Charities Program Update - 2013
Director General's message
Communicating with our many stakeholders is critical to maintaining strong relationships and fostering mutual understanding and support for the regulation of charities. Every year, the Charities Directorate communicates in many ways: through information sessions, newsletters, press releases, and webinars and directly with our clients and their representatives. In addition, we make sure our programs are transparent through the annual reporting to Parliament the Canada Revenue Agency (CRA) does.
Charities Program Update is another way for the Directorate to communicate with the charitable sector and those who have an interest in it. It stems from our renewed commitment to enhance external communications following the Charities Directorate's Strategic Directions exercise, which you will read about in this issue. Charities Program Update is also a chance for the Directorate to talk about things in an informal yet informative format. It will be produced periodically, posted on our webpages, and distributed through our Charities and giving electronic mailing list, which, I am pleased to announce, now has over 23,000 subscribers.
I hope that by sharing a little more about the Charities Directorate's programs and activities, by highlighting the resources that are available to both charities and donors, and by presenting some of our analysis and statistical data, you will be assured (and maybe even a little impressed) that the Charities Directorate is transparent, accountable, and doing good work.
Registered charities benefit communities in diverse and inspirational ways. That is why the Charities Directorate takes its responsibility to protect the integrity of the registration system for charities—and the charitable sector—very seriously.
Canada Revenue Agency, Charities Directorate
Who we are, what we do
While we're called the Charities Directorate, did you know that we're actually responsible for administering the provisions of the Income Tax Act that regulate a broad range of organizations authorized to issue official receipts for gifts they receive?
For the sake of simplicity, we sometimes refer to all tax-receipting entities as charities. However, not every tax-receipting entity is a charity.
The CRA's Charities Directorate registers charities, Canadian amateur athletic associations, and other qualified donees.
We are also responsible for regulating the tax-receipting privileges of qualified donees and for providing donors with information about registered charities so that they can give wisely.
The Charities Directorate will be recognized and respected by charities, stakeholders, and the Canadian public for its knowledge, integrity, and fairness, resulting in client-oriented service and compliance.
Our mission is to promote compliance with the income tax legislation and regulations relating to charities through education, quality service, and responsible enforcement, thereby contributing to the integrity of the charitable sector and the social well-being of Canadians.
Each year, the Charities Directorate receives approximately 4,000 applications for registration as a charity.
We assess every application individually, on its own merit, to determine if the organization is eligible for charitable registration. We make decisions on these applications based on common law, the Income Tax Act and its regulations, and CRA policy.
When it appears that an applicant is unlikely to qualify for registration, we send an administrative fairness letter outlining our observations and concerns. If the applicant does not respond to the letter within 60 days, we will confirm that its registration has been refused. If the applicant responds, we will consider the new information submitted when making our decision.
In 2011/2012, final decisions were made on 4,562 applications for registration. Those final decisions included: 2,124 registration and re-registration approvals; and 377 denials. As well, 299 applications were withdrawn by the applicants.
Over the course of the year, many applications are returned to the applicants because of incomplete or missing information. In 2011/12, 1,762 or 39% of the 4,562 applications reviewed were returned to the applicants.
As part of its commitment to providing fair, courteous, and efficient service when processing applications, in 2011 the Charities Directorate published its application service standards on the CRA website. The service standards outline what an organization can expect once it has submitted a complete application to the Charities Directorate: a review and response within two months for straightforward applications and within six months for regular applications, 80% of the time. These standards are monitored carefully throughout the year and resources are reallocated as needed to make sure the Charities Directorate delivers excellent service.
Reaching out, staying connected
Online, social media, or in-person – Oh the places you'll find us!
Our education programs speak to all registered Canadian charities. We provide resources, information, and advice to employees and volunteers of charities, their accountants and legal advisors, donors, and all other Canadians young and old. We recently updated our leaflet for donors, How to Donate Wisely, and it is available in more than a dozen languages.
