Issue

The Canada Revenue Agency (CRA) registers charities in Canada and is responsible for making sure they comply with the requirements of the Income Tax Act and relevant common law. As registered charities receive significant fiscal advantages, the CRA's role in regulating the charitable sector is the subject of ongoing scrutiny and attention. For example, two recent third-party reports allege prejudicial behaviour by the CRA with respect to auditing Muslim charities.

Things to consider

• There are over 86,000 registered charities in Canada, and the charitable sector is supported by all Canadian taxpayers. The CRA is committed to enhancing the transparency and accountability of charities. However, the CRA is also bound by the confidentiality provisions of the Income Tax Act, which limits what it can disclose publically while a charity is being investigated or audited, and may be perceived as lacking in transparency by members of the public and media.
• As the federal regulator of registered charities, the CRA is often called upon to respond to questions on how the rules governing registered charities can be altered; however, any legislative changes to the Income Tax Act are the responsibility of the Department of Finance.
• The Minister of National Revenue asked the Taxpayers' Ombudsperson to examine concerns raised by certain Muslim-led charities. The Ombudsperson will examine the issues and provide the Minister with an update by January 1, 2022.
• The recent release of the two third-party reports garnered moderate media and social media attention. The reports and the launch of the Office of the Taxpayer's Ombudsperson's examination have increased expectations for transparency and accountability by the CRA.
• The Minister also committed to appointing a member of the Muslim community to join the Advisory Committee on the Charitable Sector (ACCS). The ACCS is co-chaired by the charitable sector and the CRA, and its purpose is to engage in meaningful dialogue with the charitable sector and advise the Minister on issues that pertain to registered charities.

Next steps

• The CRA will support the Taxpayers' Ombudsperson's examination and will work to further improve service to Canadians, as part of its continuous efforts to improve its service delivery

Key messages

• The CRA is committed to engaging in meaningful dialogue with the charitable sector, and ensuring that the regulatory environment supports the important work they do
• The CRA recognizes the critical role charities play in our society, and their valuable contribution to improving the lives of Canadians
• The Taxpayers' Ombudsperson has opened a systemic examination to address concerns raised by certain Muslim-led charities
• The CRA supports the Taxpayers' Ombudsperson's examination, and will continue to work with his office to improve its services to Canadians
• The CRA is firmly dedicated to diversity, inclusion and anti-racism, aligning with its values of professionalism, integrity, respect, and collaboration

Background

At the federal level, the CRA administers a system to register and monitor the operations of charities under the Income Tax Act.

The CRA also contributes to the Government's efforts to combat terrorism by protecting the charitable sector in Canada from terrorist abuse. In recent months, the CRA has faced increasing scrutiny about its role in implementing national security policy through the tax system. For example, two recent public reports have raised allegations that Government policies have exhibited bias against Muslim charities:

• On March 29, 2021, a representative of the National Council of Canadian Muslims (NCCM) and a professor at the University of Toronto published their report titled “Under Layered Suspicion | A Review of CRA Audits of Muslim-led Charities”
• On June 9, 2021, the International Civil Liberties Monitoring Group (ICLMG) published its report titled “The CRA's Prejudiced Audits Counter-Terrorism and the Targeting of Muslim Charities in Canada”

The reports made a number of recommendations, including the following which were directed to the CRA:

• Suspending CRA audits that seek to detect and address risks of terrorist abuse to the charitable sector and/or the operations of the Review and Analysis Division of the CRA's Charities Directorate
• Enhancing transparency between the CRA's Charities Directorate and registered charities audited under suspicion of terrorism abuse and/or radicalization
• Providing anti-bias training and greater guidance to CRA officers and regularly assessing whether their discretionary decisions are biased based on race or religious affiliations
• Increasing scrutiny of the CRA's anti-terrorism activities by national security review bodies

[Redacted]

In response to public concern of Islamophobia, the Government hosted the National Summit on Islamophobia on July 22, 2021, to encourage discussion and to chart a path forward to combatting racism and discrimination. At the Summit, various commitments were made by all levels of Government, including the following by the Minister of National Revenue:

1. Requesting that the Taxpayers' Ombudsperson conduct a systemic examination of the CRA to address the concerns raised by the Muslim-led charitable organizations
2. Appointing a member of the Muslim community to the ACCS

The examination by the Taxpayers' Ombudsperson will focus on the concerns linked to the selection of audit files, the quality of the services offered, and the efforts taken by the CRA to sensitize its employees to unconscious biases.