Charitable organizations (Canada)

Charitable organizations (Canada)

Charitable organizations in Canada are regulated under the Canadian Income Tax Act through the Charities Directorate of the Canada Revenue Agency.

There are more than 85,600 registered charities in Canada.[1] The charitable sector employs over 2 million people and accounts for about 7% of the GDP of Canada. Registered charities are registered under the Income Tax Act (Canada)[2] as either a "charitable organization", "public foundation" or "private foundation". Although these distinctions were more important in the past, there are now few practical differences between the three types of registered charities.

Contents

Federal regulator of charities

The Charities Directorate[3] of the Canada Revenue Agency is the primary regulator of registered Canadian charities under the Income Tax Act.

The mission of the Charities Directorate 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."[4]

The Charities Directorate of the Canada Revenue Agency is responsible for:

  1. determining which organizations will be granted registered charity status.
  2. providing information to registered charities on legal compliance issues.
  3. receiving and maintaining a database of Canadian registered charities with copies of the T3010 registered charity information return.
  4. auditing charities to check compliance with their responsibilities and obligations.
  5. providing general information to the public on donations to registered charities.

Advantages of registered charity status

There are many advantages of being a registered charity under the Income Tax Act (Canada) including:

  1. being able to issue "official donation receipts" for gifts to the registered charity which may assist a Canadian donor in reducing the amount of federal and provincial tax payable. For a donor in a high marginal tax rate in Canada, their donation can result in a reduction in taxes of between 40-60% of the donation depending on the province of the taxpayer and type of property donated.
  2. it is easier to receive funds from certain entities such as other Canadian registered charities (e.g. foundations) or being a registered charity may be a condition of applying for grants from business or government etc.
  3. there are reputational advantages to being a registered charity.
  4. other advantages including reductions in property tax, exemptions and rebates under the GST/HST system.

In light of the substantial advantages of being a registered charity there are some restrictions, limitations and obligations of being a registered charity which are discussed below.

Definition of charity in Canada

The Income Tax Act does not define "charity" and Canada uses a common law definition, namely purposes that fall within the four "heads" of charity: the relief of poverty, the advancement of education, the advancement of religion,[5] or other purposes that benefit the community in a way the courts have said are charitable.

This definition comes from the English case Commissioners for Special Purposes of Income Tax v. Pemsel[6] commonly referred to as Pemsel.

The organization's purposes must be exclusively and legally charitable. Therefore all the purposes of the charity must be charitable, not just most purposes. In addition the organization must be established and resident in Canada.

Furthermore, there is a public benefit test: the charity must benefit the public or a sufficient segment of the public to be a registered charity in Canada.[7]

Basic requirements for maintaining registered charity status in Canada

According to the CRA the basic requirements[8] for a Canadian registered charity to maintain its status are as follows:

  1. conduct allowable charitable activities and avoid prohibited activities.
  2. keep adequate books and records.[9]
  3. properly issue official donation receipts.[10]
  4. meet the annual spending requirement called the disbursement quota,[11]
  5. file the T3010 Registered Charity Information Return with the CRA.[12]
  6. maintain status as a legal entity.
  7. inform the CRA of certain changes.[13]

Charitable activities

Canadian registered charities can carry out charitable activities by either gifting funds to a qualified donee or by carrying on its own activities through employees, volunteers or intermediaries.[14]

Canadian charities can also, within certain limitations, carry out fundraising activities[15], business activities[16], political activities[17] and social activities.

The Charities Directorate provides a glossary of terms relating to charity law and compliance for Canadian charities.

Canadian charities can conduct charitable activities in Canada and abroad.[18] In July 2010 the Charities Directorate released "Canadian Registered Charities Carrying Out Activities Outside Canada" which replaces earlier guidance on Canadian charities conducting foreign activities. There are numerous legal and ethical issues with Canadian charities conducting foreign activities.[19]

Other regulators of Canadian charities

In addition to the federal Income Tax Act regulation of registered charities, charities that operate in a particular province are subject to the jurisdiction of the public guardian and trustee of that province. The provinces and territories have varying degrees of involvement with charities. For information on different resources from the provincial and territorial governments see http://www.cra-arc.gc.ca/chrts-gvng/chrts/dnrs/rgltn/5-eng.html Of all the provinces, the Ontario Public Guardian and Trustee has been most active in the regulation of charities.[20]

The Department of Finance Canada is responsible for the Income Tax Act (Canada), its regulations and any amendments to the Act.

If there is a dispute between a federal or provincial regulator and a registered charity then that registered charity may go to court in which case the courts will have the final say in determining the outcome of the dispute.

Other government departments are also involved with regulating charities. For example, if a charity is incorporated it is subject to the rules of the incorporating statute. Therefore, an Ontario non-profit corporation must look in part to the Ontario Corporations Act and a federal non-share capital corporation is governed under the Canada Corporations Act. Different types of charities are subject to sectoral regulation - for example universities, hospitals, daycares, etc.

Misuse of charitable resources

There have been some concerns expressed about misuse of Canadian charitable resources from the media[21], government, and the public. Recently the OECD published a report highlighting concerns about Canadian charities being used for tax evasion and money laundering entitled "Report on Abuse of Charities for Money-Laundering and Tax Evasion"[22]. The Charities Directorate of the CRA has a number of web pages alerting donors to avoid abusive tax shelter donations schemes and fraud involving charities.[23]

In July 2010 there was widespread coverage of the fraud of Ashley Kirilow, a young Ontario woman who shaved her head, her eyebrows, and plucked out her eyelashes in order to represent herself, on her facebook page, as a cancer sufferer, so she could solicit donations to support her recovery.[24][25] Commentators speculated on the chilling effect her fraud would have on online donations.[26]

Academic resources on charity law in Canada

The primary academic resource for charity law in Canada is The Philanthropist. In 2009 The Philanthropist was converted from a quarterly subscription model to a free online resource.

