Tax & Law

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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Charity Oversight and Compliance in the News

A recent Toronto Star/Investigative Journalism Bureau article has revealed discrepancies between a Canadian cancer charity's claims about its charitable spending in its T3010 and its actual financial records. Mark Blumberg has shared his comments on the article, and offers further analysis on his website, CanadianCharityLaw.ca.

Blumberg notes that the Canada Revenue Agency (CRA) only audits a small fraction of charities each year—around 200—which limits the ability of the public to trust that issues are being effectively addressed. He also points out the CRA’s inability to publicly comment on its audits unless a charity faces penalties, suspension, or revocation. Even if the CRA audits a charity and finds no wrongdoing, they still cannot comment on the situation.

Blumberg urges charities to prioritize compliance and transparency to maintain public trust and avoid potential regulatory scrutiny.

Compliance and transparency arise from expertly managed internal systems that respond to regulatory requirements. 

Young Associates’ bookkeeping and payroll professionals can assist your organization in navigating the complexities of financial reporting and CRA compliance while supporting you and your board of directors in achieving best practices. .

To hone your financial statement reading skills, considering ordering a copy ofFinance for the Arts in Canada!

GST/HST Holiday Tax Break

Bill C-78, the Tax Break for All Canadians Act, has been adopted by the House of Commons and is now before the Senate. The Bill proposes a temporary GST/HST tax break on food, beverage, books, children’s supplies, toys, and holiday decorations. 

If passed by the Senate, the tax break would begin on December 14, giving little time for businesses to implement the point of sale and accounting system changes required to action the tax break. 

We’ve highlighted sections of the guidance most likely to impact organizations in our sector, and have provided our own guidance on how to implement changes to your accounting processes so you’ll be prepared when the tax break comes into force.

You can read the Government of Canada’s explainer through this link: GST/HST holiday tax break - Canada.ca 

Overview

The program requires businesses to stop charging GST/HST on qualifying goods at checkout as of December 14, 2024. It is set to run until February 15, 2025. Businesses are responsible for not charging GST/HST on qualifying goods during this period.

This measure temporarily zero-rates supplies of the qualifying goods and services, meaning the tax rate charged on these items during the specified period is 0%. Businesses registered for GST/HST can still claim back the tax they paid on expenses related to these exempted items, as long as the goods or services meet the qualifying criteria.

What is impacted?

The following types of items qualify for the GST/HST holiday tax break:

  • Children's clothing and footwear

  • Children's diapers

  • Children's car seats

  • Children's toys

  • Jigsaw puzzles

  • Video game consoles, controllers, and physical video games

  • Physical books

  • Printed newspapers

  • Christmas and similar decorative trees

  • Food and beverages and related services

We recommend everyone review each category in detail on the Government of Canada’s website: GST/HST holiday tax break - Canada.ca

The two categories our audience is most likely to be affected by are Physical books, and Food and beverages and related services. You can find a full list of details on what qualifies and what is excluded at the bottom of this email.

Qualifying items also must both be paid for in full and delivered/made available to the buyer during the period from December 14, 2024 to February 15, 2025.

When making purchases

Businesses will be responsible for implementing the tax break, and as a shopper, you will automatically receive this tax break on the qualifying things you buy. There will be no GST/HST charged on the item when you make your purchase.

If you receive an invoice or bill for a qualifying item during the period that includes GST/HST, we recommend contacting the supplier and requesting an updated invoice.

When making Sales

Make sure to use the zero-rated tax code when selling qualifying products during the holiday period.

If you are using a point of sale (POS) system like Square, Shopify, etc., you will need to make sure that the tax code assigned to each qualifying item is set to zero-rated.

Using the zero-rated codes will ensure that Input Tax Credits (ITCs) can still be applied against your total taxes payable for the period.

Books and Food & Beverage detailed breakdown

These items qualify as physical books and would have no GST/HST charged:

  • Most published, printed books (hardcover or softcover)

  • Updates of printed books

  • Guide books, and atlases that do not mostly contain street or road maps

  • Magazines and periodicals (that have no more than 5% of their printed space devoted to advertising) supplied by subscription, if all the consideration is paid during the relief period and only for those magazines or periodicals that are delivered during the relief period

  • Physical audio recordings of printed books, if 90% or more of the recording is a spoken reading of a printed book, including abridged versions (for example, a cassette, compact disc, or reel-to-reel tape version of a published book)

  • Physical recordings of a performance of a published play

  • Bound or unbound printed versions of scripture of any religion, such as the Quran, the Bible, prayer books, missals, hymn books, and Torah scrolls

  • Illustrated versions of religious scriptures (for example, comic book versions)

  • Printed books that are wrapped or packaged for sale as a single item with a physical read-only medium that is made up of either a reproduction of the printed book or material that makes specific reference to the printed book

These items would not qualify as physical books and would still have GST/HST charged:

  • E-books

  • Downloadable audio books and e-audio books

  • Magazines and periodicals that are not purchased by subscription or that have more than 5% of their printed space devoted to advertising

  • Books designed primarily for writing on, such as address books, diaries, journals, and notebooks

