The CRA sent out an email to certain stakeholders on June 20, 2017 announcing that they will no longer be accepting charity applications with draft governing documents. We will discuss the impact below. For those wanting charity status, you will need to at least establish the organization ie. incorporate the corporation, establish the trust etc. if you want CRA to review your charity application. Practically, since December of 2014, we have not used draft applications and we have discouraged others from using them because of changes to the process which made them less useful.
Here is the note from CRA and my comments are below:
Upcoming changes to the registration application process
Effective July 1st 2017, the Charities Directorate will no longer review applications for registration that are submitted with draft governing documents. Any application submitted with draft governing documents will be considered incomplete and returned to the applicant.
In the case of trust documents, we recommend that they include a clause allowing the trustees to amend or alter the purpose(s) of the trust in order to meet the legislative and common law requirements for charitable registration.
If an applicant believes that the purposes in its certified governing documents no longer accurately reflect its programs, it can provide proposed purposes with its application along with the organization’s current certified governing documents.
We are committed to enhancing openness and transparency about our programs.
To help us reach as many applicants for registration as possible, we encourage you to share this message with your members and colleagues.
Canada Revenue Agency
1) CRA is very backlogged in both client service written requests and charity applications. In terms of charity applications, while simple foundation applications may take 2-3 months, it is not unusual that charity applications take between 8-12 months. They are presumably trying to streamline the process.
2) If you are not incorporated or established as a trust or assocation - ie you don't yet exist - then you cannot really be a charity. In the past, CRA has overlooked this issue to allow groups to apply for charity status even though they did not exist and allowed those groups to be reviewed and then become established later in the process and upon establishment the CRA would send them a Notification of Registration. This is no longer the case with this announcement.
3) As an aside, although CRA talks about incorporation and trusts, we very rarely recommend the use of a trust as an appropriate vehicle for a registered charity.
4) About 2 years ago, CRA decided to stream all draft applications. If the draft application had an substantial issues (and most did) then the CRA would send back comments to the applicant and most importantly would close the file. That meant that the applicant could not respond to the comments and the applicant would have to go back in line and reapply with a further 8-12 month. As we noted in our blog in May of 2015, "CRA updates guide Registering a Charity for Income Tax Purposes T4063(E)", it is best to avoid making applications with draft governing documents. Here is what we suggested then:
"In the past we would generally try to file applications with draft governing documents to provide CRA an opportunity to suggest changes to the governing documents, especially the objects. This avoided situations where further corporate amendments would have to be made since the documents being provided were only draft documents. The above change which took effect in December of 2014 effectively makes it far less desirable to submit draft applications because if CRA has any concerns with the application (and they typically do except for the simplest applications) they will advise you of the concerns in a letter of opinion and then close the file and will not give you any opportunity to respond to the concerns. At that point, if the applicant still wants charitable status they will have no other choice but to reapply and wait another 3-6 months for CRA to review the new application. Therefore in general, groups seeking charitable status will likely be better off (especially when faced with a significant delay from CRA for reviewing charity applications) to first incorporate and then file the charity application and then, if necessary depending on CRA's feedback, make the required corporate changes by filing articles of amendment to accommodate any changes that CRA requires."
4) If you are an already established non-profit organization but have objects that may not be appropriate when applying for charity status, you can consider submitting the charity application without making changes to your articles. You may make the changes to your articles, if necessary, once CRA has reviewed your application. In this way you are only making the changes that CRA has already approved. CRA notes "If an applicant believes that the purposes in its certified governing documents no longer accurately reflect its programs, it can provide proposed purposes with its application along with the organization’s current certified governing documents."
5) In a world in which it takes a month for CRA to review a charity application you can put in the application and if you are not succesful you can apply again. We are not in that world. In a world in which it takes a year to get a fairly complex charity application approved, it is best to obtain legal advice before starting the process and you can save yourself a lot of aggravation and years of wasted time.
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.