Transcript

Let's jump right into non-charitable activities on the next slide. These usually arise, that is the non-charitable activities usually arise as charities expand their programs and take on activities which are outside of their charitable mandate. Most often we see a mix of charitable and non-charitable activities, in which case what charities can usually do is simply eliminate the non-charitable activities and in such a way they're able to get back on track. However, it sometimes is the case that charities have completely shifted their focus and they are no longer – the organization no longer fits the requirements for a registered charity. As such, it would be – consequently, it would be revoked because it is no longer carrying on charitable programs.

A variety of reasons might account for this including, for example, the organization's evolution over time, funding problems, the changes in the service population. All of these can lead to what we're calling "Organizational Drift." It is vital for charities to consider that when they take on a new program or when they contemplate a new program, they have to ensure that it meets the requirements for charitable registration. If you're unsure about this and you want to carry out a new program, we encourage you to call in to our 1-800 Client Assistance Line. We can review the program with you over the line, or even, you can write in to our Client Assistance Line and we can review the program and then, that way we will be able to tell you whether or not this particular program, this particular activity meets the requirements for charitable registration. Also, you can always consult our website and you've got a list of – a whole gamut of educational resources there to let you know what is charitable and what is not. So, that's non-charitable activities.

Moving on to our next issue, this is Gifts to Non-Qualified Donees. Generally speaking, a qualified donee is other registered charities in Canada. There may be other types of organizations, or rather; there are other types of organizations that do qualify, as well. Examples would be a registered Canadian amateur athletic association or registered National Art Service Organization, or even some Universities that are outside of Canada. These Universities would be listed in Schedule 8 of the Income Tax Act Regulations. There are some other types there. For all the qualified donees, I can refer you to our T-3010 and on the T-3010 we've got a definition of what is a qualified donee. And as well, we also have, on our website the list of qualified donees. If you're a registered Canadian charity, then you are a qualified donee and that's going to make up the vast majority of what is a considered a qualified donee. I'll point out that if an organization carrying on their programs in one of two ways, which is, they are going to be gifting to qualified donees, or, if you're not doing that, then you should be spending your money on your own resources.

Moving on to your next slide, this is Gifts to Qualified Donees. We've got some more information here for you. What we're seeing is charities are often getting into trouble in this regard because they are eager to support a worthy cause in their region and they often assume that because the cause sounds charitable that it meets the definition of a qualified donee. However, this is not always the case. Charities should avoid this where possible by understanding which organizations fit the definition of qualified donee and ensuring before they give money to an organization, that it is, in fact, a qualified donee.

Charities can also avoid trouble by not issuing receipts for or lending their registration number to other organizations. As highlighted on this slide, there are penalties as a result of gifting funds to a non-qualified donee. So, just be aware of that.

Moving on to our next issue and next slide which is Failure to Maintain Direction and Control of the Charity's Resources. When a charity is carrying out activities through an intermediary, often times this is done with an intermediary outside of Canada, but this applies equally to organizations, that is registered charities operating through intermediaries inside of Canada.

In order to remain sure that they're following all the steps, we recommend the following things be in place. For example, they should be creating a written agreement with the intermediary and implement its terms to ensure the charity is maintaining direction and control. Communicate a clear and complete and detailed description of the activities to the intermediary. Monitor and supervise the activity. Provide clear, complete, detailed, ongoing instructions to the intermediary.

For agency relationships, if this happens to be your case, make sure that you segregate the funds as well as maintain separate books and records. As well, make periodic transfers of resources based on demonstrated performance, not just one lump sum, but periodic transfers. And, of course, maintain adequate books and records at an address located in Canada.

A charity must maintain a record of its steps taken to direct and control the use of its resources in order to comply with this requirement. If they aren't doing so, then the CRA is unable to verify that all of the charity's resources are being used in its own activities. So, in short summary, a written agreement alone is not enough. An agreement along with a record of its implementation is needed. For more information about that, I'll refer you to our webinar Activities Outside of Canada, also, we have our Guidance, Canadian Registered Charities Carrying on Activities Outside of Canada. In Appendix F of that Guidance, you will find a list of those items that I have just gone through. So, that's Failure to Maintain Direction and Control.

Moving on to the next issue of compliance, which is Fundraising. I should say that, from the media's perspective, this is the number one compliance issue. The amount of money spent on fundraising and the resulting amount netted by organizations tends to be a measuring stick for how well a charity is managed and whether an organization is worthy of donations by the Canadian public. While the CRA recognizes that, of course, charities have to incur reasonable administrative and fundraising expenditures in pursuit of their charitable programs, bear in mind that a fundraising expenditure is not a charitable expenditure. So, when fundraising becomes a disproportionate amount of the charity's resources relative to its charitable programs, then this, or for example, it takes on unreasonable or unacceptable fundraising, this could jeopardize the charity's status. For the ratio of fundraising expenses to revenue, it's important to consult our Guidance that has recently come out, I'd say in the last couple of years, that Guidance is CPS-028, Fundraising by Registered Charities, CPS-028, Fundraising by Registered Charities. And in that Guidance, we're going to indicate the thresholds there between how much should be spent on charitable programs versus how much can be spent on fundraising expenditures.

Moving on to the next slide to continue our information about fundraising, I just want to stress it again, that a fundraising expenditure is not a charitable expenditure. So, excessive fundraising expenses often lead to misallocation of expenses – or, sorry, misallocation of the charity's expenses in an attempt to disguise or offset the costliness of a fundraising activity. This is something that we have seen in the sector. Recently, this trend in over-valuing property received or acquired in order to, if you will, bump up the appearance of expenditures on charitable programs, this is something we've seen and it's a concern for us. The issue is serious enough that it could result in the suspension of a charity's tax receipting privileges or even its revocation. I should also mention that the same issue we have noted in the U.S. and, as well, in Australia. So, that's with respect to fundraising issues.