Cathy Hawara, Director General, Charities Directorate, "The CRA Charities Directorate's Approach to Compliance", 2014 Conference Report, Canadian Tax Foundation, 37:1-10

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Requirement for direction and control over the charity's activities (pp. 37:5-6)

Registered charities may use their resources in only two ways: (1) by making gifts to qualified donees, or (2) by carrying on their own charitable programs….

…[I]n order to demonstrate that it is carrying on its own activity, a registered charity must maintain direction and control over the use of its resources. Although a charity can generally delegate the authority to make day-to-day operating decisions, it cannot merely be a conduit to funnel money to an organization that is not a qualified donee. A properly structured agency or joint venture agreement can help demonstrate direction and control. Even when an agreement exists, however, the charity must ensure that it is monitored.

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"Balanced" application intended (p. 37:9)

Previously, when charitable registrations were revoked for serious breaches of the Act (including issuing false receipts and participating in abusive tax shelter schemes), those who were in charge when the breaches occurred could, establish new entities and apply for registration, and the CRA could not refer to their history as part of its decision-making process. Although the new provisions give the CRA the discretion to determine which organizations will be registered and which will have their registration revoked or suspended, the CRA intends to act in a balanced way, recognizing that most organizations comply with the Act's requirements.

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Scope of political activities (p. 37:8)

An activity is presumed to be a political activity if it

1) explicitly communicates a public call to action;

2) explicitly communicates to the public that the law, policy, or decision of any level of government in Canada or a foreign country should be retained (if the retention of the law, policy or decision is being reconsidered by a government), opposed, or changed;

3) explicitly indicates in its materials (whether internal or external) that the intention of an activity is to incite, or organize to put pressure on, an elected representative or public official to retain, oppose, or change the law, policy, or decision of any level of government in Canada or a foreign country; and

4) as a result of the measures introduced in the 2012 federal budget, which came into force on June 29, 2012, a political activity also includes the making of a gift to a qualified donee intended for political activities. [fn 3: For specific guidelines, see "What Are Political Activities?" ...]

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Public v. private benefit (p. 37:7)

Any benefit to an individual or group of individuals must either (1) arise directly through pursuit of the charity's purposes (for example, relief of poverty), or (2) be incidental to the pursuit of those purposes (as in the case of programs pursued by community economic development organizations—for example, by providing inducements to attract social and community services to a distressed region).

When assessing private benefit, the Charities Directorate considers the following factors:

• the extent to which the private benefits are considered incidental;
• the degree to which the private benefits further the organization's charitable purpose; and
• whether the amount of private benefit is ancillary and incidental to the charitable purpose, and is reasonable. [fn 2: For specific guidelines, see Canada Revenue Agency, "Guidelines for Registering a Charity: Meeting the Public Benefit Test" (www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cps/cps-024-eng.html#N10509).]

The concerns examined by our Compliance section include personal private benefit (for example, the paying of personal expenses from a charity's resources), and engaging a company controlled by the charity's donors or officials rather than a company that offers the charity the best value.

Articles

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Education letters and compliance agreements generally are used over revocation (pp. 37:4-5)

The Charities Directorate takes an "education first" approach to compliance, and we have a range of tools at our disposal, such as education letters, compliance agreements, monetary penalties, suspension of receipting privileges, and revocation. In most instances, charities are provided with an opportunity to correct their actions through education or compliance agreements before other measures are considered.

Only in the most serious cases of non-compliance—for example, when an organization has a previous record of non-compliance, when the non-compliance has had a substantial adverse effect on others, or when an organization cannot or will not take steps to bring itself into compliance—does the CRA turn to revocation. …

… Results of the 2013-14 Audit Program
Outcome	Files	Percentage
Education letter	513	61.0
Compliance agreement	137	16.5
Clean	112	13.5
Notice of intent to revoke issued	34	4.0
Voluntary revocation	20	2.5
Other (part V audits, pre-registration audits, etc.)	13	1.5
Annulment	6	0.5
Sanctions	5	0.5
Total (excluding political activities audits)	840	100.0

Tax shelter audits (p. 37:6)

[T]he CRA…will continually audit tax shelter gifting arrangements, which includes auditing all registered charities that play a role in a tax shelter gifting arrangement.

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Penalty for incorrect information (overview) (p. 37:6)

Every registered charity that issues, in a taxation year, a receipt for a gift otherwise than in accordance with the Act and its regulations is liable to a penalty equal to 5 percent of the eligible amount of the gift. This penalty can be imposed for missing information, incorrectly recorded values, incorrect dating of the gift, or an incorrect donor name. For subsequent infractions, the penalty increases to 10 percent.

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Penalty for false information – fraudulent receipting also often results in revocation or criminal charges (pp. 37:6-7)

A person who makes or participates in the making of a false statement on a receipt is liable to a penalty equal to 125 percent of the eligible amount. This penalty can be imposed for fraudulent receipts—that is, receipts that the person knew, or would reasonably be expected to know, recorded incorrect information. If the total penalty exceeds $25,000, the result is mandatory suspension of the tax-receipting privileges of the charity.

Since 2004, the Charities Directorate has screened more than 200 files for audit where there was a suspicion of fraudulent receipting. To date, 188 audits have been completed, and 97 registrations have been revoked for cause. Numerous cases have been referred to CRA Enforcement for the potential laying of criminal charges.