The CRA has just released its Non-Profit Organization Risk Identification Project Report. The relatively short report makes for interesting reading. It deals with the 80,000 or so non-profits that are not registered charities. This will have an impact on groups involved with amateur athletics, business associations, social clubs etc. The report discusses the requirements for these type of entities and how there is some minor and also serious non-compliance with those current requirements. The 2014 Federal Budget had promised a review of these type of non-profits and the release of this report is one piece of that discussion.
Here is a link to the report
Here is the summary at the end:
The NPORIP was designed to provide the CRA with insight into the way certain organizations—those seeking an exemption from tax under paragraph 149(1)(l) of the Act—operate under the income tax rules. The NPORIP has given the CRA a better understanding of the issues these organizations face in complying with the Act, and, in particular, has highlighted a number of areas where the non-profit sector’s understanding of the law differs from that of the CRA. In addition, the NPORIP has revealed a significant issue with compliance by these organizations in several key areas.
The results from the review of the randomly-selected organizations suggest that a significant portion of incorporated organizations would fail to meet at least one of the requirements set out in paragraph 149(1)(l) of the Act Footnote 5. Of these:
- A significant portion would fall into a higher category of risk, which includes organizations earning profits that were not incidental or not related to their non-profit objectives; organizations with disproportionately large reserves, surpluses, or retained earnings; and organizations where income is payable or made available for the personal benefit of a proprietor, member, or shareholder. Many of the organizations that fall within this higher-risk category would not actually qualify for the tax exemption under paragraph 149(1)(l) of the Act and would need to be reassessed if they were audited outside the purview of the NPORIP, which would in most cases result in an increased tax liability to the organization.
- A small portion would fall into a lower category of risk, which includes readily correctable issues, such as making filing errors or not providing enough information to substantiate a not‑for-profit purpose in the organization’s governing documents.
Based on its review, the CRA recognizes that education and outreach with the non-profit sector are critical to improving many organizations’ compliance with paragraph 149(1)(l) of the Act. Accordingly, it will work with representatives of the non-profit sector to determine how the sector’s knowledge of the income tax rules can be improved. The CRA will also look to improve NPOs’ understanding of their income tax obligations through targeted outreach activities, client service, and education. As part of this work, the CRA will review, revise, and improve as required the educational materials and support it provides in this regard. Finally, because the review also reveals that the legislative framework may benefit from further examination, a copy of this report will be provided to the Department of Finance Canada for information and consideration.”
The recent budget had a number of proposals dealing with non-profits. Here is our coverage.
Here are some of the relevant 2014 Budget provisions:
- Announcing a public consultation on the income tax framework for non-profit organizations (NPOs) to ensure that the tax exemption for NPOs is appropriately targeted and not subject to abuse by organizations that claim the exemption but are not operating in the manner intended, and to ensure that reporting requirements for legitimate NPOs provide the public and the Canada Revenue Agency with sufficient information to evaluate their activities.
In this context, Budget 2014 announces the Government’s intention to review whether the income tax exemption for NPOs remains properly targeted and whether sufficient transparency and accountability provisions are in place. This review will not extend to registered charities or registered Canadian amateur athletic associations. As part of the review, the Government will release a consultation paper for comment and will further consult with stakeholders as appropriate.”
Here is also an updated FAQ on the project and report.
Do you require legal advice with respect to Canadian or Ontario non-profits or charities?
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.