A.
Introduction
On June 27, 2008, Canada Revenue Agency
(“CRA”) released a significant 48-page report entitled
Small and Rural Charities: Making a Difference for Canadians
(“Report”). This Report is the result of consultations
undertaken by CRA and is a collaborative effort by CRA and
members of small and rural charities. These smaller charities
are often located in isolated or rural communities and face
a unique set of challenges that may make it difficult for
them to meet their compliance obligations under the Income
Tax Act (Canada) (“ITA”). In this Report, CRA
has made specific commitments to small and rural charities
in the hope of assisting them in meeting and reducing the
compliance burdens on small and rural charities, as well as
providing important information about the voluntary sector
in Canada. This Charity Law Bulletin provides the key
highlights and findings from this important Report. For more
information, see Small and Rural Charities: Making a Difference
for Canadians, available online from CRA’s website
at http://www.cra-arc.gc.ca/E/pub/tg/rc4457/README.html.
B.
Voluntary Sector in Canada
1.
“Voluntary Sector”
Although the voluntary sector
consists of both non-profit organizations and registered charities
(which are both distinct), the terms used in the Report to
describe the “voluntary sector” include not only
the non-profit and charitable sectors, but also the broader
volunteer sector within community-based organizations. CRA
states that the entities that make up the voluntary sector
have the following characteristics:
-
They are non-governmental and
institutionally separate from governments;
-
They do not generate or distribute
profit;
-
They are self-governing, independent,
and able to regulate their own activities;
-
They are run by volunteers,
and they benefit to some degree from voluntary contributions
of time or money; and
-
They are generally formally
incorporated or registered under specific legislation with
provincial, territorial, or federal governments.
The voluntary sector
is made up of approximately 81,000 non-profit organizations
and 83,000 registered charities. In addition, CRA reports
that there are some 750,000 unincorporated community organizations
that are not included in the voluntary sector count.
2.
Economic Contribution of the
Voluntary Sector
CRA cites that the voluntary sector employs
over 2 million full-time workers, which is equivalent to 7.2%
of Canada’s total labour force. This ratio is roughly
equivalent to Canada’s construction, mining, and oil
and gas industries combined. Moreover, this figure does not
include people who work in colleges, universities and hospitals,
which also form part of the voluntary sector.
3.
“Charitable Sector”
According to CRA, “charitable sector”
means all registered charities. CRA reports that in 2007,
there were over 83,000 registered charities in Canada. The
Report states that approximately 40% of all registered charities
fall under the advancement of religion head of charity. Charities
advancing other purposes beneficial to the community account
for 24% of all registered charities. These charities may include
organizations that protect the welfare of animals and the
environment, provide health care, and operate museums or public
gardens. 20% of all registered charities engage in the relief
of poverty through activities like operating food banks, providing
shelter and clothing, and providing pro-bono legal advice.
4.
Economic Contribution of the
Charitable Sector
In the Report, CRA provides information
regarding Canada’s charitable sector economic contribution
based on data from registered charity information returns.
CRA notes that in 2006, according to Statistics Canada, registered
charities issued official donation receipts of $13.3 billion.
In recognition of the need for the services and programs that
registered charities deliver, municipal, provincial, and federal
governments contributed $89.5 billion to registered charities
for a variety of charitable programs. CRA reports that in
2006, registered charities employed 1.3 million full-time
employees and 1.2 million part-time employees. These numbers
include large charities and other entities that can issue
official tax receipts for gifts, such as municipalities, universities,
colleges, and hospitals.
CRA further reports that in 2006, registered charities received
a total of $163.1 billion in total revenues, including $2
billion in fundraising revenues. In the same year, registered
charities spent $111.8 billion in carrying out their charitable
programs.
5.
Compliance Challenges
In the Report, CRA states that in the
2007-2008 fiscal year, 790 audits were conducted. The audit
findings reveal other challenges facing registered charities,
including:
-
89% were found to have incomplete
or incorrect official receipts;
-
72% had incomplete T3010s;
-
71% had insufficient books
and records;
-
16% made gifts to non-qualified
donees; and
-
13% carried out non-charitable
activities including excessive amounts of resources being
devoted to non-charitable activities (fundraising, political,
or social activities).
