Every once in a while, the Charities Directorate of the Canada Revenue Agency sends out a news release with details about a charity that has had its charitable status revoked.  It is interesting to compare the revocations the CRA widely publicizes in this way and the ones they do not. A quick search of the CRA website reveals that in 2012, the CRA Charities Directorate has revoked the charitable status of almost fifteen hundred Canadian charities. Of those, approximately half have been revoked for failure to file their annual information return or for cause, and the other half have been revoked voluntarily.

Don’t take charitable information return lightly

One situation where charitable status was revoked for failure to file the annual return was that of Charity Intelligence. It is interesting because this organization, according to its information on its website, purports to help potential donors by analyzing charities across a number of matrixes including management strength. When the purported watchdog of charities gets its charitable status revoked for failing to file its return, one sees how easily this could happen. 

All charities should be aware that they need to file that annual return.  It is one of the most important documents that a charity must complete each year. Survival as a charitable entity depends on it.

Stay ahead of required paperwork

There are other important things that we can learn from past revocations. In this year alone, many of the charities that lost their status for cause have had it revoked because they have ceased to exist as an entity at law. This may mean that they have simply failed to file annual returns with the provincial or federal body under which they are incorporated, and so have been struck off the relevant registry. If you don’t have any existence at law, then you cannot continue to be registered as a charity under the Income Tax Act of Canada.

One entity that the Charities Directorate did highlight in a news release was The Canadian Quadriplegic Association. This association failed to keep adequate books and records, and had not kept any records of the receipts that it had issued. The CRA found taxpayers submitting receipts that totaled over $400,000 and figured out the discrepancy. One questions how an organization could miss $400,000 in revenue receipts on their books and records.

Common causes for revocation

It is hoped that no charities who read this newsletter are guilty of any of the following that have resulted in revocations in the year 2012:

• Not keeping adequate books and records so CRA can confirm amounts devoted to charitable activities;
• Providing a personal benefit to a director or member of the organization;
• Failing to meet the disbursement quota;
• Failing to devote all of its resources to charitable purposes and activities,;
• Not keeping duplicate copies of donation receipts;
• Participating in a dubious tax shelter or promoted donation arrangement;
• Issuing improper receipts;
• Allocating the majority of resources to finance and administrative expenses;
• Filing an inaccurate T3010 annual information return;
• Not maintaining adequate direction and control over resources purportedly used in foreign programs;
• Acting as a conduit for non-qualified donees;
• Issuing receipts on behalf of non-qualified donees; and
• Contributing funds to organizations that were named on such lists as the United Nations Security Council’s Al-Qaida and Taliban and Sanctions Committee or the United Nations Suppression of Terrorism Regulations.

One lesson to be learned is that if you don’t know what organizations are on any “no donate lists,” you should make yourself aware, just in case.  Furthermore, check your information return to make sure it’s accurate. Finally, if any of the bullet points describe your activities – be very afraid.

Yvonne Chenier prefers to work for clients in the philanthropic and aboriginal sectors, acting as general legal counsel and advising on planning, organizational, regulatory and governance matters.

She has served as a trustee, board member or founder of numerous organizations. She is actively involved in her professional associations and speaks frequently to various groups on topics ranging from legal to financial matters.

Email Yvonne or visit www.drache.ca.