References

  1. ^ "Charities Listings". Canada Revenue Agency. http://www.cra-arc.gc.ca/ebci/haip/srch/advancedsearchresult-eng.action?n=&b=&q=&s=registered&d=&e=+&c=&v=+&o=&z=&g=+&t=+&y=+&p=1. Retrieved 2011-11-06. 
  2. ^ For an updated version of the Income Tax Act (Canada) see http://laws.justice.gc.ca/eng/I-3.3/index.html
  3. ^ Their website is located at http://www.cra-arc.gc.ca/chrts-gvng/menu-eng.html
  4. ^ http://www.cra-arc.gc.ca/chrts-gvng/chrts/bt/mssn_vsn-eng.html
  5. ^ See Advancing Religion as a Head of Charity: What Are the Boundaries? by Terrance S. Carter The Philanthropist, Vol 20, No 4 (2007)http://www.thephilanthropist.ca/index.php/phil/article/view/20
  6. ^ Commissioners for Special Purposes of Income Tax v. Pemsel, [1891] A.C. 531 (H.L.)
  7. ^ See Guidelines for Registering a Charity: Meeting the Public Benefit Test[1]
  8. ^ The checklist is contained at http://www.cra-arc.gc.ca/E/pub/xi/rc206/rc206-e.html
  9. ^ http://www.cra-arc.gc.ca/chrts-gvng/chrts/prtng/bks-eng.html
  10. ^ http://www.cra-arc.gc.ca/chrts-gvng/chrts/prtng/rcpts/menu-eng.html
  11. ^ The disbursement quota was revised in March 2010 so that the 80/20 expenditure requirement was removed and Canadian charities must now only spend 3.5% of the average of their property not used directly in charitable activities such as endowments, investment property etc. http://www.cra-arc.gc.ca/gncy/bdgt/2010/chrt-eng.html
  12. ^ For the form and guide see http://www.cra-arc.gc.ca/E/pbg/tf/t3010b/README.html and for further information see http://www.cra-arc.gc.ca/chrts-gvng/chrts/prtng/rtrn/menu-eng.html
  13. ^ http://www.cra-arc.gc.ca/chrts-gvng/chrts/prtng/chngs/menu-eng.html
  14. ^ [2]
  15. ^ See CRA's recent Guidance on Fundraising
  16. ^ See CRA's CPS-019 What is a Related Business?
  17. ^ See CPS-022 [3] and also Helping Charities Speak Out: What Funders Can Do by Richard Bridge, Nathan Gilbert The Philanthropist, Vol 20, No 2 (2005) [4]
  18. ^ "Guidance for Canadian Registered Charities Carrying Out Activities Outside Canada". www.cra-arc.gc.ca. http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/tsd-cnd-eng.html. Retrieved 2010-09-05. 
  19. ^ See Canadian Charities and Foreign Activities by Mark Blumberg, The Philanthropist, Vol 21, No 4 (2008)http://www.thephilanthropist.ca/index.php/phil/article/view/2/2 See also Amy, David G. (2000). Foreign activities by Canadian charities. The Philanthropist, 15(3), 41 - 69.
  20. ^ "Ministry of the Attorney General - Charities". www.attorneygeneral.jus.gov.on.ca. http://www.attorneygeneral.jus.gov.on.ca/english/family/pgt/charities/. Retrieved 2010-09-05. 
  21. ^ Investigative Reporter Kevin Donovan of the Toronto Star and investigative reporter David Baines of the Vancouver Sun newspapers have the most interested and prolific in exposing the misuse of charities in Canada. Also in The Philanthropist, Vol 22, No 1 (2009) see Fraud in Canadian Nonprofit Organizations as Seen Through the Eyes of Canadian Newspapers 1998-2008 http://www.thephilanthropist.ca/index.php/phil/article/view/511
  22. ^ See http://www.oecd.org/dataoecd/30/20/42232037.pdf
  23. ^ [5]
  24. ^ "Cancer faker gets new charge: Kirilow's former co-worker says charge relates to fundraiser in Burlington, Ont.". CBC News. 2010-08-11. http://www.cbc.ca/canada/toronto/story/2010/08/11/kirilow-bail-hearing943.html. Retrieved 2010-08-18. "An Ontario woman accused of faking cancer in order to elicit donations for herself has been charged with an additional count of fraud over $5,000." 
  25. ^ Stephanie Dearing (2010-08-09). "Ashley Kirilow vilified for alleged cancer charity scam". Digital Journal. http://www.digitaljournal.com/article/295735. Retrieved 2010-08-18. "Those in the know allege Kirilow made off with at least $20,000, an amount that under different circumstances would only merit the young woman a mention in the local newspaper after she'd been found guilty. But because Kirilow claims she faked cancer to get the money, her story has gone around the world."  mirror
  26. ^ Reka Szekely (2010-08-13). "Charities extend their reach online". Durham Region News. http://newsdurhamregion.com/opinion/article/159923. Retrieved 2010-08-18. "At worst there's the case of Ashley Kirilow, the Burlington woman accused of faking cancer and bilking thousands of dollars from people eager to support her. Ms. Kirilow is accused of posting pictures of herself bald and with plucked eyebrows and eyelashes on her Facebook group for an alleged bogus charity called "Change" for a Cure. Reading about the allegations against Ms. Kirilow is disheartening and inevitably leaves people feeling jaded about charitable organizing via social media."  mirror

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