Staying on the right side of CRA

publication date: Mar 13, 2012
 | 
author/source: Janet Gadeski
Yes, I am from CRA - but I come in peace! Danie Huppé-Cranford's opening words to delegates attending February's Being Good at Doing Good conference in Toronto raised a laugh. But they emphasized a helpful, open aspect of the Canada Revenue Agency that isn't always apparent in its official communications and pages of regulatory text.

The Charities Directorate of CRA has a threefold mandate. It reviews applications for charitable registration. It develops policy and provides information, communication and education for charities and donors. Finally, it ensures that registered charities comply with the requirements of the Income Tax Act - the function with which charity managers are most familiar.

Few audited, even fewer sanctioned

Cranford explained that CRA audits almost 1% of registered charities each year. During 2011/12, for example, 746 audits are in progress. Those audits are carried out by 40 auditors across Canada, and nearly 2/3 of the audits this fiscal year were triggered by suspected schemes for tax avoidance or fraudulent receipting.

Though it's the tax dodge and false receipt schemes that make the news, most of the audits are related to other issues such as incorrectly formatted (but not false) receipts, inadequate books and records, gifts to non-qualified donees, failure to maintain direction and control, and failure to file the Charities Annual Information Return (T-3010).

In 2010/11, for example -
  • just 10% of the charities audited were revoked, annulled or penalized with fines or suspension of receipting privileges;
  • 27% had to sign compliance agreements enforcing specific improvements in their procedures;
  • 54% received education to correct their processes; and
  • 9% were found to be fully compliant.
"We recognize that majority of charities are volunteer-run, and that they face high turnover and limited resources," Huppé emphasized. "They want to be compliant but circumstances deflect them."

"When we knock on your door..."

Huppé explained that CRA auditors will never show up on your doorstep unannounced. "We contact the charity first and provide context for the audit," she said. "We want to understand three things: are you still constituted for charitable purposes, still delivering charitable services, and have your finances in order."

The auditors will examine your internal controls, check that you have proper books and records, and verify that all your gifts are to qualified donees. They'll also want to see that you're completing your information returns and financial statements on time.

"If your controls and processes are correct," Huppé stated, "the auditor already has confidence in you. Plus, for your own sake, it helps protect your funds."

Keep full records, file on time

Complete records are important. You should hang on to your copies of official donation receipts; minutes of meetings of your directors or trustees, executives and members; all governing documents and by-laws; financial statements, source documents and copies of T-3010 returns; and all records concerning 10-year gifts.

Huppé noted that CRA does not require audited financial statements to accompany the T-3010. "Don't use that as an excuse for late filing," she warned. "File on time and send the financial statements when you get them."

To contact CRA, 1-800-267-2384 or 1-888-892-5667; charities information on the Web, www.cra.gc.ca/charities.


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