Top 10 facts about the regulation of charities
Charities play an important role in our society and provide valuable services to Canadians—including the most vulnerable. That is why the Government of Canada supports charities through unique tax privileges, such as an exemption from income tax and the ability to issue official donation receipts and receive gifts from other registered charities.
The Canada Revenue Agency (CRA) registers charities in Canada, and makes sure they continue to comply with the requirements of the Income Tax Act and common law. The CRA has a responsibility to protect the integrity of the tax system and the charitable sector, and fulfills this responsibility through a balanced program of education, client service, and responsible enforcement.
Top 10 things to know about the regulation of the charitable sector in Canada
There are more than 86,000 registered charities in Canada, each carrying out activities in support of one or more of the four recognized categories of charity—poverty, education, religion, and other purposes beneficial to the community.
The Government of Canada understands that registered charities are an important part of Canadian society, and it encourages Canadians to donate generously through the charitable donations tax credit and initiatives such as the first-time donor’s super credit. In 2013, registered charities issued donation tax receipts for more than $14.8 billion, resulting in $4 billion in foregone federal and provincial revenue.
- The CRA’s first priority is education, and it provides registered charities and applicants for registered status with an extensive range of tools to help them learn about, and voluntarily comply with, their obligations under the law. For example, the CRA’s Charities and giving website has information about filing an annual information return, issuing receipts, and operating a registered charity. The CRA also has a dedicated client service telephone line to help charities and donors, and offers videos on topics of interest.
- The CRA offers donors a wide range of resources on a variety of topics to help them make informed donation decisions. This includes information and videos on how to choose the right charity, as well as the List of charities database and search tool.
The CRA regularly consults with representatives of the charitable sector through meetings, surveys, focus groups, and other methods to make sure its programs keep pace with the evolving needs of registered charities.
To reduce the administrative burden on charities, Budget 2014 provided $23 million in funding for the CRA to modernize its information technology systems. The modernization, to be completed no later than March 31, 2019, will let charities apply for registration and file their annual information returns electronically. As a result, charities will spend less time and resources on administration and have more time and resources for their charitable activities.
As part of its ongoing efforts to make sure charities meet the requirements of registration, the CRA uses a variety of compliance activities. Historically, the CRA has audited approximately 800 to 900 charities per year, representing about 1% of registered charities.
More recently, the CRA has rebalanced its compliance activities to better focus and increase its coverage of the charitable sector. The CRA currently plans to conduct audits of 500 to 600 charities per year. In addition, we plan to contact an additional 700 to 800 charities outside of the audit process. These contacts include new initiatives, such as the Charities Education Program (CEP) that provides an opportunity to meet with charities to help them better understand and comply with their filing obligations. Overall, the CRA will now be able to reach about 1.5% of registered charities each year.
Fairness is the cornerstone of the CRA’s audit program. If the CRA identifies non-compliance as a result of an audit, it uses an education-first approach where possible. This means the CRA will generally give a charity the chance to correct its non-compliance through education or a compliance agreement before it resorts to other measures such as sanctions or revocation. The majority of charities selected for audit are able to continue their charitable work.
As a result of legislative changes that received Royal Assent in December 2018, charities can now fully engage in public policy dialogue and development activities in furtherance of their stated charitable purposes. For more information, see Guidance CG-027, Public policy dialogue and development activities by charities.
- To protect and maintain public confidence in the charitable sector, the CRA makes sure the tax benefits reserved for Canada's charities are not used to support terrorism. To that end, the CRA has an important role in combating the financing of terrorism in support of the Charities Registration (Security Information) Act. The CRA also provides educational resources to charities to help them avoid terrorist abuse.
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