The audit process for charities

As part of its ongoing efforts to make sure charities meet the requirements of registration, the Canada Revenue Agency (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.

How is a charity selected for audit?

A charity can be selected for audit for various reasons including the following:

  • random selection
  • referral from another area of the CRA
  • complaints from the public
  • articles in the media or other publically available sources
  • review of specific legal obligations under the Income Tax Act
  • information from their T3010 annual information return
  • follow-up on a previous compliance agreement

How does the CRA audit a charity?

There are two main types of audit: the field audit and the office audit. The size and complexity of a charity, as well as the issues involved, will often decide the type of audit required.

What happens when the audit is finished?

When the CRA has finished its audit, it will send the charity a letter outlining the results.

If the charity’s operations and all its activities are in line with the Act, the CRA will confirm in writing that there will be no change to the charity’s registered status.

When the audit uncovers that the charity is not following the Act, the CRA will send the charity a letter that:

Generally, the CRA gives a charity 30 days to reply to its concerns, although the charity can request an extension.

What types of letters might a charity receive after it has been audited?

The CRA takes an education-first approach. This means it will generally give the 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. Only a very small proportion of the CRA’s audits result in serious consequences like sanctions or revocation.

The facts of the charity’s case will determine which of the following compliance approaches the CRA will take: 

A charity whose registration is revoked must dispose of its assets within one year to other charities or pay a 100% revocation tax on any assets remaining. This tax helps make sure the funds donated for charitable purposes stay in the charitable sector.

For information on how the CRA makes its decision on which approach to take, see Procedures in Guidelines for applying sanctions.

What recourse does a charity have during and after an audit?

As mentioned earlier, the charity is given the chance to make representations to the CRA. The charity’s response may include explaining why it disagrees with the CRA’s position, including giving more information or proposing changes to satisfy the CRA’s concerns.

The CRA will fully consider the charity’s representations and make a determination on the appropriate compliance outcome. If, after considering the charity’s representations, the CRA finds it is reasonable to impose a sanction or annul or revoke the charity’s registration, it will send the charity a letter by registered mail outlining its decision.

When a charity receives one of these letters and believes the CRA has not interpreted the facts or applied the law correctly, it can object in writing to:

Assistant Commissioner
Appeals Intake Centre
Post Office Box 2006, Station Main
Newmarket ON  L3Y 0E9

The charity must set out the reasons for the objection and all the relevant facts.

The charity has to file its objection no later than 90 days after the date of the final letter it got from the CRA. The Appeals Branch is responsible for the objection process, and its mandate is to review the decision fairly and transparently. If the charity disagrees with the CRA’s decision about its objection, it has the right to appeal to the Federal Court of Appeal or the Tax Court of Canada, depending on the type of appeal.

What audit information is available to the public?

As an exception to the general rules around taxpayer confidentiality, the Act allows certain information about charities to be released to the public. When the CRA revokes or annuls a charity’s registration or when it imposes a sanction, it posts this information in the List of charities. Under the Act, the CRA can release a copy of the letter(s) it sent to the charity outlining the reasons for its decision. This is to make sure the CRA’s decision about the charity is transparent.

Statistics – Outcome of audits

Revocation as a result of an audit is generally reserved for the most serious circumstances, including deliberate or repeat non-compliance. The most common reasons a registered charity will have its registration revoked include being involved in an abusive tax shelter arrangement, giving undue benefits, not issuing proper receipts, not keeping books and records, and not devoting its resources to its charitable activities.

Statistics on audit results compared by year
Outcomes 2015-2016 2016-2017 2017-2018
No change /no further action 40 38 51
Education letters issued 444 387 313
Compliance agreements 111 142 92
Voluntary revocations 22 17 35
Penalties/suspensions 4 3 5
Notices of Intention to Revoke issued* 21 39 25
Annulments 59 5 0
Other (includes other audit activities such as pre-registration and Part V audits) 25 21 27
Total 726 652 548
Revocations as a result of an audit** 20 28 26

*These figures include situations where the audit is finished and the CRA has proposed to revoke the charity’s registration, but may not yet have done so because there is a pending objection or appeal.

**These figures sit outside the fiscal year totals as they may relate to audits where a Notice of intention to revoke was issued in a previous fiscal year, and for which the charity has already exercised its right to file an objection and/or appeal to the CRA’s decision to revoke its registration.

Do you have comments on the audit?

If we have recently audited your charity, we would like to hear from you. Do you feel we properly informed you about the audit process? Did you find the process helpful in understanding your obligations as a registered charity under the Act?

Send your comments to:

Director, Compliance Division
Charities Directorate
Canada Revenue Agency
Ottawa ON  K1A 0L5

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