Local laws; Managing risks; Books and records; CIDA funding - Segment 6:
Now, this is one question that's come up in the past. Do charities have to follow the local laws of country they operate in?
Now, charities are not obliged by the Income Tax Act to follow local laws of countries, but the Act doesn't exempt them from these laws, either.
Generally the CRA tends to go back to the question of the public benefit, which we brought up a little while ago in these kind of situations.
That is to say, if a charity's activities cause substantial harm to anyone, this may offset the public benefit.
And this is a related issue. What happens if a charity is aware that its activities might cause people harm?
For example, what if a charity is preparing to send its staff to an area affected by a natural disaster?
Now, the CRA recognizes that many situations that charities operate under involve some level of risk and very few activities are going to be completely risk-free.
Much as with local laws, we would look at this kind of issue of risk from the perspective of the public benefit test. For example, if a charity were sending its staff to an area affected by a natural disaster, the CRA would have concern regarding the public benefit test. If these were completely inexperienced volunteers who don't know how to operate in this type of environment as opposed to specialized professionals who are very comfortable operating in this kind of environment.
When we're talking about the risk of harm, the CRA wants to see that a charity is managing the level of risk to the public benefit. That is, is conscious of its ability to provide assistance to charitable beneficiaries compared to the risk that anyone is going to get hurt.
For example, what we would generally want to see is that the charity has evaluated, has looked at the situation and evaluated or considered the likelihood or nature of harm to anyone delivering the activity or receiving the benefit. The urgency of the need for charitable assistance, the experience of the organization operating in situations with increased risk. And the charity's measures to mitigate risk.
What records does a charity need to keep about its foreign activities?
The record keeping requirements for foreign activities does not really differ from record keeping activities that occur within Canada. In short, the charities books and records must be sufficient to show that there is no reason it should have its registration revoked by the CRA
A charity should, therefore, have sufficient documents, documentation that its resources are being used for its own activities, or as gifts to qualified donees. Of course, it is exercising sufficient direction and control and otherwise meeting all of the requirements of the Income Tax Act. And these records must, of course, be kept at a physical address in Canada.
Does a charity need original source documents?
And this is a question the CRA has received in the past. Does a charity have to have original source documents? For example, does a charity need the original receipts from all the stores or suppliers that it purchases things from in the country it's operating? And the short answer is no.
The Income Tax Act does not specifically require original source document, original source receipts.
However, excuse me, and there are a lot of good reasons why a charity might not be able to get original source receipts such as the infrastructure, disaster; they might be operating in a disaster area and so on.
However, the CRA certainly recommends getting original source receipts whenever possible and it does not exempt the charity from meeting the books and records requirement.
The CRA would expect the charity to be able to explain why it can't get receipts and to get copies of records and reports from staff and the intermediaries in the field so it can meet the books and records requirement.
And finally, another topic that occasionally comes up is what if a charity has funding from the Canadian International Development Agency, CIDA?
It's possible, we just want to caution charities, it's possible that CIDA might provide funding for projects that while certainly benevolent aren't necessarily charitable law, aren't technically charitable law, for example, paying down the national debt of another country.
Basically what we would say is if a country has questions about whether its CIDA funded project is indeed charitable; contact the charity's directorate directly for advice.
Thank you and we hope you enjoyed this webcast.
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