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- Cathy Hawara, Director General, Charities Directorate
- Charity & Not-for-Profit Law Seminar – February 16, 2011
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- Auditor General’s Report
- Changes to the Disbursement Quota (DQ)
- Charities Directorate’s strategic direction
- Compliance update
- New guidance posted on web site and upcoming guidance consultation
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3
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- The objective of the audit was to determine whether the Canada Revenue
Agency has processes designed to increase compliance with the charities
provisions of the Income Tax Act.
- “Canadians donate billions of dollars to Canada’s 85,000 registered
charities each year. We are
pleased to note that the Agency is doing a good job administering the
Income Tax Act as it relates to these charities.”
- Sheila Fraser
- Auditor General of Canada
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4
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- The Audit focused on three areas
- Registered Charities – Review the activities that the Agency undertakes
to register, monitor, and review registered charities;
- Tax Shelter Gifting Arrangements – Examine how the Agency identifies,
monitors, and reviews tax shelters that use the charities provisions of
the Act; and
- Communications – Review how the Agency communicates the obligations,
under the Act, of registered charities and entitlements of their
donors.
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5
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- The application process for registration is thorough
- Many charities file their returns late, but most file once reminded
- Because of methodology, random audits may not produce reliable measures
of compliance
- More detailed internal guidance is required on the application of
sanctions
- The process for monitoring the disposition of a revoked charity’s assets
is informal
- CRA communicates well with charities and donors
- CRA has made progress in reducing taxpayers’ participation in tax
shelters and we should stay on top of this issue.
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- Evaluate the current process for dealing with late-filed returns.
- Develop a revised random audit sampling plan.
- Continue to evaluate the effectiveness of our use of compliance
agreements and assess our use of other compliance tools, such as
intermediate sanctions.
- Provide further guidance on the application of sanctions and continue to
make improvements to our processes.
- Implement a centralized process to monitor the disposition of assets
upon revocation.
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- The federal Budget of March 2010 reformed the disbursement quota
formula.
- The Budget repealed the “charitable expenditure rule”, removing the 80%
spending requirement (the 3.5% spending requirement on investment
property remains).
- The government indicated in the Budget that:
- “recent legislative and administrative initiatives have strengthened
the Canada Revenue Agency’s ability to ensure that a charity’s
fundraising and other practices are appropriate.”
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- The fundamentals of charity law remain the same. Charities must still:
- Be constituted and operated exclusively for charitable purposes
- Carry out their own charitable activities and/or make gifts to
qualified donees
- Act in the interest of public benefit and not confer inappropriate
private benefit
- Operate in accordance with legislative parameters in terms of allowable
political activities, etc.
- File T3010 returns and financial statements on time
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- Will some charities now be more inclined to simply accumulate funds
rather than expend them on charitable programs?
- The vast majority of charities seek to do good work with their
resources, not invest for the sake of investing.
- The Budget also strengthened anti-avoidance measures in order to
encourage expenditures on charitable activities. In addition to existing
sanctions, the Act now provides for sanctioning of charities that make
transfers simply to avoid or delay charitable expenditures.
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- Filing implications
- Form T3010 Registered Charity Information Return still required within
6 months of fiscal year end.
- Budget changes affect completion of T3010 for fiscal years ending on or
after March 4, 2010.
- Charities with fiscal periods ending from January 1, 2009, to March 3,
2010, inclusive should use form T3010B (09).
- Charities with fiscal periods ending on or after
March 4, 2010, that have not already filed, should use form
T3010-1.
- Charities must still allocate expenditures between their administrative,
fundraising, and charitable activities on the T3010.
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- We are currently assessing what additional guidance might be required in
order to:
- clarify the reformed DQ regime
- emphasize existing principles
- If you have questions or concerns related to the application of the DQ
reforms, please send comments to:
- Reforme_2010_Reform@cra-arc.gc.ca
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- The DQ calculation was and continues to be a separate consideration from
fundraising.
- A charity must still avoid prohibited activities:
- Fundraising cannot be a purpose
- All private benefit must be appropriate
- No deceptive or misleading fundraising
- Where a charity is using more of its resources for fundraising than for
charitable programs, fundraising may be viewed as a collateral
non-charitable purpose.
