Top Compliance Issues from the CRA Charities Directorate

As part of the quarterly updates from the Charities Directorate, the CRA notes their top compliance issues from the 2023/24 year. We've summarized them here for you!

Books and records

Reason to educate - minor errors:

• Non-material and/or unintentional errors and/or omissions in the books and records

• Not having a travel log to support minor expenses

• Not maintaining a copy of current governing documents

Examples of high-risk non-compliance:

• Having no books and records available

• Refusing to provide books and records

• Committing culpable conduct (falsified books and records)

Official donation receipts

Reason to educate - missing minor elements:

• A statement that it is an "official receipt for income tax purposes"

• The place or locality where the receipt was issued

• The name Canada Revenue Agency and the website address (canada.ca/charities-giving)

Examples of serious non-compliance:

• Issuing falsified/fraudulent/inflated receipts

• Issuing receipts for services

• Lending registration number to other organizations

T3010 information return

Reason to educate - unintentional minor errors:

• Allocating fundraising expenses to the wrong reporting line

• Incorrectly reporting line 5010 “Total expenditures on management and administration”

Examples of intentional/serious errors:

• Significant inaccuracies, beyond what is reasonably considered minor*

• Willfully omitting information from the T3010 and/or financial statements

• Failing to file a return as and when required (which results in a revocation for failure to file)

*Opportunities for the Disabled Foundation v MNR, 2016 FCA 94 at paras 50-51.

CRA typically addresses minor errors without an audit, through communications like education letters.

Audits tend to be reserved for situations where a high risk of potential non-compliance has been identified. CRA uses stronger corrective measures, such as sanctions or revocations, in cases of serious non-compliance.

If you’re concerned about the compliance of your books and records, read Finance for the Arts in Canada to learn all about best practices for keeping your books up to date and accurate.

2024 Charitable Donation Deadline Extension Update

Recently, there's been some confusion around the announced extension of the deadline for making charitable donations eligible for tax support in the 2024 tax year. The extension allows individuals to include donations made between Jan 1 and Feb 28, 2025 on their 2024 tax returns. The Canada Revenue Agency (CRA) recently sent out an update on this matter which can be found here: Extension of the deadline for making 2024 charitable donations.

According to this CRA guidance, individuals may claim the eligible amount of certain gifts made to charities or other qualified donees up to February 28, 2025, on their 2024 personal income tax and benefit return. The gift must be in the form of cash, or transferred by way of cheque, credit card, money order, or electronic payment.

More importantly for our clients, CRA states that charities can issue receipts as normal according to receipting rules, and the CRA will work on their end to administer the extension. Charities are not required to issue official donation receipts specific to the extension period; however, they may wish to do so as a courtesy to its donors, especially if they generally receive only one annual receipt for multiple donations.

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How to Access My Business Account and Authorize a Representative with the CRA

“My Business Account” is your organization's account page with the CRA. If your organization has a Business Number, it will automatically have a Business account. However, it can sometimes be difficult for organizations (charities especially) to register for or get access to My Business Account.

For businesses that have owners, the owner's SIN is automatically linked to the BN, which simplifies the process. Charities, of course, do not have owners -- but CRA considers the board of directors to be the "owner." This creates complexity for charities because as board members change, the owners list in My Business Account must be updated. If the list falls out of date, charities can have difficulties getting access.

When your Business Number is first set up, the owner of your organization will have their SIN automatically linked to your BN, and will be able to access My Business Account. For charities, the owner of the organization is typically the board of directors. If the board changes and new board members aren’t added to the owners list in My Business Account, it can lead to difficulties getting access.

Having access to My Business Account is very important, as it allows you, your accountant, or your bookkeeper to perform essential tasks related to GST/HST, payroll, and the administration of your charitable status.

We’ve seen a number of organizations run into roadblocks when adding a representative to My Business Account, so we’ve created the following instructions to help you along the way.

We’ve also addressed a number of common issues at the bottom of this page.

