A.
INTRODUCTION
This Charity Law Bulletin highlights
some key aspects of Canada Revenue Agency’s (“CRA”) Winter
2008: Registered Charities Newsletter No. 31 (“Newsletter”)
released on November 28, 2008. The
Newsletter focuses on CRA Charities Directorate’s positions
on: noted compliance issues for registered charities; priorities
for 2008/2009; the new call for funding proposals; a public
education update; and other important topics. The full text
of the Newsletter is available at http://www.cra-arc.gc.ca/E/pub/tg/charitiesnews-31/charitiesnews31-e.pdf.
B.
WINTER 2008: REGISTERED CHARITIES NEWSLETTER No. 31
1.
Facts and Figures about Charities
and CRA in 2007-08
For the 2007-08 fiscal
year (April 1 to March 31), CRA’s Charities Directorate reported,
in part, that it:
¨
received 3,655 new applications
for registration as a charity;
¨
received 606 applications for
re-registration as a charity;
¨
formally denied 357 applications;
¨
registered 2,345 charities
(including both new registrations and re-registrations);
¨
revoked the charitable status
of 958 organizations at their request;
¨
revoked 771 registered charities
because they did not file their annual registered charity
information return within the six month period after their
fiscal year-end;
¨
revoked 49 registered charities
for other causes (e.g., because they ceased to comply with
the requirements of the Income Tax Act (Canada) (“ITA”));
and
¨
completed 790 audits of registered
charities as a result of public complaints, random selection,
or based on a review of annual information returns.
2.
Top 3 Compliance Issues
The Newsletter states
that one of the first methodologies that CRA takes in fulfilling
its mandate to monitor the operations of registered charities
in accordance with the obligations set out under the ITA is
through educational outreach initiatives. Through such activities,
as well as the audit of charities, CRA has identified the
following top three compliance issues: (1) failure to file
the T3010 return; (2) T3010 – errors and omissions; and, (3)
incorrect issuance of receipts.
CRA reports that each
year thousands of charities file their returns late or fail
to do so at all, which results in the revocation of their
charitable status. In addition, CRA points out that the annual
T3010 return is often completed incorrectly or is missing
information, which can lead to an inappropriate assessment
of a charity’s situation and even revocation in some instances.
In this regard, to assist registered charities fulfil their
filing obligations, CRA has provided important information
about the T3010 return, available at http://www.cra-arc.gc.ca/tx/chrts/prtng/rtrn/menu-eng.html.
Finally, CRA states that registered charities
must issue receipts that meet the ITA’s regulations regarding
required contents of an official donation receipt. CRA further
reports that establishing the proper fair market value of
a gift is another compliance concern for charities, as they
often mistakenly characterize the type of gifts that are receiptable.
As such, CRA directs those charities in need of assistance
with issuing receipts to review sample donation receipts,
available at http://www.cra-arc.gc.ca/tx/chrts/prtng/rcpts/menu-eng.html.
3.
Disbursement Quota Shortfalls
Another compliance obligation that registered
charities may fail to meet is the disbursement quota (“DQ”),
which is the minimum amount that they must spend annually
on their own charitable programs, or on gifts to qualified
donees. CRA explains that the purpose of the DQ is to ensure
that registered charities actively use their tax-assisted
donations to help others according to their charitable purposes.
CRA warns that charities should remember that there are serious
consequences for not meeting their DQ requirement, and continuous
DQ shortfalls could lead to the revocation of a charity’s
registration.
CRA suggests that registered charities
can cover DQ shortfalls by drawing on disbursement excesses
from the five previous fiscal periods. However, if excesses
are not available, registered charities can create an excess
in the subsequent year that it can use to make up for the
shortfall. For more information about the DQ, see the following
CRA publications: Annual spending requirement (disbursement
quote) is available at http://www.cra-arc.gc.ca/tx/chrts/prtng/spndng/menu-eng.html
and Meeting the disbursement quota when filing the T3010A
return, which contains the disbursement quota checklist,
is available at http://www.cra-arc.gc.ca/tx/chrts/chcklsts/dq-eng.html.