Here are just some of the ways we make information available:
YouTube: We recently posted a new video called Charities and the CRA: Make the Connection. Stay tuned because we have plans to add more!
Webinars: From anywhere in Canada you can register for live, interactive webinars or view recorded webinars on issues like political activities, receipting, fundraising, and payroll.
Twitter: Stay up to date with the CRA, including getting information about charities, by following the CRA on Twitter at @CanRevAgency.
Charities and giving: www.cra.gc.ca/charities is the charities part of the CRA website and is our primary vehicle for information, resources, policies, forms, and publications. While you're there, sign up for our electronic mailing list!
Outreach: At pavilions, conferences, and over 60 information sessions across the country, we came face-to-face with more than 24,000 Canadians interested in and operating registered charities.
Charities and giving RSS feed: Add the "What's new" RSS feed to your feed reader.
Publications: 7.5 million Canadians viewed ads about our program with their morning coffee in Maclean's, L'Actualité, and Money Sense, as well as in articles published in over 45 other media outlets.
Research and online tools
The Charities Directorate has recently taken steps to increase its engagement with the academic community studying the charitable sector in Canada. We have attended several conferences to learn how research projects might tell us more about the sector and to offer our input on the research that is being done. Our director general spoke at the 2012 Association for Nonprofit and Social Economy Research (ANSER) Conference in Waterloo, Ontario, about the benefits of collaborating with researchers, for example, to address data integrity challenges with the T3010 annual information return database.
In addition, the Charities Directorate funded a study aimed at identifying what organizational factors might influence charities to request voluntary deregistration. In August 2010, the Institute for Nonprofit Studies at Mount Royal University released its research report Bowing Out: A data-base analysis of the voluntary deregistration of Canadian charities.
A Canadian charity appears to be more at risk of voluntary revocation if it has:
- existed for more than 18.4 years;
- annual income below $5,000;
- experienced a gradual drop in revenue and assets over a two-year period; and
- a declining ratio of fixed assets to income.
The Charities Directorate provided funding to Imagine Canada to support the development of a website to make the financial information and activities of registered charities more transparent. The site, called CharityFocus, incorporates and builds on the information available publicly from all registered charities' charity information returns filed with the CRA, as well as information from the charities themselves.
With the introduction of CharityFocus, charities can now:
upload information to tell their stories and connect in a new way with their supporters;
upload mission statements, program information, social media feeds, annual reports, and financial statements;
access Charity Tax Tools to better understand CRA regulations; and
get help filling out their charity information return (Form T3010) using QuickPrep.
Access to this supplemental information about registered charities will also enable donors and the general public to better analyze financial and program information.
Staying on the right side of the CRA
Audits are an important tool for ensuring compliance. They help maintain public confidence in the fairness and integrity of the registration system for charities. Audits also provide insight into the charitable sector and help guide the Charities Directorate's policy development and operations.
Office audits—also called desk audits—are conducted at CRA Headquarters. Field audits are conducted at the charity's premises.
The purpose of an audit, whether conducted at a charity's premises or in our office, is to assess the level of compliance with the Income Tax Act's requirements for registration.
How do we decide which charities to audit?
Referrals – Most of our audits are triggered by referrals. Internal referrals come from within the CRA. For example, an employee working on individual tax returns may observe an irregularity with a taxpayer's claimed donation of a non-cash gift to a charity and tell us about it. External referrals can come from anywhere, for example, from the public, charities, donors, or the media.
Projects – Sometimes we identify particular risks to the integrity of the registration system, such as abusive tax shelters or fraudulent receipting.
Random – Some charities are chosen for audit on a purely random basis. The purpose of these random audits is to monitor overall compliance in the sector and to identify issues and trends.
What happens after an audit?
Research shows that rates of compliance are positively affected by how easy it is to access the information, tools, and assistance that encourage charities to meet their obligations. And the vast majority of registered charities comply with the requirements without our intervention.
