For many years, increasingly stringent regulation of the charity sector pushed oversight of the not-for-profit sector off the list of priorities. There was not even any good data on the number of not-for-profit organizations (NPOs) in existence, because the CRA did not compel them to file basic tax forms. Over the past several years, however, the Department of Finance and the CRA have started taking a closer look at the sector, beginning with a three-year review of over 1000 ostensibly random audits of NPOs. The final Not-for-Profit Report was just issued on February 17, 2014.
The report itself says next to nothing about the results of the finding, and instead ‘reports’ the exactly what would be expected from a government report, namely that there are a number of NPOs that are off-side the rather sparse rules. We could have easily predicted such a finding before the study was even done, but perhaps the reticence of the report is telling in and of itself.
Historically, there has not been any real discussion in this country (at least at the political level) about the role NPOs can or should play in the development of our social fabric. Even a discussion about which organizations should qualify as charitable proved to be so raucous that the decision was effectively left to the courts. NPOs, occupying as they do the gray area between for-profits and charities, did not even get that far.
It seems clear that the report will serve as pretext for a number of new regulations affecting the non-profit sector, but perhaps it could also catalyze a proper discussion about the role NPOs play in our country and what types of organizations should qualify for special tax treatment. This is exactly the same type of discussion that leaders of the charity community have been pushing for years, driven particularly by their concern about the judicial stagnation of charitable purposes. While those discussions have not proved fruitful, the reasons for their lack of movement do not apply to the not-for-profit sector.
Moreover, the timing for such a discussion is propitious because the Department of Finance is obviously set to bring in a number of new rules. Reading between the lines of the report, it seems likely these rules will limit the number of organizations that qualify for NPO status and its attendant special tax treatment. If the not-for-profit sector does not instigate a national discussion before these rules are made into law, the NPO sector will have a weaker position after the proposed laws are in the public arena.
It should not be assumed that the current Canadian system is in Canada’s overall best interests. Different countries have different classifications for not-for-profit organizations like political, benevolent, or industry groups, which are distinctions that Canada currently lacks. It may well be that Canadians are interested in such a system, wishing to bestow tax advantages on groups of a certain character but this will never be determined if no discussion is had about which organizations should be entitled to benefits and to what extent, and the time for such a discussion is now.
Drache Aptowitzer LLP
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