Charities Program Update – 2015

Director General’s message

In this third installment of the Charities Program Update, I set out some of the measures we have taken in the Charities Directorate to promote transparency, both in terms of our programs and the diverse activities of the charitable sector.

Registered charities in Canada are subject to constant change because of evolving social needs, technology, expectations of funders, demographics, court decisions, and legislated requirements. We in the Charities Directorate recognize the demands that are placed on Canadian registered charities, and we are committed to facilitating voluntary compliance with the laws and rules related to registered charitable status.

To meet our commitment, we make sure that charities have easy access to accurate information that explains their obligations under the law and that as the regulator, we are transparent and accountable for the work we do. As well, Canadians now expect to have more information about charities and their activities. This additional information helps donors make better informed donation decisions and increases the public’s confidence that charities use donations, and all of their resources, for charitable purposes and activities.

This update focuses on the products and services we have developed to explain registration requirements to charities and the public and to help charities meet these requirements. It describes our outreach and education activities, including our webpages (the main source of information and help) and our compliance activities (including details about audits and revocation). You will also find a progress report on our plan to introduce the electronic filing of applications for registration and the annual information return. Finally, there is a progress report on our review of charities that engage in political activities.

Cathy Hawara

Outreach and education

Our webpages

For information about charities in Canada and their operations, take a look at the Charities and giving webpages on the Canada Revenue Agency (CRA) website. These webpages had approximately 2.3 million visits in 2014.

On our webpages you will find:

• advice for donors and charities

• copies of all of our publications and guidance products

• our Charities Listings, with public information assembled from registered charity annual returns

• educational videos and recorded webinars

Our webpages are updated regularly to keep information current.

Last year, we started ongoing work to make our webpages more accessible to people with disabilities. The graphics and tables are now accompanied by descriptive text.

In 2014, of our 1,050 webpages, we created or updated over 550, and removed 114. Items we posted included:

• a new webpage on internal divisions

• information for organizations incorporated under Part II of the Canada Corporations Act about the transition to the Canada Not-for-profit Act

• updated facts and figures in the Charities Media Kit

• details about a revoked charity listed as a terrorist entity

As well, several changes were made to our Charities Listings, where we post the public information we collect about every registered charity. You now can use the “Charities Status” feature to see the reasons for the revocation of a charity’s registration and the names of annulled charities.

In 2014, there were over 623,000 visits to the Charities Listings basic search webpages and over 432,000 visits to the advanced search webpages. The numbers for the basic search webpages are up almost 17% from 2013. The numbers for the advanced search webpages are up 6% from 2013.

If you are responsible for a charity, we recommend you visit the Charities Listings, search for your charity, and review the posted information from your charity’s annual information return. Information that is not complete or not accurate can affect your charity's status, public image, and revenue. If you find a mistake or notice missing information, please contact us to change the information return.

Getting your feedback

In 2014, we conducted research to:

• better understand the charitable sector’s awareness and use of the Agency’s informational and educational tools and services

• identify the need for new or updated products

• identify areas for improvement in ongoing stakeholder engagement efforts

We did three surveys and heard from:

• representatives of registered charities

• representatives of umbrella organizations (groups that offer services to charities and other qualified donees)

• visitors to our webpages

Telephone survey of registered charities

Representatives from 815 registered charities completed the telephone survey. These representatives were mainly financial officers (including treasurers and bookkeepers) and people in leadership roles (chief executive officers, executive directors, and managers).

Most representatives (85%) who responded to the survey were very or somewhat interested in learning more about their obligations. In the past two years, almost two thirds (66%) of them looked for more information or help to understand the requirements for registration.

Telephone survey of representatives from umbrella organizations

Of the representatives from 93 charity umbrella organizations who completed the telephone survey, 53% belonged to religious organizations.

Most (84%) of the representatives who responded had visited the CRA website. Of these, 45% indicated that they visited the website at least once a month, and another 46% indicated that they visited at least twice a year.

More than half (55%) of the representatives had recommended the CRA website to their members. The most commonly recommended sections were:

• Gifting and receipting (40%)
• Policies and guidance about operating a registered charity (14%)
• Apply to become a registered charity (9%)
• Operating a registered charity (7%) 

How you rated our webpages

Over 1,200 visitors to our webpages completed the survey. Of the visitors, 322 identified themselves as first-time visitors, and almost half of them self-identified as donors.