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- Post-implementation review of Fundraising guidance has been initiated.
- Some external and internal feedback received; for example:
- Are there circumstances in which a charity should not fundraise?
- What happens to the fundraising ratio when a donor’s gift arrives via a
private foundation?
- How should sponsorship revenue be reported?
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- The 2000 Voluntary Sector Initiative (VSI) set the strategic direction
for the charities program over the last ten years.
- 69 of the VSI’s 75 recommendations were accepted and implemented.
- We have now embarked on a strategic review that will help to establish
the direction of the program for the years ahead.
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- We began by assessing the trends in the environment to look for
opportunities, and to explore future possibilities:
- What is the best way to carry out our core business?
- How do we maximize the use of modern technology when delivering our
programs?
- How do we communicate most effectively with the charitable sector?
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- Growth of the sector
- Sector challenges:
- Volunteerism
- Funding
- Increased demand for services
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- Number of registered charities up by 6%
- Religious charities up by 2.2%
- Total revenue up 83% ($182 billion in 2008)
- Receipted donations for religious charities up by 27% (2003-2008)
- Government remains largest funder for sector, up 126% ($122 billion in
2008)
- Government funding for religious charities up by 50%
- Portion of sector revenue from government has increased from 54% to 67%
- Long term investments up from $18 to $52 billion
- Per T3010 data
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- Volunteerism
- Volunteer participation rate dropping (currently 80% of all volunteer
hours are given by only 9% of the population)
- Sustainable funding
- Competition in sector
- Innovative fundraising activities (mobile giving)
- Increased demand for social services
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- How will sector issues affect the regulatory function of the Charities
Directorate?
- What is the anticipated impact of recent policy and legislative changes?
- How do we serve small, medium, and large charities and ensure that their
voices are represented in consultations?
- What challenges are associated with an increasingly diverse sector?
- How can we support greater accountability in the sector?
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- Discouraging participation in tax shelter schemes has been a priority
for the CRA over the past decade.
- The CRA continues to audit tax shelter gifting arrangements.
- Every audit completed to date has resulted in a reassessment of tax,
plus interest, for individuals who claimed a charitable donation tax
credit. In many cases the CRA has
denied the gift completely.
- Charities involved may face revocation.
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- The scope of the problem is significant; the CRA estimates that since
2003 there has been approximately:
- 172,300 participants
- $5.4 billion in claimed donations
- 2006 to 2009 saw participation drop by 80%, to 10,800 individuals, and
the amount of “donations” drop by
76%, to $284 million.
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- The CRA has discovered that tax receipts are being sold, sometimes by
people employed by the charity, and often when the charity is unaware.
- False receipting is a significant problem;
- 100,000-135,000 donors reassessed since 2005.
- The amount reassessed to date is about $290 million.
- The CRA encourages charities to be diligent in safeguarding the
charity’s receipts and to report any suspected fraud immediately to the
CRA.
- In select cases, the CRA asks donors to provide proof of payment.
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- A short breakdown of our audit activity for the fiscal year 2009-10:
- Total number of audits: 719
- Total revocations for cause: 41
- The large majority of revocations still occur either because of failure
to file the T3010 within the appropriate timeframe, or voluntary
revocation.
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- Our audits reveal several recurring issues:
- Receipting:
- Absence of required information
- Issuing receipts for services
- Valuation of non-cash gifts
- Books and records
- Incomplete, or sometimes missing entirely
- CRA will be intensifying its compliance action to ensure that all
charities provide their financial statements with their annual
information return
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- Recent guidance publications include:
- Upholding Human Rights and Charitable Registration
- Canadian Registered Charities Carrying On Activities Outside of Canada
- We will soon be launching consultations for the following guidance
documents:
- Arts Organizations and Charitable Registration
- Animal Welfare and Charitable Registration
- Protection of the Environment as a Charitable Activity
- We have also started working on a guidance on the Promotion of Health
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- Implementing the recommendations contained in the Auditor General’s
Report
- Continuing with our Strategic Directions Exercise to identify priorities
- Aggressively combating abusive tax shelter schemes and false receipting
- Ensuring that we continue to provide quality and timely service
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27
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Notes