Adding a Representative

Before you start, you will need the following:

1. Your organization’s Business Number

2. The RepID, GroupID, or Business Number of the person or entity you’re adding as a representative

3. Make sure you can log into My Business Account as an owner, or to Represent a Client as a level 3 delegated authority (see: What is a “Level 3 delegated authority?” below for more information)

If you don’t have all of the above, see the bottom of this article for tips on how to get the process started.

Step 1: Log in through My Business Account using your regular CRA credentials

• Use whichever login information you use for your own CRA login. If you do not have a CRA login, follow the instructions through CRA sign-in services. 

• Note: Only business owners can authorize a representative through My Business Account. However, representatives with Level 3 delegated authority can also add new representatives through Represent a Client. 

  • If you have Level 3 access, log in to Represent A Client and enter your organization’s Business Number to access the Business Account. Start at step 2 below to complete the process of adding a representative.

Step 2: Go to “Profile” at the top of the page:

Step 3: Find “Manage authorized representatives” partway down the page:

Step 4: Click the “Authorize a representative” button

Step 5: Enter the RepID, GroupID, or Business Number (BN) of the entity you wish to authorize

• If you are a Young Associates client, you can use our Business Number: 818854564

Step 6: Click Next

Step 7: Select “Update and view (level 2)”. This allows your accountant or bookkeeper to view your information and submit filings on your behalf. For more information about the different levels of access, visit the CRA website.

Step 8: No expiry date is required

Step 9: Select “All accounts”

Step 10: Click Next

Step 11: Confirm and submit

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Common Issues, Questions, and Next Steps

• If you do not have a CRA login

  If you're not already registered with the CRA, follow the instructions through CRA sign-in services.

  If you already use your CRA “My Account”, you can use the same credentials to log into My Business Account and to Represent a Client.

• If have a CRA Login but have not signed in through My Business Account before

  If you're already registered for “My Account” with the CRA, you will also have access to My Business Account and Represent a Client. Use the CRA user ID and password (or sign-in partner) that you use for your personal CRA account to sign in to My Business Account or to Represent a Client.

• If you are able to log in to My Business Account but don’t see the BN of your organization or are seeing an error message

  Log in to My Business Account and navigate to “Manage profile – add BN to profile”.

  Enter your organization’s Business Number (BN).

  If your SIN or ITN is associated with the BN in the CRA’s records, you will now have access to My Business Account.

  If you encounter an error message with ref. code: MBA-001 when entering your organization’s Business Number in My Business Account, it means that your SIN is not associated with the BN in the CRA’s records.

  You will need to call the CRA at 1-800-959-5525 to request for your SIN to be associated with the BN. They will ask you to confirm your identity by responding to confidentiality questions that will require you to refer to recently filed tax documents and articles of incorporation. Have your files handy.

• If an owner at your organization already has access to My Business Account, and you also need access

  You can gain access as a level 3 delegated authority. Ask whoever currently has access to authorize you as a level 3 representative using your RepID.

  If you are an owner, partner, or director of the organization, you will want to be added to the CRA account as an owner. You will need to go through the process of adding yourself as an owner by following the instructions on this page of the CRA.

• If you do not have a RepID

  Visit the Represent a Client page and log in using your CRA login credentials. Once logged in, you will be prompted to set up a Represent a Client account and will receive a RepID.

  If you don’t have CRA login credentials, go to the Represent a Client page, scroll down to the link that says "CRA Register" and follow the instructions to log in.

• What is a “Level 3 delegated authority?”

  When an owner adds a representative to My Business Account, they can specify 3 levels of access (more information on this page of the CRA website). Level 1 is view-only. Level 2 can make certain changes to the account (this is the typical access you would grant your bookkeeper and accountant). Level 3 allows full access, including authorizing new representatives.

  Level 3 access can only be granted to an individual with a RepID, not an organization, and would typically be used to give access to Executive Directors or other high-level staff at an organization.