The content on our webpages consistently received high marks for value and understandability. Many of the respondents noted that the site continues to improve and that it should be publicized more. Overall, 91% of the respondents said the content was useful, and 89% said the content was understandable. In particular, respondents liked Quick View, the Charitable donation tax credit calculator, and watching the videos.

Sixty-five per cent of requests for additional content were for enhancements to the Charities Listings. Other requests included sample applications for registration and accompanying documents, FAQs on more topics, and information about due diligence for board members.

We are currently developing a new outreach strategy to address the results of the surveys. We hope to share information about the strategy in the coming months.

Supporting transparency in the charitable sector

Unlike other taxpayers, subsection 241(3.2) of the Income Tax Act allows us to share some information with the public about registered charities. This is information that both donors and the public have come to rely on.

The CRA Charities Listings gives you access to public information about every charity. As well, the Act permits us to share:

• a copy of the registered charity’s governing documents, including its statement of purpose

• a copy of the public portions of a charity’s application for registration

• the names of the individuals who at any time were the charity’s directors/trustees and the periods during which they were its directors/trustees

• a copy of the notification of registration, including any conditions or warnings

• a copy of letters the CRA sent to a charity about grounds for its revocation or annulment, if the charity has been revoked or annulled

• a copy of financial statements filed as part of a charity’s annual return

• a copy of any letters or notices the CRA has sent to a charity about a suspension or an assessment of tax or penalty (other than the amount of revocation tax)

• a copy of a charity’s application, and information filed in support of requests for:

  • re-designation as a charitable organization, private foundation, or public foundation

  • designation as an associated charity

  • permission to accumulate property

You do not need to complete an access-to-information request to get these documents. Anyone, including a donor, funder, or the charity itself, can contact us and ask for the public documents.

In 2014, we processed over 1,400 public document requests.

If you cannot find what you are looking for on our website, you can contact us. We have knowledgeable staff dedicated to helping you.

Keeping in touch through email

The Charities Directorate uses email in two ways to keep people informed:

1. Anyone can receive general information on various topics, along with a link to our What’s new page by subscribing to the Charities and giving electronic mailing list.

2. To receive reminders and notices (such as reminders to file) that relate to a charity that you are responsible for, you can contact us and give us your charity’s email address. You can also give us your charity’s email address when you file your charity’s annual return, by entering the address on Form TF725, Registered Charity Basic Information Sheet.

Giving you the guidance you need to follow the rules

We produce guidance products to explain the requirements of the Income Tax Act and the common law that apply to registered charities to help charities manage their operations. We regularly review these guidance products to make sure they remain current and useful.

In 2014, the Directorate released two new products:

• Guidance CG-022, Housing and charitable registration

• Guidance CG-024, Ineligible individuals

Webinars and videos

We offer 22 videos and recorded webinars for donors and charities. In 2014, we added the political activities video series and a video to explain the first-time donor’s super credit.

A webinar is an Internet-based interactive presentation. We record the webinars we produce and post them on our webpages. Our recorded webinars:

• help representatives of charities fill out the annual return that every charity must file

• describe how a Canadian charity can engage in activities outside of Canada

• explain our guidance products on the arts, community economic development, and fundraising

• help orient new board members

• offer advice on how to donate wisely

Our videos:

• outline the role of the CRA in regulating charities

• explain the relationship between Canada's registered charities, the CRA, and you

• offer advice on how to choose a charity

Research page: understanding the charitable environment in Canada

In addition to the charities data that forms part of data.gc.ca, we are developing a Research page. This follows from the commitment made in Budget 2014 to make data on charitable giving and trends more accessible and to enhance public understanding of the charitable sector.

Compliance

Our approach

Registration as a charity comes with privileges, such as being exempted from paying income tax and being able to issue official donation receipts that support their fundraising efforts. But equally, all registered charities have important obligations under the Income Tax Act. The Charities Directorate is responsible both for making sure that only organizations that show they will meet these obligations are registered as charities, and for monitoring charities after registration to make sure they continue to comply with their obligations.

Our approach to promoting voluntary compliance focuses on education first. This approach gives charities the opportunity to become aware of and correct their actions before we resort to other measures, such as sanctions or revocation. On average, 93% of charities selected for audit typically work with the CRA to resolve any issues identified, and are able to continue their charitable work. Among the compliance tools we have at our disposal are reminder letters, filing notices, and our audit program.

We cannot identify which charities are under audit. However, when an audit leads to a sanction (a financial penalty, or suspension of receipting privileges), annulment, or revocation, the name of the charity and the outcome are published on our Charities and giving webpages or in the Canada Gazette, or both.

