Political activities and charities has been a hot button issue over the last few years. With Prime Minister Harper launching the 2015 election today it is important for Canadian charities to be aware of their legal obligations and to comply with them. Here are excerpts from the comments by Cathy Hawara, Director General of the Charities Directorate of the Canada Revenue Agency, on political activities and compliance in a May 2015 speech that CRA released on Friday.
Political activities update
But first, let me quickly update you on the work we have been doing in relation to political activities. As most of you are aware, our increased educational and compliance activities related to the rules governing political activities by charities have attracted much attention in the media this year. We are continuing our effort to share as much information as we can to help improve the understanding of what we are doing, and why. You will find the most recent update in our 2015 Charities Program Update, available on the Charities and giving website.
It is widely recognized that charities make a valuable contribution to the development of public policy. As such, they are allowed to devote a limited amount of their resources to non-partisan political activities that advance their charitable purposes. The fact that charities are allowed to undertake political activities, within these parameters, is not well understood. Our activities have been focused in part on creating new educational products and tools to help charities better understand and apply these longstanding rules. We have created a new section on our Charities and giving website called “Resources about political activities” where all of our new products can be found. I recommend these resources to you and your clients.
The activities that have garnered the most attention have been our increased compliance activities – when most people hear the word “compliance,” they really hear “audit.” But there is more to compliance than just audits. Our compliance activities have included sending reminder letters, as well as contacting charities where we have found what we believe to be reporting errors in their T3010.
With respect to audits, we will conduct 60 audits over a four year period – during that same period, we will audit some 3,600 charities as part of our regular audit program. As of March 31, 2015, 21 of 60 planned political activities audits have been completed. The audits completed to date have resulted in six education letters, eight compliance agreements, five notices of intention to revoke, one voluntary revocation, and one annulment. As you can see, we are using all the tools available to us, and taking an education first approach where appropriate.
Many of the audits are ongoing. However, the audits we have completed have revealed common areas of difficulty, in particular with respect to tracking and reporting of resources devoted to political activities, as well as partisan political activities and social media. The Directorate will look at these results more closely to see what more can be done from an educational perspective to further support charities in following the rules.
I think it bears repeating that the selection and conduct of these audits has been handled by the Charities Directorate alone. Selection was based first and foremost on our identification of possible non-compliance. When selecting the final 60 audits, we also aimed to include charities from all four heads of charity and from all regions of the country.
We have taken note of the questions our work has raised in relation to the audit process for charities – how are charities selected, what does an audit entail, what are the possible outcomes of an audit and what recourse do charities have? Charities should absolutely have answers to those questions and, to supplement the information we have already made available through our website and the Charities Program Update, we are developing new products to explain the audit process in more detail.
It is vitally important that a relationship of trust continues to exist between the charitable sector and the regulator. We will continue to be open and transparent about our work, while respecting the taxpayer confidentiality rules, and we will maintain our education-first approach with charities – generally in the context of our educational and outreach activities, and on an individual basis in the context of our compliance activities. Our ultimate objective is to promote compliance with the requirements of registration and I am confident that all of the initiatives the Directorate is actively pursuing will help us achieve that objective.
As I said earlier, compliance does not only mean audits. There is more to compliance than just audits. Audits are important and will always have a place in our compliance tool kit, but they should not be the only tool we rely on to help charities understand and follow the rules. The Charities Directorate can’t audit every charity, every year – so we must use other ways of reaching out to ensure compliance.
One way is the reminder letter – you will have heard about this letter if you read our latest Charities Program Update. We decided some time ago that we needed to be able to rely on a tool other than an audit when information about a charity’s compliance comes to our attention and reminding the charity about the rules is called for. As its name suggests, the reminder letter is meant to be just that – a reminder of the rules, an outline of the observations we have made about the charity’s compliance, and our suggestions as to how the charity can ensure it follows the rules. While I can appreciate that it may never be a pleasant experience to receive a letter from the CRA, I do believe that if the charity understands the intention behind the letter – that is, to educate about the rules – it can be seen as a helpful communication from the Charities Directorate.
The reminder letter is a step in the right direction, and I want to see the Directorate use these kinds of letters more often. But I am also keenly aware of its limitations – like the audit, it is a communication which benefits only one charity: the charity that receives the letter. With the ultimate goal being to facilitate voluntary compliance by all charities, what we need is a different approach, one where the Charities Directorate reaches out to large segments of the sector about our compliance priorities, with our best advice.
The Directorate welcomed a new Director of Compliance, Rob Delaney, in December 2014 – he has since fully immersed himself in the Charities program. One of our collective priorities this year will be to review the current compliance program with the goal of identifying new techniques to facilitate voluntary compliance in the charitable sector. I am excited by the potential of this review for our administration of the regulatory framework.
The full text of Cathy Hawara's comments are at: http://www.cra-arc.gc.ca/chrts-gvng/chrts/bt/2015-lwsympsm-eng.html?rss
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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.