Topics: News, What's New from the Charities Directorate of CRA, Canadian Charity Law, Canadian Charity Statistics, Ethics and Canadian Charities
The Charities Directorate just posted an important message which provides an update on the Charities Directorate activities. There is discussion of technology, guidances, CNCA, compliance activities but most importantly extensive discussion of political activities.
Here is a link to the Director General’s Message.
Here is the full text of the message:
“Charities Program Update - 2014
Director General’s message
In February 2013, the Charities Directorate issued the first Charities Program Update as a new way to communicate with charities and others interested in the charitable sector. The update is posted on our webpages and distributed through our Charities and giving electronic mailing list, which allows us to connect with a wide audience.
In this second instalment of the update, I am pleased to share information about the Directorate’s recent initiatives, programs, and activities. These include developing several new resources for charities and donors, introducing a new registration process for municipal and public bodies performing a function of government in Canada, and exploring ways to improve how we monitor, interpret, and share the information we collect. In addition, I will give an overview of how the Directorate is implementing measures arising from Budget 2012 concerning the political activities of charities and share some of our very early findings, observations, and results.
Finally, while the update is primarily focused on activities that have taken place over the past year, I want to take this opportunity to mention a major development coming out of the recent federal budget tabled in the House of Commons on February 11, 2014. Budget 2014 announced measures designed to reduce the administrative burden on charities, encourage charitable giving, allow charities to use modern electronic tools, and help charities understand and meet their compliance obligations.
The modern electronic tools initiative will involve a redesign of the Directorate’s principal information technology systems, the Charities Assessment Registration System (CARE) and the Charities Internet Display System (CIDS). Once the redesign is complete, the Charities program will be able to offer new electronic services, including online filing of Form T3010, Registered Charity Information Return and Form T2050, Application to Register a Charity Under the Income Tax Act. This initiative will also allow the program to evolve to meet the modern data needs of the Government of Canada, the charitable sector, and the Canadian public. We will be engaging with the sector and others as we move forward with our development work.
The Charities Directorate regularly reviews its charities guidance products to make sure they are current and address the needs of registered charities and professionals working with the charitable sector. In 2013, the Directorate released three new guidance products:
- Guidance CG-021, Promotion of Health and Charitable Registration
- Guidance CG-019, How to Draft Purposes for Charitable Registration and revised Model purposes
- •Guidance CG-020, Charitable Purposes and Activities that Benefit Youth (replaces Policy Statement CPS-015)
For information on all our guidance products, go to Policies and guidance.
Municipal or public bodies performing a function of government in Canada
In June 2013, the Directorate launched a new application process to register municipal or public bodies performing a function of government in Canada and low-cost housing corporations for the aged as qualified donees. This application process was necessary because of the changes made to the definition of a qualified donee in Budget 2011. The changes require these entities to apply for registration and appear on a public list to get or maintain qualified donee status. Qualified donees are organizations that are entitled to issue official donation receipts for gifts they receive and are the only entities that registered charities are allowed to fund.
The lists of municipal or public bodies and low-cost housing corporations that have been registered to date are now on our webpages. The Directorate continues to receive and process applications and to add registered entities to the list. For more information about the criteria and the application process, or to consult the lists, please go to:
- Municipal or public bodies performing a function of government in Canada
- Low-cost housing corporations for the aged
The Charities and giving main page received a new look and feel this year. We introduced many new features to make it easier for users to quickly find the most popular webpages and to make the web experience more intuitive.
The Directorate continued to deliver live webinars and expanded its library of videos and recorded webinars for donors and charities. The library now includes 11 recorded webinars on different topics, such as: completing the Form T3010 return, gifting and receipting, financial statements and books and records, fundraising, orientation for new board members, and non-compliance issues and how to avoid them. Recorded webinars have also been improved by dividing them into segments. Viewers now have the option to watch only the segments that interest them instead of having to watch the whole recorded webinar.
Charities Listings data is now available on the Government of Canada’s searchable open data and open information website: http://www.data.gc.ca. The Charities Listings include public information extracted from Form T3010 returns. This data was compiled using information from the 2012 Form T3010 returns processed as of January 30, 2014.