Reminder letters

Reminder letters are one of the education tools we use to promote compliance outside of an audit. If we identify an area of possible non-compliance, we will send a reminder letter to the charity involved. The reminder letter explains our concerns, advises the charity of the action it should take, and refers the charity to information and resources. The letter also outlines the consequences of not complying with the requirements for registration.

If your charity receives a reminder letter and you have questions about it, you can contact us toll free at 1-800-267-2384. A reminder letter is just that, a reminder to a charity to help it remain compliant with the law. 

In 2014, we sent out 26 reminder letters (including 23 for political activities – see Audit screening process for more information).

Filing notices

We use filing notices to remind a charity of its responsibility to file a complete annual return (Form T3010) every year, within six months of the end of its fiscal period. These notices are used to:

• remind a charity to fill out its annual return and send it to the CRA

• remind a charity to send in its financial statements (part of a complete return)

• tell a charity that it has not properly completed parts of its return

Failing to follow up on the instructions in a filing notice could result in serious consequences for a charity, such as temporary suspension of the charity’s receipting privileges or revocation of its registered status.

In 2014, we mailed:

• over 70,000 reminders to charities to file their annual returns (we mail this reminder if we have not received a charity’s return within three months of the end of its fiscal period)

• over 8,000 reminders to charities to file their financial statements

• over 5,000 notices to charities that they had not properly completed parts of their returns

Also, when a charity has given us its email address, we send an email reminder if we do not receive its return within four months of the end of its fiscal period. If you want to take advantage of this service, contact us. In 2014, we sent out over 30,000 electronic reminders to file.

Audits

In any given year, the Compliance Division of the Charities Directorate audits approximately 1% of registered charities across the four categories of charities, and in all regions of the country. Only a small portion of the charities selected face serious sanctions such as penalties or revocation. In 2013-2014 fiscal year, 845 audits were completed, resulting in:

• 112 audits required no action

• 514 education letters

• 139 compliance agreements

• 4 penalties

• 36 notices of intention to revoke

• 20 voluntary withdrawals of application for charitable status

• 6 annulments

• 1 suspension

• 1 re-registration/pre-registration review

• 12 cases with other outcomes

To learn about our auditing process and procedures, go to Compliance within the charitable sector.

Revocations

A revocation cancels a charity's registration and takes away the privileges that go with it. When a charity's registration is revoked, it:

• will have its name and the reason for revocation posted in the Canada Gazette and its status identified as revoked in the Charities Listings

• can no longer issue official donation receipts

• no longer qualifies for exemption from income tax as a registered charity

• must transfer all its remaining property to an eligible donee or be subject to a revocation tax equal to the property's full value

For more information, go to revoking registered status.

Out of the approximately 86,000 registered charities, since fiscal year 2009-2010, the Charities Directorate revoked on average 1,739 charities per year. Of these:

• 54.60% were voluntary revocations;

• 43.02% were for failure to file an annual return (delinquency);

• 1.74% were for cause after an audit; and

• 0.64% were for loss of corporate status.

The table below compares the number of charities in Canada to the number of revocations for cause, divided by category of charity. This table shows that the percentage of revocations by category of charity is roughly comparable to the percentage breakdown of registered charities.

* Because of rounding off, the percentages do not total 100%.

This section was amended on May 14, 2015.

Charities incorporated under Part II of the Canada Corporations Act

October 17, 2014, was the deadline for over 7,500 registered charities and registered Canadian amateur athletic associations (RCAAA) incorporated under Part II of the Canada Corporations Act (CCA) to apply for a certificate of continuance and transition to the Canada Not-for-Profit Corporations Act.

An organization risks having its registration revoked if its corporate status is dissolved because it has not completed the transition. In 2014, we encouraged charities to transition in several ways:

• In February, April, and August we updated our What’s new webpages to explain how to apply for a certificate of continuance and complete the transition process.

• In April, we sent an email to charities subscribed to the Charities and giving electronic mailing list.

• In September, we mailed a reminder letter to all CCA incorporated charities and RCAAAs.

A charity can still apply for transition as long as Industry Canada has not dissolved its corporate status. Before Industry Canada does this, it will send a charity a 120-day notice of pending dissolution.

If you are involved with a charity that was incorporated under Part II of the CRA and have not begun the transition process, we urge you to do so now. For more information, go to Transition to the Canada Not-for-profit Corporations Act.