  If a delegated authority leaves their position, they should authorize another representative to fill their role. This ensures that owners or directors do not need to approve a new delegated authority.

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This tip sheet was created by the Young Associates team based on the best information available as of the date of posting.

The contents of this tip sheet comprise Young Associates’ views. They do not constitute legal or other professional advice. You should consult your professional advisor for advice relevant to your situation.

Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, with a focus on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005, 2023), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.

Charities Working with Intermediaries

Registered charities are held to high standards of behaviour. Through the T3010 and its compliance program (read: audits) the CRA’s Charities Directorate monitors how charities receive and spend money. As a charity manager, you need to be careful about how you work with non-charities. Of course charities work with nonprofits and other organizations all the time! It is your responsibility to ensure that your working arrangements are compliant.

The CRA recently issued a new guidance document concerning charities working with non-charities in Canada, and we wanted to draw your attention to this new version of the plain-language guide to help you clarify your internal policies. Specifically, the issue is charities accepting money for the purpose of passing it on to another organization. In these cases, charities are accepting money on behalf of non-charities — often in situations where the non-charity solicits the funds — and are transferring the funds to the non-charity to use in various projects. 

Sometimes people refer to this as a “charitable trusteeship” (not language that CRA uses), and an avenue whereby a charity can help a non-charity to attract donations. Be careful! If this is how you’re thinking about it, quite likely you are not complying with the regulations.

According to the CRA, the Income Tax Act allows a charity to operate in only two ways:

1. carrying on its own charitable activities

2. making gifts to qualified donees

Qualified donees include registered charities and other organizations that have been granted status by CRA.

The worst-case scenario is an arrangement whereby the charity acts as a conduit by simply passing on the funds with no meaningful oversight.  CRA states, “a conduit is a charity that funnels its resources to a non-qualified donee without direction or control. Acting as a conduit contravenes the Income Tax Act, and could jeopardize a charity's registration.”

The key to remaining compliant is a written agreement — an “intermediary agreement” — drafted specifically with reference to CRA’s guidelines. 

The intermediary arrangement brings the relationship under point 1, above, making clear that it’s part of the charity’s own activities, and that the activity falls within the charity’s mandate. The agreement must specify how the charity will exercise direction and control over the project. This includes monitoring and supervising the activity throughout the duration of the project.

In order to comply with the Income Tax Act, you need to state, first, that your organization is a registered charity, set out how the proposed activities further your organization’s charitable objects, and then how you will monitor and supervise the project as it unfolds.

When these criteria are met, it is possible to remain compliant when entering into the agreement. Failure to comply with the CRA guidelines can result in temporary or permanent revocation of your charitable status, and we want to make sure that that doesn’t happen. 

Part of our service to you is to be conversant with applicable CRA rules, and alert to possible non-compliance risks. If you have any further questions, we are happy to assist in your research and share resources that may help in your decision-making. 

How Young Associates can assist

A consultation with us may make all the difference to your comfort level and confidence that your accounting system is up to the challenge of the pandemic. 

We’d also be happy to give you a quote for full-service bookkeeping. 

We work on the basis of fixed price agreements, so you’ll know going in how much our work will cost — and we always offer a money-back guarantee: if you’re not completely delighted with our service, we will, at your option, either refund the price, or accept a portion of said price that reflects your level of satisfaction. 

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This tip sheet was created by the Young Associates team based on the best information available to us as of the date of posting.

Although every effort has been made to provide complete and accurate information, Young Associates makes no warranties, express or implied, or representations as to the accuracy of content in this tip sheet. Young Associates assumes no liability or responsibility for any error or omissions in the information contained in the tip sheet. 

Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, with a focus on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005, 2020), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.

By the end of 2018 charities will be able to manage CRA filings online

Staff Post
By Anna Mathew

By the end of 2018 charities will finally be able to do most of their government submissions and communications online. The improvements are part of the Charities Modernization Project (CHAMP) which came out of funds earmarked in the 2014 Federal Budget for IT improvements at the CRA. 