This information may be extremely useful to researchers and others interested in using data in machine-readable formats. However, since this data is updated every year, it is just a snapshot of the Form T3010 returns at a specific point in time. It does not show recent changes made or the current status of a charity. To get up-to-date information about a charity, or to find out if a charity is registered, revoked, annulled, suspended, or penalized, go to Charities Listings on the Canada Revenue Agency (CRA) website.
First-Time Donor’s Super Credit
As you may know, Budget 2013 proposed a temporary non-refundable First-Time Donor’s Super Credit that supplements the existing non-refundable tax credit for charitable donations by individuals. Starting in the 2013 taxation year, this credit effectively adds 25% to the rates used in the calculation of the charitable donations tax credit for up to $1,000 of monetary donations. As a result, a first-time donor is allowed a 40% federal credit for donations of $200 or less, and a 54% federal credit for the portion of donations over $200 but not exceeding $1,000.
The super credit provides Canadians with an extra incentive to donate and is a great way for the charitable sector to expand its donor base. You’ll find more information about the First-Time Donor’s Super Credit on the CRA website.
Programs and activities
Applying for registration
Each year, the Charities Directorate receives several thousand applications for registration as a charity. In 2012/13, final decisions were made with respect to 4,456 of these applications. These included:
- 2,060 registrations and re-registrations;
- 283 denials;
- 1,636 applications returned to the applicants because of incomplete or missing information;
- 271 applications withdrawn by the applicants; and
- 206 applications abandoned (meaning that the applicant never responded to our request for more information).
For more information on the application process, abandoned applications, and tips on how to avoid delays, go to Application review process.
As part of the Directorate’s commitment to provide fair, courteous, and efficient service, the following chart outlines our 2012/13 performance results for responding to applications.
Simple applications 80% within 2 months 94.5% Met
Regular applications 80% within 6 months 97.5% Met
For more information on our service standards and performance results, go to Service standards for charities and charitable giving.
Client service representatives are available between 8 a.m. and 9 p.m., Monday to Friday (except statutory holidays) to provide information about, and to, registered charities. In 2012/13, the Directorate responded to 104,129 telephone enquiries and 14,143 written enquiries.
To find out more about our client services, go to Contact the Charities Directorate.
The following chart outlines our 2012/13 performance results for responding to telephone enquiries:
Telephone enquiry Respond to 80% of calls within 2 minutes 86.3% Met
The Directorate expanded the scope of its service standards for 2013/14 to include written enquiries. The goal is to review and respond to routine written enquiries within 30 calendar days of receipt and to complex written enquiries within 75 calendar days of receipt, 80% of the time.
For more information on our service standards and performance results, go to Service standards for charities and charitable giving.
The Directorate’s Compliance Division completed 799 audits in 2012/13, resulting in:
- 61 requiring no action;
- 460 education letters;
- 178 compliance agreements;
- 1 penalty;
- 30 revocations for cause;
- 38 voluntary revocations;
- 9 annulments;
- 1 suspension;
- 4 re-registration/pre-registration reviews; and
- 17 recorded as having other outcomes.
Loss of registered status
The most common reason for revoking charitable status continues to be not filing the annual Form T3010 return. Additionally, charitable status may be revoked when a charity does not maintain its status as a legal entity or when a charity requests voluntary revocation of its registration.
In 2012/13, 713 charities were revoked for not filing their Form T3010 return, 26 were revoked for not maintaining their status as a legal entity, and 741 charities were revoked voluntarily (this number includes the 38 voluntary revocations related to audits).
Canada Not-for-profit Corporations Act
Registered charities and Registered Canadian amateur athletic associations that are federally incorporated must apply for a certificate of continuance under the Canada Not-for-profit Corporations Act by October 17, 2014. Federal corporations that do not apply by the deadline may be dissolved by Corporations Canada. If a corporation is dissolved, its registration may be revoked by the Directorate. For more information on how to apply for a certificate of continuance and the information that must be given, go to Transition to the Canada Not-for-profit Corporations Act (NFP Act).
Charities and political activities
Since 2012, the Directorate has been making changes to and enhancing some of our programs to respond to the Budget 2012 measures relating to charities that engage in political activities.
The budget provided the Directorate additional funds to:
- improve transparency with new reporting requirements for charities;
- increase our education and information activities; and
- enhance our compliance activities.
The following provides an update on the Directorate’s progress on these initiatives.
