliance Issues for Charities and here is a preview of some of the issues that I will raise.
1. Correct filing of the T3010 Registered Charity Information Return Form
The T3010 is due six months after the charity’s year-end. Failure to file the T3010 within a few months of that date will result in a charity being deregistered and losing its charitable status, and consequently also losing its receipting privileges. It is important that Directors record the date on which their returns are due and ensure that the address the CRA has on file is current. Otherwise, CRA reminder notices may never arrive and a charity may be deregistered without any notification.
2. Compliance with the fundraising guideance
Canadian charities must be careful to abide by their legal and ethical obligations when they conduct any fundraising activities. In 2012, CRA released a revised Guidance on Fundraising by Registered Charities.
Some of the limits on fundraising activities include any activities that are considered illegal, deceptive, or provide too much private benefit. It is important that a charity’s fundraising program and its costs are transparent, accountable and properly disclosed to CRA and the public.
3. Proper issuance of official donation receipts
Registered charities are not required to issue receipts. However, if charities decide to issue charitable receipts then they will need to ensure that every receipt issued is accurate and compliant with the requirements of the CRA. According to the CRA, when CRA audits registered charities it is finding that approximately 89% of registered charities are currently issuing receipts improperly.
Even small mistakes in the form and content of a charitable tax receipt issued by a charity will be taken very seriously by the CRA. There are substantial penalties for inappropriate receipting. I have a section at my website on receipting which includes a receipting kit.
4. Non-qualified donees
In 2010, CRA released its Guidance Canadian Registered Charities Carrying out Activities Outside Canada and in 2011, released its guidance on Using an Intermediary to Carry out a Charity's Activities within Canada. If a Canadian charity is transferring resources (money, equipment, etc.) to a group that is a non-qualified donee (i.e. it cannot issue official donation receipts) such as a foreign charity, or a Canadian non-for-profit in Canada that is not a registered charity, then the registered charity must be able to show that it has direction and control over the use of its resources.
Failure to maintain direction and control can result in a 105% penalty of the amount transferred and/or revocation of charitable status. More information about foreign activities is available at www.globalphilanthropy.ca. For charities conducting foreign activities or working with intermediaries in Canada, such charities should review the sufficiency of their direction and control.
5. Maintenance of adequate books and records
Canadian registered charities must keep adequate books and records at a Canadian office. The charity must also keep source documents that support the information in the books and records. The purpose of these requirements is so that the CRA can review the charity’s revenue and expenditures and verify any official donation receipts that it may have issued. Failure to keep adequate books and records can result in revocation.
6. Avoidance of unrelated businesses
Under the Canadian Income Tax Act, charitable organizations and public foundations can carry on "related business" that promotes their charitable objects. For example, a hospital cafeteria that provides food to patients and visitors could be considered a related business.
Charitable organizations and public foundations can also carry on other unrelated business activities, presumably to raise funds for the charity, if "substantially all" (the CRA says at least 90%) of the people involved in these activities are volunteers.
Private foundations cannot carry on any business activities whatsoever. The CRA has a Guidance What is a Related Business? and also Community Economic Development Activities and Charitable Registration. Failure to follow these rules can result in penalties and deregistration.
7. Avoidance of partisan political activities
Under the Income Tax Act, a registered charity can be involved in non-partisan political activities, as long as it devotes substantially all of its resources (90%+) to charitable activities. Any political activities must be related to the charity’s purposes and must involve generally less than 10% of resources.
A registered charity cannot be involved in any partisan political activities. A political activity is considered partisan if it involves direct or indirect support of, or opposition to, a political party or candidate for public office. See the CRA policy statement on Political Activities (CPS - 022) and our blog postings on political activities.
8. No involvement in terrorist activities
A charity cannot support terrorism either directly or indirectly. For more information, see my article Canadian charities and Terrorism – Preventing Abuse of your favourite charity as well as the CRA’s Checklist for Charities on Avoiding Terrorist Abuse.
Canadian charity law encompasses far more than the these points discussed above. But there is little sense in focusing on obscure provincial statutes or interesting court cases at the expense of missing some of these important compliance issues. Join us on January 28, 2016, for Top 20 Compliance Issues for Charities if you are interested in learning more.
Mark Blumberg is a lawyer at Blumberg Segal LLP in Toronto, Ontario. He can be contacted at email@example.com or at 416-361-1982. To find out more about legal services that Blumbergs provides to Canadian charities and non-profits please visit www.canadiancharitylaw.ca or www.globalphilanthropy.ca.
This article is for information purposes only. It is not intended to be legal advice. You should not act or abstain from acting based upon such information without first consulting a legal professional.
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