Of the audits completed during this period,
the results were as follows:
-
53% required education;
-
18.5 % resulted in compliance
agreements;
-
17 % were compliant;
-
6.5% were revoked for cause;
and
-
5% had other outcomes such
as: voluntary revocations, annulments, pre-registration audits,
Part V tax audits.
Issues regarding non-compliance with legislative
and regulatory obligations are relevant to all registered
charities. However, CRA has recognized that small and rural
charities are particular burdened as they face many unique
limitations. As well, CRA has identified small and rural charities
as important contributors to Canada’s economic and social
wellness. Accordingly, the balance of CRA’s Report aims
to address and relieve some of these concerns.
C.
Findings on Small and Rural Charities
For the purpose of CRA’s small and
rural charities initiative, small charities were defined as
those that reported total revenue of less than $100,000 on
their annual information returns. Rural charities were identified
by their postal codes. CRA reports that according to the 2006
– 2007 registered charity information returns filed,
there were 83,372 registered charities in Canada, of which
54% represent small charities and 22% represent rural charities.
Charities that were both small and were located in rural locations
represent 14% of all charities. It was noted that registered
charities are more prominent in many rural communities than
they are in urban communities.
While small and rural charities represent
a significant portion of the sector, they may face considerable
challenges in carrying out their regulatory obligations. For
instance, since small and rural charities have few staff,
volunteers are primarily responsible for carrying out the
activities of such charities. In many cases, such volunteers
expressed a desire to work directly on charitable programming,
but did not demonstrate interest or experience in the administrative,
financial or accounting aspects of operating a charity. Therefore,
small and rural charities may struggle to comply with the
regulatory obligations that they must meet. Furthermore, the
Report indicates that some small and rural charities rely
on communication methods, such as phone and regular mail because
they may lack access to new communication technologies, either
because of their cost or their availability. In addition,
small and rural charities have difficulty creating and maintaining
networks and communication with other sector organizations.
While these networks can be very useful, since they allow
charities to share best practices and experiences, small and
rural charities do not have the resources to maintain these
types of relationships and they may be geographically isolated.
CRA’s consultation process on small and rural charities
aims to address some of these challenges.
D.
Consultation Process
As part of the overall
mission of CRA to promote compliance with the ITA, the Charities
Directorate, in particular, is responsible for promoting compliance
with the income tax legislation and regulations related to
registered charities. To this end, throughout the fall of
2007, CRA met with small and rural registered charities from
across Canada to engage in a consultation process to design
ways of improving services and reducing the administrative
burden for small and rural charities.
Phase I of the consultation involved workshops
that CRA held during October 2007 in Toronto, Saskatoon, Lethbridge,
Kelowna, Trois-Rivières, and Moncton. Representatives of
small charities based in both urban and rural areas were invited
to attend the workshops. The Report indicates that 87 individuals
representing 71 different small and/or rural charities participated
during the six workshops. Each workshop discussed the educational
products available to charities, reporting requirements, and
one of the following topics: service delivery, compliance,
tools, rules, or registration. In addition, CRA also met with
sector leaders, the Federal/Provincial/Territorial Network
of Charity Regulators, and the CRA Technical Issues Working
Group to discuss issues related to small and rural charities.
Phase II of the consultation entailed a
panel of nine workshop participants (“Panel”) reviewing
and validating the outcomes and recommendations of Phase I.
As a result, CRA and the Panel developed a collaborative joint
action plan to improve services and reduce administrative
burdens for small and rural charities.
E.
Joint Action Plan
The following is a list of themes that
the joint action plan aims to address:
¨
Provide tailored services for
small and rural charities;
¨
Reduce the compliance burden;
¨
Improve awareness and access
to information;
¨
Provide educational tools designed
to meet the needs of small and rural charities;
¨
Lead collaborative initiatives
with federal/provincial/territorial partners; and
¨
Advance sector roles and responsibilities.
CRA commits to implementing most of the
various measures listed in the joint action plan by March
2010.
1.