The Directorate made changes to Form T3010 return and Guide T4033, Completing the Registered Charity Information Return, to ask charities for information about:
- the political activities they carried out;
- how these political activities relate to their purposes;
- the methods and resources they used to carry out political activities;
- gifts they made to qualified donees intended to support political activities; and
- funds they received from outside Canada that the donor directed them to use for political activities.
These changes affect all registered charities with fiscal periods ending on or after January 1, 2013.
The Directorate will collect and analyze the information submitted in Form T3010 returns over the coming years. However, because the most common fiscal period-end is December 31 and charities have six months after their fiscal period-end to file Form T3010, it will be the fall of 2014 before we have a complete picture of year one reporting.
As of January 31, 2014, the Directorate had received 24,882 of the approximately 86,000 Form T3010 returns charities will file for the year. Of these charities, 239 filled out one or more fields in Question 2 of Schedule 7, which asks charities to report how they participated in or carried out political activities during the fiscal period. Most of these charities said that they conduct their political activities in a variety of ways. The response breakdown is as follows:
Political activity communication channel
Number of charities reporting
Media releases and advertisements 202
Conferences, workshops, speeches, or lectures 209
Rallies, demonstrations, or public meetings 221
Petitions or boycotts 171
Letter-writing campaigns 189
Gifts to qualified donees for political activities 25
Education and information
We recognize that the requirements for political activities can be complex and quite subtle. As a result, the Directorate began developing a series of web-based resources for charities about political activities, including information on important topics and questions and answers about political activities. On June 25, 2013, we presented a political activities webinar to 139 participants. This webinar is available at Videos and recorded webinars for donors and charities. Then, in October 2013, we added the political activities self-assessment tool to our webpages. This tool allows charities to quickly find out whether their use of resources for political activities is likely to raise concerns with the CRA.
Between January and early December 2013, there were:
- 32,624 visitors to the political activities webpages; and
- 5,284 visitors to the political activities webinar.
In the coming months, the Directorate plans to release a series of short videos to provide more information about charities and political activities. These videos will be available on our webpages and on the CRA YouTube channel.
Political activities compliance overview
In the summer of 2012, the Directorate increased its political activities compliance efforts. As a first step, a dedicated team was created to focus on compliance issues related to charities that engage in political activities. The activities of this team are guided by two fundamental principles:
- Charities from across the entire spectrum of charitable activity will be included in review and audit activities.
- Our “educate first” approach will continue to be reflected in the way we respond to political activities compliance concerns, when appropriate.
The Directorate then established a process to select charity files for review in a fair and consistent manner. In an effort to be as open as possible about our compliance activities, here are the highlights of this process.
How does the Directorate select charity files for political activities compliance actions?
Charities that engage in political activities are first screened for potential compliance issues. At the screening stage, we do research and analysis using information from our own files, as well as from any other publicly available documents that may be relevant. This may include:
- Form T3010 returns;
- complaints or concerns from the public about the political activities of registered charities;
- referrals from other divisions of the Directorate;
- files transferred from within our Compliance Division;
- related files found during an audit;
- organizations identified through the media or other publically available sources; and
- organizations identified at the time of registration as engaging in political activities.
Once this screening process is complete, we decide if additional action is required. The table below shows possible screening outcomes:
No issues have been identified with the political activities or with the objects or regular activities.
No issues have been identified with the political activities, but potential problems with the charity’s objects or regular activities or both have been identified.
Transfer to regular audit
It is apparent that the organization does not engage in political activities and made an error in completing its Form T3010 return.
Letters sent to the charity asking it to contact us to have the error corrected
The regular activities appear charitable and the political activities appear to have minor issues or to be increasing or changing.
Office review / monitoring / information letter reminding charities about the rules for political activities
The regular activities appear charitable but there appear to be non-compliance issues with the political activities.
Focused political activities audit
Both the regular charitable activities and the political activities appear to have non-compliance issues.
Increased political activities compliance actions
As we build our political activities audit plan, we take the following factors into account:
- regional balance—charities from across Canada are considered;
- sector segment balance—charities from all four charitable purpose categories are considered—relief of poverty, advancement of education, advancement of religion, and certain other purposes beneficial to the community in a way the law regards as charitable;
- the severity of perceived non-compliance;
- previous non-compliance issues; and
- materiality—amount of resources involved.