If your organization wishes to dissolve and establish itself under another governing document, please file this document with the Charities Directorate as soon as possible.

New electronic services – Reducing the burden on charities

In the previous update, we referred to the announcement of measures designed to reduce the administrative burden on charities as part of Budget 2014. Work on this initiative is well underway.

The Charities IT Modernization Project was launched officially on April 1, 2014. The objective of the project is to make it possible for registered charities to send in their annual information return (Form T3010 and related documents) electronically instead of by mail. The project will also make it possible for organizations to apply for charitable status electronically (Form T2050 and related documents). These e-services will ease the administrative burden on the sector and help charities to stay compliant with the requirements of the Income Tax Act.

To support the initiative, we are redesigning our forms for an electronic environment and building a new supporting structure to ensure information can be properly displayed in the Charities Listings. We will communicate our progress to the sector to make sure that charities are prepared to adopt the new service options easily. We will implement these services no later than March 31, 2019.

Charities and political activities

We are now in the third year of our four-year review of the political activities of registered charities. This review has led us to increase transparency, education, and compliance efforts.

Transparency – reporting

We have just completed the first full year of annual return (T3010) reporting with the new political activities schedule (Schedule 7). We are reviewing these completed annual returns and have found:

• 485 charities responded yes to line 2400, indicating they engaged in political activities.

• Some charities are not filling out the annual return correctly. For example, on line 2400 they indicated that their charity did not carry out any political activities. However, on line 5030 they gave us an amount in dollars that was spent on political activities.

• Seven charities reported an amount on line 5032, indicating they had received funds from outside of Canada intended for political activities.

• Charities now identify the way they carry out political activities. The most frequently reported, in descending order, are:

  1. Internet, including website, and social media (Twitter, YouTube)

  2. Media releases and advertisements

  3. Conferences, workshops, speeches, or lectures

  4. Publications (printed or electronic)

  5. Letter-writing campaigns (printed or electronic)

  6. Rallies, demonstrations, or public meetings

  7. Petitions and boycotts (calls to action)

  8. Other (such as, meeting with ministries and preaching)

  9. Gifts to qualified donees for political activities

Education

The rules governing the political activities of charities have been in place for many years. Making sure that registered charities devote their resources to charitable activities and comply with the rules for political activities has always been part of our mandate. Since 2012, we have increased our education and compliance efforts, including audits focused on political activities.

In 2003, the Charities Directorate released Policy Statement CPS-022 Political Activities, the main source of guidance for charities engaging in political activities. Although our guidance has remained unchanged since 2003, we added text boxes to the policy statement that highlight information regarding charities from the 2012 federal budget. As well, we have produced a webinar and a self-assessment tool that are part of a package of resources for charities about political activities.

Since the last Charities Program update we created a new video series on political activities and expanded our questions and answers.

In addition, we have reached out to different communities to talk about our work and the rules regarding charities and political activities. The Director General of the Charities Directorate spoke at the:

• Ottawa Region Charity & Not-for-Profit Law Seminar (February 2014)

• CBA National Charity Law Symposium in Toronto (May 2014)

• Schad Foundation Workshop – Charitable Law and CRA Guidelines for ENGOs in the Current Landscape in Woodbridge, Ontario (September 2014)

• National Conference on Income Taxes for SMPs (small and medium-sized practitioners) in Toronto (October 2014)

• Working Together: Philanthropy and the Challenges of a Changing Canada in Halifax (October 2014)

• Toronto Church and Charity Law seminar (November 2014)

• Canadian Tax Foundation Annual Tax Conference, in Vancouver (December 2014)

• Ottawa Region Charity & Not-for-Profit Law Seminar (February 2015)

The Charities Directorate relies on professionals who work with registered charities to help us inform the sector and to encourage compliance. We recognize and appreciate the efforts of our third-party partners in raising awareness among charities and the public about political activities and the rules that charities must follow.

Compliance efforts

In addition to our regular audit program that does about 800 audits per year, we are doing about 15 political activity audits per year, for a total of 60 over the four-year period covered by the review.

Audit screening process

We have completed the screening process and identified all of the charities that will be audited as part of this political activities review. The screening process, described in the Charities Program Update – 2014, included researching and analyzing:

• Form T3010 returns

• complaints and concerns from the public about the political activities of registered charities

• referrals from other divisions of the Charities Directorate

• files transferred from within the Directorate’s Compliance Division

• related files found during an audit

• charities identified through the media or other publically available sources

• charities identified at registration as engaging in political activities

The selection of charities for these audits was based on our identification of possible non-compliance issues related to a charity’s political activities, and included:

• charities from all four broad categories of charity (poverty, education, religion, and other purposes beneficial to the community)

• charities from across Canada.