4.
Growth in Number of Charities
as of December 31, 2007
Compliance concerns become
more pressing in light of CRA’s report that the charitable
sector has continued to grow in 2007 with a total of 83,215
registered charities. Charitable organizations with the purpose
of advancing religion represent 32,062 (almost 40%) of the
total number of charitable organizations, while those with
other purposes beneficial to the community comprise 16,903
(approximately 20%) of the total number of charitable organizations.
Together, these groups of charities account for more than
half of the total number of registered charities. This growth
in the charitable sector suggests a trend toward an increasing
number of applications for charitable registration submitted
to CRA.
5.
Charities Incorporated in Ontario
CRA reports that its
collaborative efforts with Ontario have resulted in an agreement
authorizing CRA to collect, on behalf of the province, Corporations
Information Act (Ontario) Annual Return information from
registered charities incorporated, continued, or amalgamated
in Ontario, and subject to the Corporations Act (Ontario).
CRA further explains
that beginning in 2009, those charities incorporated, continued,
or amalgamated in Ontario, and subject to the Corporations
Act (Ontario), will receive and have the option to file
a new Director/Officer Worksheet and Ontario Corporations
Information Act Annual Return (RC232-WS) with their T3010,
Registered Charity Information Return. CRA anticipates
that more information will be made available on its website
at www.cra-arc.gc.ca
in the coming months.
6.
Charities Directorate’s Priority
for 08/09
In light of various factors,
primarily the increase in number of applications for charitable
registration, CRA’s Charities Directorate has announced that
its first priority for 2008/2009 is to reduce its inventory
of applications for charitable registration that are on-hand
and awaiting a decision. CRA states that it receives approximately
one application every two hours, 24 hours a day, 365 days
a year, and states that it is optimistic that the majority
of these applications will be approved.
CRA notes, on the other
hand, that every four hours, a registered charity ceases operation,
through either voluntary or involuntary revocation of its
registered charity status. One question that CRA seeks to
address in light of this is whether organizations should be
applying for registered status in the first place. In this
regard, the Charities Directorate is developing material that
will help organizations understand the obligations and responsibilities
associated with operating a registered charity. CRA expects
that this material will allow organizations to make informed
decisions about whether they should apply for registered status.
CRA anticipates this material to be available on its Charities
and Giving website (http://www.cra-arc.gc.ca/tx/chrts/menu-eng.html)
in 2009. Other initiatives for helping charities fulfil their
legislative and regulatory obligations include CRA’s commitment
to advancing education on such topics by providing funding
to organizations to carry out the programs and activities
that are necessary to increase awareness.
7.
Charities Partnership and Outreach
Program: New Call for Proposals
In 2005, CRA initiated
the Charities Partnership and Outreach Program (“Program”),
which was designed to support education and training projects
on regulatory compliance for the charitable sector. CRA states
that the main objectives of the Program are to improve the
capacity of the sector to develop and deliver compliance-based
education programs; increase the capacity of the charitable
sector in meeting regulatory compliance requirements; and
raise awareness among the charitable sector of regulatory
obligations under the Income Tax Act (“ITA”).
CRA has announced that,
within the next few months, it will be accepting proposals
for the 2009/2010 fiscal year, from registered charities and
non-profit organizations servicing the charitable sector in
Canada for funding projects that further the goals of the
Program. CRA directs those interested to see Guide RC4411,
Charities Partnership and Outreach Program, Funding Guide
and Application, which provides information about the
Program objectives, funding eligibility, completing the application,
and the review process. Information regarding the upcoming
2009/2010 call can be found on CRA’s Charities and Giving
website at http://www.cra-arc.gc.ca/tx/chrts/menu-eng.html.
8.
