Accountability for a charity's resources - Segment 3
Welcome to Segment 3 called "Accountability for a charity's resources," part of the "Political activities (Policy statement CPS-022)" webinar.
The Income Tax Act requires a charity to keep records to show how its resources were used, so that it can prove that it continues to qualify for registration as a charity.
You can see Guide RC4409, Keeping Records,on the CRA's website for detailed information on what kinds of records a charity needs to keep, and for how long.
There are no special books and records requirements that apply to political activities. However, a charity must keep books and records to show that any political activities it carried out comply with the provisions of the Income Tax Act.
The onus is always on the charity to account for its use of resources, so that it can prove compliance.
The CRA recognizes that it can be challenging to analyze and track all the various types of a charity's resources and how they are used.
Although a charity is generally free to find the best way for it to track its use of resources, the method used by the charity to calculate its expenditures on, or use of resources for, political activities should be reasonable and consistently applied throughout the year.
For example, a charity could analyze and track:
- Financial resources – All financial expenditures, including salary and other human resource costs
- Capital assets – The percentage of use of building and office space, the percentage or amount of proceeds or withdrawals from the charity's investments that are spent on political activities; and
- Volunteer time and donated resources – The percentage of volunteer hours or number of volunteers, and the percentage or amount of donated resources that are devoted to carrying out the charity's political activities.
The onus is always on the charity to account for its use of resources, so that it can show it continues to comply with the requirements of the Income Tax Act.
If a charity is not complying with the requirements of the Income Tax Act, the CRA generally follows an education-first approach.
Our preference is to help charities understand the requirements.
For example, the CRA might address an issue of non-compliance by first making sure the charity understands the rules and requirements regarding political activities.
A written compliance agreement might be put in place, where, for example, a charity commits to amend its activities within a certain time frame.
But, with all this in mind, in some cases revocation of a charity's registration may be the first action.
I'll also add that the 2012 federal budget provided an intermediate sanction for charities that carried out political activities in violation of the Income Tax Act. This sanction is a temporary suspension of a charity's qualified donee status. As a result of such a sanction, a charity would no longer be able to issue official donation receipts or receive gifts from other registered charities.
Form T3010, Registered charity information return, requires a charity to report, among other items, whether it carried out political activities, its expenditures on political activities, and what kind of resources have been devoted to its political activities.
Form T3010 is a public document, and all charities' T3010 forms are accessible on the CRA's website.
Even if a charity has not spent any money on political activities, but has used other resources such as volunteers, office space, vehicles, or equipment, it will still have to complete certain sections of Form T3010 that are related to political activities.
For example, section C5 of the form requires a charity to report whether it carried out political activities (regardless of the type of resources used), and how much it spent on those political activities, if it spent anything.
On the new Form T3010 for fiscal periods ending on or after January 1, 2013, section C5 includes a new question that asks for the amount of any gifts received from foreign donors that was directed to be spent on political activities.
These types of gift do not represent a political activity for the charity, but must still be reported on the appropriate line.
If a charity carries out political activities, there is a new schedule to complete in order to provide detailed information on its political activities, and that is Schedule 7.
Schedule 7 requires a charity to describe its political activities in more detail, and is divided into three parts:
- First, it asks a charity to describe its political activities, and how they relate to its charitable purposes. This gives some context for what the charity does as a political activity, and why.
- The charity must use tick boxes to indicate how it carried out its political activities, and the type of resource used. For example, the charity might indicate it carried out political activities through electronic publications, rallies and demonstrations, and social media, and that it used its staff and volunteers, as well as financial resources, for these activities. This section does not require a charity to calculate how much of its resources were used for its political activities, just to identify the type of resource.
- The third section of the schedule records amounts received outside of Canada for political activities, the political activity they were intended to support, and the country where the gift came from.
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