In following this process, we were able to identify the 60 charities for political activity audits. There are:

• 2 charities with purposes of relieving poverty

• 14 charities with purposes of advancing education

• 7 charities with purposes of advancing religion

• 37 charities with other purposes beneficial to the community including animal welfare, upholding human rights, protecting the environment, international development, promoting health, and community development

Charities participate in political activities to varying degrees across these categories. The most recent data shows that almost half of all charities that report political activities fall under the other purposes beneficial to the community category, while this category makes up less than a quarter of the sector. Nevertheless, the Directorate ensured that charities from all four categories and from across Canada were included. 

During these audits, after reviewing all relevant information, we determine whether an activity is political, and if it is political, whether it is partisan. This determination is based on the requirements of the Income Tax Act and on common law. In deciding whether an activity is charitable, political, or partisan political, we also rely on our Policy statement CPS-022, Political activities.

Also, since the beginning of the four-year review, we have sent 27 political activities reminder letters to charities that were screened but not selected for audit.

Audit findings – political activities

Many of the audits are ongoing. However, the audits we have completed reveal instances of charities:

• failing to maintain reasonable and consistent tracking and reporting of resources (financial expenditures, salaried time, capital assets, volunteer time, and donated resources) devoted to political activities

• engaging in prohibited partisan political activities, which are activities that directly or indirectly support or oppose a political party or candidate for public office

• engaging in non-partisan political activities that are more than ancillary and incidental to the organization’s charitable purpose

The audits have shown that many charities do not know what is meant by indirect support of, or opposition to, a political party or candidate. When a charity praises or criticizes the performance of an elected representative, it may be seen as indirectly supporting or opposing the representative’s political party.

Examples of normally prohibited partisan activities include:

• making public statements (oral or written) that endorse or denounce a candidate or political party

• making resources available for the use of a candidate or political party

• publishing or otherwise disclosing the voting record of selected candidates or political parties on an issue

• distributing literature or voter guides that promote or oppose a candidate or political party explicitly or by implication

• explicitly connecting the charity’s position on an issue to the position taken on the same issue by a candidate or political party

• criticizing or praising the performance of a candidate or political party (what they have or have not done)

Audit findings – other

The 60 political activities audits include but are not limited to an examination of a charity’s political activities. As with all audits, we review a charity’s finances and any evidence that might indicate whether or not it is satisfying all of its legal obligations under the Act and is operating for charitable purposes.

The audits revealed several other serious non-compliance issues, beyond those related to political activities. These include:

• delivery of an undue benefit to a person involved with the charity

• lack of sufficient direction and control of the charity’s resources

• gifting to an organization that is not a qualified donee

During all audits, we are committed to serving charities with professionalism, courtesy, and fairness. In the course of an audit, the representative of a charity can discuss with the auditor any concerns that may arise.

Political activities audit outcomes to date

As of March 31, 2015, we completed 21 audits, 28 were underway, and another 11 will be started before the end of the project. 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.

A notice of intention to revoke is sent to a registered charity that, in our opinion, no longer complies with the requirements of the Income Tax Act. If a charity receives such a notice but believes that we have not interpreted the facts or applied the law correctly, the charity has a right to object. For information about filing an objection and the appeal process, go to Objections and appeals. In most instances, the CRA will not finalize its decision to revoke until the charity has had the opportunity to exercise its appeal options.

Our work to increase the transparency and monitoring of charities that engage in political activities has attracted much attention in the media. We will continue our long tradition of meaningful consultation and engagement with registered charities on all issues, including this one.  We will carry out our responsibilities in a professional, non-partisan manner, sharing as much information as we can to help you understand what we are doing, and why.

Listening to you

There are different ways to let us know what you think about our:

• policies and guidance
• webpages
• publications and services

Staff changes

Since the previous update, we have welcomed two new directors to the Charities Directorate management team:

• On May 5, 2014, Stéphane Poitras started as Acting Director of our Assessment, Determinations and Monitoring Division.

• On December 1, 2014, Robert Delaney became the Director of our Compliance Division.

Going forward

We are committed to improving our services, keeping you informed, and welcoming your suggestions.

To stay informed, you can subscribe to our electronic mailing list.

To receive timely reminders and important notices, contact us to inform us of your charity’s email address.