Tailored Services for Small
and Rural Charities
For small and rural charities,
CRA purports to provide services that do not follow a “one-size-fits-all”
approach, but instead recognizes the unique needs and challenges
of such charities. For instance, CRA plans to identify the
training needs of front-line staff by conducting a client
service survey to measure taxpayer satisfaction. In addition,
CRA will respond to small and rural charities’ enquiries
on the 1-800 number by providing standardized technical training
for telephone agents. CRA has already made community-based,
in-person service available for small and rural charities
through the development of community partnerships.
2.
Reducing the Compliance Burden
As the Report indicates,
small and rural charities rely heavily on non-staff volunteers
who want to assist in the delivery of the charities’
activities and programs. However, most of these volunteers
do not want to be involved in the administrative aspects of
ensuring charities’ compliance with various regulatory
obligations. To assist small and rural charities with their
compliance burdens, CRA has provided charities with a checklist
of annual reporting obligations and timelines. In addition,
CRA plans to directly communicate with a charity’s Board
of Directors when its registered status is at risk. CRA recognizes
that the reporting burden for small and rural charities needs
to be simplified. Therefore, a simplified and shorter T3010A
will be provided to reduce the amount of information small
and rural charities have to report. Also, a new T3010B is
expected to be released in January 2009. CRA has already
identified questions frequently asked through the 1-800 number
in order to improve CRA forms and publications and to produce
a list of frequently asked questions (FAQs) to the sector.
CRA also plans to develop and improve GST/HST information
for charities by creating a checklist on GST/HST for charities
outlining the implications, benefits, and need for GST registration.
3.
Improving Awareness and Access
to Information
Since small and rural
charities generally have less resources and access to the
Internet than other charities, they may have difficulty staying
current with new or changing requirements. Moreover, some
inexperienced volunteers may find information related to compliance
obligations, often written in technical language, hard to
interpret. To counter some of these obstacles, CRA has already
started its shift toward using plain language in its compliance
information publications. Furthermore, by 2010, CRA plans
to address the educational needs of small and rural charities
by developing and delivering specialized Roadshows (Charities
Information Session) for them.
4.
Provide Educational Tools Designed
to Meet the Needs of Small and Rural Charities
One of the findings from
the consultation process reveals that small and rural charity
volunteers often lack experience and knowledge regarding the
charity’s legislative and regulatory obligations because
of the limited time commitment from the volunteers and the
relatively high volunteer turnover rate. In order to help
small and rural charities, CRA is providing funding to various
organizations to develop and deliver education and training
on regulatory compliance for the charitable sector, which
will include information that is relevant to small and rural
charities.
5.
Other Initiatives to Assist
Small and Rural Charities in Complying with their Regulatory
Obligations
CRA acknowledges that small and rural
charities face difficulties in reporting to regulators at
the federal, provincial and municipal levels. Therefore, in
an effort to improve information sharing with all three levels
of governments to simplify burdens of reporting and paperwork
for small and rural charities, CRA has already developed the
Federal/Provincial/Territorial Network of Charity Regulators.
CRA points out that because small and
rural charities are often geographically isolated and serve
specific community needs, it is difficult to share information
and resources with and between them. CRA believes that umbrella
organizations can be valuable resources to small and rural
charities. CRA has defined “charitable umbrella organization”
to be “one that works to achieve a charitable goal by supporting,
improving and enhancing the work of groups involved in the
delivery of charitable programs”.
As the federal regulator of registered charities, CRA
has taken responsibility for leadership in helping umbrella
organizations better understand the challenges that small
and rural charities face.
F.
Concluding Comments
Canada’s non-profit and voluntary
sector has been noted as one of the largest and most vibrant
in the world.
Voluntary sector organizations also play a substantial role
in contributing to the health of Canadian economy and society.
As previously mentioned, small and rural charities comprise
a significant part of the sector. CRA’s report entitled
Small and Rural Charities: Making a Difference for Canadians
represents CRA’s commitment to helping such charities
thrive and continue to make a positive impact throughout Canada.
Through the joint action plan, CRA hopes that it can lead
and assist small and rural charities to overcome some of the
obstacles that are specific to such charities, which present
unique challenges in complying with their legislative and
regulatory obligations.