From the CRA:

The 2014 Federal Budget provided the Directorate with $23 million to modernize its IT systems over a five year period. Improving these systems will allow charities to apply for registration and file their annual returns electronically, reducing their administrative burden.

As part of CHAMP, by the end of 2018:

• Form T2050, Application to Register a Charity under the Income Tax Act, will be replaced by a new online application for registration e-service.
• Registered charities will be able to file their annual returns online through the CRA's My Business Account.
• The Charities Listings will be improved to help Canadians make informed choices about charitable giving.

Drache Aptowitzer has a September 2017 article which discusses the implications and how charities should prepare for the change to online submissions and communications. They advise:

1. Assigning a person inside the charity to be the main authorized user;
2. Ensuring that person is subscribed the the Charities Directorate e-lists and visits the Charities Directorate website regularly for updates;
3. Ensuring that person is aware of what information about charities is publicly available on the CRA website and understands the concept of 'garbage in garbage out' (if a charity gives bad quality data to the CRA, that bad quality data is what will be displayed in the publicly accessible CRA systems); and,
4. Ensuring that person is aware that all documents filed by the charity with the CRA will be available to all authorized users, so the charity should assess who currently has authorization and maintain their policy and update their authorization lists regularly.

Visit the full Drache Aptowitzer article here. 

At what point would our accumulated surplus be so large that we’d be in trouble with the Charities Directorate?

The Charities Directorate of the Canada Revenue Agency does, indeed, have rules around accumulation of property. The particular rule that charities are probably thinking about if they’re worried about the size of their accumulated surplus is the disbursement quota (DQ). The purpose of the DQ is to establish a minimum requirement for spending on charitable activities, with reference to the wealth that a charity has accumulated. As long as you maintain an appropriate level of charitable activity – measured through your spending – you are compliant with this rule.

CRA provides guidance about its spending requirements here. Note that there are separate rules for charitable organizations, which exist to deliver charitable programs and services, and foundations, which exist to support charitable programs and services.

Young Associates works with many smaller charitable organizations. Most groups in this category are unlikely to have accumulated property at a level that would cause non-compliance with the CRA. However, this is an issue that may involve complex legal and financial concepts. If you have concerns, it is wise to discuss your situation with a professional.

CRA defines its requirement for charitable organizations as follows:

If the average value of a registered charity's property not used directly in charitable activities or administration during the 24 months before the beginning of the fiscal period exceeds $100,000, the charity's disbursement quota is:

3.5% of the average value of that property.

The interpretation of this hinges on what property is not used directly in charitable activities or administration. CRA lists real estate and investments as examples. 

A charity, for instance, may hold long-term investments such as units in a mutual fund, and use the resulting interest revenue in its operations. However, the principal sits intact for multiple years, not directly used for charitable activity. (This is distinct from the case of a charity that places short-term investments to earn some interest revenue before the investment matures and the principal winds up in a chequing account, available for spending.)

A charity may also own a building that it doesn’t currently occupy; this may be the case for institutions such as hospitals, universities and churches, which may have considerable real estate holdings and needs that change over time.

Once you have identified property that meets CRA’s definition of “not used directly in charitable activities or administration,” you must calculate its average value over the two years before the start of the current fiscal year. CRA provides some latitude in how the average may be calculated. If your organization needs to make this calculation, the method for assessing value and calculating the average over time would be a good topic for discussion with your CPA.

Last step: calculate 3.5% of the average value. That yields the amount your organization is obliged to spend on its charitable activities or administration during the current year. 

Let's say your charity owns an investment portfolio, and you determined that its average value over the last 24 months was $100,000. Your DQ for the current year would therefore be $3,500.

You can see that this is actually a pretty low bar to jump over! Most organizations with the capacity to build a $100,000 investment portfolio would have operations that demanded more than $3,500 in program and admin spending. CRA’s rule is set at a level that catches inactive charities, but that is unlikely to cause compliance issues for most charities that are actively carrying out their mandates.