Model Objects
On May 21, 2008, CRA
released a non-exhaustive list of model purposes/objects that
would be acceptable to CRA in order to assist organizations
that wish to apply to become registered charities or are existing
registered charities that wish to amend one or more of their
purposes/objects. CRA indicates that the use of the model
objects may speed up the decision making processes, as CRA
would not have to discuss at length the wording of a non-standardized
object/purpose with the applicants. Instead, CRA would likely
only need to consider whether: the organization will deliver
a public benefit; the proposed activities are charitable,
will be carried out in a manner allowed by the ITA, and will
further one of the organization’s objects; and the organization
is appropriately set up. For more information about and examples
of CRA’s model objects, see http://www.cra-arc.gc.ca/tx/chrts/bcmng/md-ntr-eng.html.
9.
Public Education Update
In keeping with CRA’s
commitment to education and awareness regarding topics related
to charities, the Charities Directorate has introduced the
Speaker’s Kit, Giving to charity: Information for donors
(“Kit”). CRA states that the product may be of interest
to the charitable sector, as it allows interested individuals
and organizations to make presentations on wise donation practices
to audiences in their communities. The Kit includes CDs and
hard-copies of visual aids and written materials aimed at
helping people understand more about donating wisely to charities
and can be found on CRA’s website at http://www.cra-arc.gc.ca/E/pub/xi/rc306-k/README.html
or by request at 1-800-267-2384.
10.
Court News – CRA Authorization
to Obtain Donor List
The Supreme Court of Canada (“SCC”) released
its judgment on July 31, 2008 in Redeemer Foundation v.
Canada (Minister of National Revenue), 2008 SCC 46 upholding
the Federal Court of Appeal’s decision. This decision demonstrates
CRA’s scope of authority as the SCC ruled that CRA did not
require judicial sanction to obtain a donor list.
The appellant Foundation, a registered
charity, operated a forgivable loan program that financed
the education of students at an affiliated college. CRA was
concerned that some donations to the program were not valid
charitable donations because the donors’ contributions were
made to finance their children’s education. CRA requested
donor information, which the Foundation ultimately refused
to provide. The SCC held that CRA was not required to obtain
prior judicial authorization for the requested donor information,
as the Minister was entitled to it under paragraph 230(2)(a)
and subsection 231(1) of the ITA, which set out book and record
keeping requirements for inspection, audit, and examination
purposes. As well, the information was requested for a legitimate
purpose, which was to investigate the validity of the loan
program operated by the Foundation.
11.
Disaster Relief – Information
for Applicants for Charitable Status Undertaking Foreign Activities
Although in urgent circumstances
CRA may expedite consideration of disaster relief organization
applications, CRA clarifies that such organizations must meet
the same essential requirements as all other applicants for
charitable registration. One of the requirements that disaster
relief organization applicants must meet is to show how they
will direct and control their resources and activities outside
Canada.
CRA’s Charities Directorate
also reminds applicants that immediately after disasters,
local authorities often limit access to an affected area to
experienced relief organizations, such as the Red Cross. In
this regard, CRA recommends that applicants should consider
donating money or food, or offering services, to existing
registered charities that have the experience and resources
in place to respond quickly and effectively to disasters.
For a list of registered charities, refer to CRA’s Charities
Listings on its website (www.cra.gc.ca)
and search “Disaster Funds”.
12.
No Receipting on Behalf of
Another Organization
CRA’s Charities Directorate
reiterates that registered charities cannot issue official
donation receipts on behalf of another organization or charity.
CRA further explains that under the ITA, donors can only obtain
tax relief when they make a donation to qualified donees,
including registered charities. Therefore, a donor is not
entitled to tax relief when the transfer is made through a
registered charity to a non-qualified donee. CRA warns that
a charity that circumvents that intent and improperly provides
tax relief by issuing donation receipts risks losing its charitable
registration.
C.
CONCLUDING COMMENT
Charities will find that the Winter 2008
CRA Newsletter provides helpful direction on a range of relevant
issues, especially with respect to information concerning
the CRA Charities Directorate’s: noted compliance issues for
registered charities; priorities for 2008/2009; new call for
funding proposals; and public education update.
All charities, including board members,
should give careful consideration to CRA’s various guidelines
found in their newsletters available at: http://www.cra-arc.gc.ca/tx/chrts/whtsnw/menu-eng.html.
Other summaries of recent CRA newsletters can also be found
at www.charitylaw.ca
