By Tanya Carleton
When a charity becomes aware that it has been non-compliant with either the Income Tax Act or the common law, it can cause great anxiety within the organization. According to the CRA, however, most non-compliance issues are “unintentional, accidental, and often of low material consequence,” and they encourage charities to disclose any non-compliance issue to the Charities Directorate. Non-compliance issues that charities might experience include:
- keeping inadequate books and records;
- issuing receipts with inaccurate or missing information; and
- issuing inflated charitable receipts for gifts in kind.
Once a charity chooses to disclose to the Charities Directorate, it must provide the Directorate with a complete and accurate description of the non-compliance, including:
- an explanation of the non-compliance issue,
- the length and extent of the charity’s involvement in the non-compliance;
- how the non-compliance issue arose; and
- the amount of physical, financial and human resources that were involved in the non-compliance.
If it has not yet done so, the Directorate will require the charity to correct its non-compliance within a reasonable amount of time. In situations that are unintentional or of low material consequence, the Directorate will use an education letter and/or a compliance agreement to give a charity the opportunity to bring itself back into compliance and avoid any further penalties and sanctions. A charity may also be asked to present a plan to the Directorate that outlines what the charity is planning on doing, or already has done, in order to prevent future issues.
Charities should remember, however, that participation in fraudulent schemes such as issuing false tax receipts or participating in tax shelters will not be covered by compliance agreements and will most likely result in the charity losing its registered charitable status.
More information can be found online on the Canada Revenue Agency website.