As of January 2014, some of the statistics include:
- 403 files screened;
- 140 Form T3010 return reporting errors detected; and
- 31 charities will receive a reminder letter about the rules for political activities
Besides screening files and reviewing Form T3010 returns for possible errors, the political activities team is responsible for a number of audits, some of which were underway prior to Budget 2012, others which were launched subsequently.
In all, the team intends to conduct 60 audits over four years (note that these are in addition to the Directorate’s regular audit program referenced earlier in the update):
- 10 audits in 2012/13;
- 20 in 2013/14;
- 20 in 2014/15; and
- 10 in 2015/16.
As of January 31, 2014, there are 31 files in various stages of the audit process. During some of these audits, our auditors have found serious issues of non-compliance, which could justify revocation of registered status. However, in terms of audit outcomes, we expect to conclude two audits with education letters and four more with compliance agreements by March 31, 2014.
The 31 charities under audit represent a broad segment of the charitable sector. All four charitable purpose categories are included, with audits of organizations registered to relieve poverty (two), advance education (four), advance religion (three), and organizations established for other purposes beneficial to the community in a way the law regards as charitable (22). Charities we are auditing under the latter category include those established to promote health, uphold human rights, promote animal welfare, protect the environment, as well as community organizations.
How long does a political activities audit take?
Like all audits, the time required depends on the state of the charity’s books and records, on the size and complexity of the organization, and on the organization’s co-operation. In the first stages of an audit, we do a desk review of the charity to familiarize ourselves with the file. During the audit, we examine the charity’s financial records as well as its activities to make sure it meets the requirements for maintaining its registration. When we finish the audit, we send a letter to the charity outlining the audit results and any specific concerns we have. The charity then has an opportunity to respond and present its views on the audit results. If we decide to revoke the charity’s registration or apply a sanction, the charity can file an objection which goes to the CRA’s Appeals Branch.
What has the Directorate observed about political activities audits?
While we are only seeing preliminary results to date, the team has found a range of non-compliance issues, from minor and unintentional to serious and wide-ranging. However, certain themes are emerging, including inaccurate reporting and tracking of political activities. Other non-compliance issues that we have identified include:
- conducting non-charitable activities;
- gifting to non-qualified donees;
- conducting activities that do not support the charity’s purposes;
- lacking control and direction over the use of resources;
- not issuing receipts in accordance with the Income Tax Act;
- not filing a Form T3010 return as required by the Income Tax Act; and
- not maintaining adequate books and records.
As mentioned earlier, if the results of an audit show that a charity is not complying with its regulatory requirements, we generally prefer to educate the charity first. This means, when appropriate, we try to help the charity understand the requirements, including the rules for political activities.
However, depending on the severity of non-compliance, the Directorate may propose a written compliance agreement, impose a sanction, or in serious cases, revoke a charity’s registration.
More information on the Directorate’s general approach to compliance and on the changes to compliance and reporting requirements is available on our webpages.
Why are audits not made public?
The Income Tax Act prohibits the Directorate from discussing the affairs of a particular charity. We cannot disclose information such as whether a charity is being audited or the status of a charity audit. Information about educational letters and compliance agreements is confidential, although charities may choose to release it themselves.
What can the Directorate make public?
The Income Tax Act allows us to release some information about revocation of registration and sanctions. The revocation of a charity’s status takes effect when it is published in Part I of the Canada Gazette, and revocations and sanctions are then posted on our webpages. We are allowed to give the public a copy of the letters the CRA sent to a charity about the grounds for revocation or sanctions once they have taken effect.
What’s next for the charities program?
As mentioned earlier, Budget 2014 proposed a number of measures related to charities, including funding for the CRA to modernize its information technology systems so it can support new electronic service options for charities. The budget also included several measures related to gifts.
The Client Services Section is ready to answer questions about the new measures. You can call them at 1-800-267-2384. The CRA has posted questions and answers on its Charities and giving webpages, and more information will be provided as it becomes available.
We will continue to develop resources to help charities understand and meet their regulatory requirements. We will also take advantage of changing technologies and gather feedback from the charitable sector to improve our outreach activities, our online tools, and the web experience.”
I look forward to updating you again on our work and accomplishments in the coming months.
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.