That said, as the level of non-compliance for a charity increases, so does the level of CRA involvement. What happens when we discover non-compliance with the requirements of registration depends on a number of factors, including whether or not the non-compliance was deliberate or if it was serious.
We have a range of actions we can take after an audit, including:
educating the charity about the requirements for maintaining registered status;
requiring the charity to subscribe to a compliance agreement that outlines the non-compliance issues and the remedial actions that the charity has agreed to take;
imposing penalties and sanctions; and
where warranted, revoking a charity's registration.
Some of the more common reasons we revoke a charity's registration include failing to devote resources to charitable purposes and activities; failing to maintain adequate books and records; failing to maintain direction and control over resources; participating in tax shelter arrangements; and issuing fraudulent donation receipts.
Our Compliance Division completed 713 audits in 2011/2012, resulting in 58 requiring no action, 400 education letters, 198 compliance agreements, 3 penalties, 17 revocations for cause, 12 voluntary revocations, 5 annulments, 2 re-registration/pre-re-registration reviews, and 18 recorded as having "other" outcomes.
Loss of registered status
Each year, a significant number of charities request voluntary revocation of registration. Otherwise, the most common reason for revocation of charitable status continues to be failure to file the annual T3010 information return. Revocation of charitable status may also occur in cases where a charity fails to maintain its status as a legal entity. In 2011/2012, 830 charities were revoked voluntarily, 1,104 charities were revoked for failing to file their annual T3010 information return, and 21 were revoked for failing to maintain their status as a legal entity.
To try and improve the timeliness of T3010 filing, a number of new initiatives have been introduced.
We conducted a survey to see why charities file when they do, so the Directorate can better target their efforts to help them file on time.
We changed the timing of the first notice that charities receive reminding them to file their return. Before, the notice was sent one month before the return was due. Starting in October 2012, the notice is sent three months before the return is due.
We now send email reminders about two months before the return is due to those charities that have given us their email address.
All good organizations are well served by strategic objectives to guide their decision-making and operational plans. That's why the Charities Directorate has established a set of strategic directions to guide its business planning over the next few years. The Strategic Directions Plan is intended to make sure that, while meeting its day-to-day operational responsibilities, the Directorate evolves in a manner that will allow it to respond to the increasing complexity of its internal and external environment.
In the last fiscal year, the Charities Directorate did an analysis of its internal and external environments. As a result of its consultations with staff and representatives from the sector and its internal research, the Directorate established the following directions to guide business planning over the next few years:
- to improve its information management framework;
- to strengthen compliance;
- to ensure quality and consistency of decisions;
- to enhance its external communications framework; and
- to evolve its service delivery model.
Profile in numbers
The environmental scan done as part of the strategic directions exercise involved extensive research and engagement with staff and stakeholders.
We'd like to share some of the trends we identified in the charitable sector based on our data and the T3010 data reported by registered charities from 2000 and 2008.
6% ... the number of registered charities increased by 6%—from 79,652 to 84,615
67% ... the part of the sector's revenue originating from direct government sources in 2008—up from 54% in 2000
83% ... growth in expenditures on charitable programs. This corresponds with growth in reported revenue from all sources. The total expenditure on charitable programs in 2008 was about $130 billion.
73% ... the part of total expenditures spent on charitable programs in 2008
This compares to a low in 2003 of 62% and a high of 74% in 2006.
Did you know... the CRA gets audited too?
The 2010 Fall Report of the Auditor General of Canada had a whole chapter on registered charities and the CRA.
The Auditor General found that our registration process is thorough and that we communicate well with charities and donors. Our significant progress in reducing participation in abusive tax shelter arrangements was also noted.
In response to the Auditor General's report, we are taking steps to enhance our monitoring program, particularly for charities that do not file their annual return on time. We also developed more detailed internal guidance for our compliance team.
"We are pleased to note that the Agency is doing a good job administering the Income Tax Act as it relates to charities."
Office of the Auditor General, 2010
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