  • Colouring books, scrapbooks, sticker books, sketchbooks and albums for photographs, stamps or coins

  • Brochures, pamphlets, catalogues and advertising material

  • Warranty booklets and owner's manuals

  • Agendas and calendars

  • Certain directories and collections of street or road maps

  • Cut-out and press-out books

  • Collections of patterns, stencils, or blueprints

  • Programs for events or performances

  • Rate books

  • Recordings of performances of musical scores

  • Recordings of unpublished manuscripts

  • CD-ROMs, DVDs, and Blu-ray discs with textual or visual information


These food and beverage related items would qualify and have no GST/HST charged:

  • Restaurant meals, whether dine-in, takeout, or delivery (including meals at cafés, pubs, food trucks, and other food and beverage establishments)

  • Prepared foods including sandwiches, salads, vegetable or cheese platters, and pre-made meals

  • Snacks including chips, candy, baked goods, fruit-based snacks, and granola bars

  • Non-alcoholic drinks, such as coffee, tea, carbonated drinks, juices, and smoothies

  • Beer and malt beverages

  • Wine, cider and sake (including fortified) that are 22.9% alcohol by volume (ABV) or less

  • Spirit coolers and premixed alcoholic beverages that are 7% ABV or less

  • Catered meals, including the catering fee for providing, preparing, or serving qualified food and beverages

These items would not qualify and would have GST/HST charged:

  • Food or beverages sold from a vending machine

  • Alcoholic beverages (other than beer, malt beverages, wine, cider, and sake) with more than 7% ABV

  • Dietary supplements

  • Cannabis products, even if they are food or beverages

  • Other items that do not qualify as food or beverages for human consumption (for example, pet food)

If you have any questions, please feel free to reach out to us and we’d be happy to provide an advisory call to support you!


The above is a version of a recent edition of Young Associates’ newsletter. Yu can sign up for our newsletter list at the link at the bottom of this page.

Let’s all learn from the latest Canadian charity scandal

Staff Post
By Heather Young

CBC News’ recent article on the woes of the Black Business and Professional Association raises interesting questions for me.

Briefly, the association engaged both a member of the board of directors and its executive director to provide consulting services through their respective companies, and then did not adequately disclose these related-party transactions in its T3010 Charities Return or in its annual financial audit.

The CBC, with contributions from Charity Intelligence Canada, has presented these infractions in light of a scandal. Indeed, anyone with sectoral expertise knows how vulnerable charities can be to manipulation and personal profiteering, so it’s hard to argue when journalists and watchdogs shine a spotlight on suspected “bad apples.”

A tale of improper behaviour allows us to shake our heads and say to ourselves, “that would never be me!” I think it’s worth exploring the story from a different angle; that is, as a cautionary tale from which other charity leaders might draw important lessons.

Perhaps this was a series of errors with no ill-intent – every bit as serious from both management and regulatory standpoints – but blunders to which any charity could be prey if safeguards weren’t in place.

I should say a couple of things up-front.

First, I don’t know any of the players. I’m basing my comments on having read CBC’s article, and on my own 30-plus years of charity accounting experience (mostly in the arts and culture space). I’m not qualified to evaluate BBPA – but I’ve seen enough comparable issues within enough organizations to know that the sector needs education on these matters – and that’s where I’m going with my comments.

Second, it’s important to affirm that indeed there’s a problem here.

“Related parties” include individuals such as directors who may be able to make or exercise influence over decisions. As such, their activities merit scrutiny. BBPA’s situation falls under three sets of regulations intended to enable that scrutiny:

  • the Income Tax Act (federal) which governs the Charities Directorate and, by extension, T3010 reporting;

  • Ontario’s Charities Accounting Act, which applies to charities based in Ontario; and

  • the CPA Canada Handbook (CPA being Chartered Professional Accountants), which establishes principles for reporting financial information.

Under the Charities Accounting Act, directors can be reimbursed for out-of-pocket expenses, but cannot receive any other remuneration except under restrictive circumstances. As for the T3010, charities must answer the yes/no question, “Did the charity compensate any of its directors/trustees or like officials or persons not at arm’s length from the charity for services provided during the fiscal period (other than reimbursement for expenses)?”  Finally, the CPA Canada Handbook sets out standards for audit disclosure of related party transactions by not-for-profit organizations, of which registered charities are a subset.

Seems fairly cut and dried. So, what’s my rationale for suggesting that non-compliance might involve no deliberate wrongdoing?

I have long experience of charity leaders who possess limited financial expertise. In fairness, charity executives are hired for their dedication and proficiency in the charity’s field of mission, and directors are usually recruited to boards for both their dedication and the professional know-how they bring from their “day job.”

This can contribute to a situation where executive directors de-prioritize building their own finance and accounting skills in favour of recruiting trusted advisors – a bookkeeper, an auditor, and (hopefully) one or more board members with a strong finance background. (The ideal is often to recruit a volunteer CPA to the board of directors.)

In BBPA’s case, it seems possible to me that those two individuals secured the consulting gigs because they brought the optimal blend of expertise, familiarity with the association, dedication to the mission, and a fair price – and that the ensuing issues arose not from a desire to flout the rules, but from organization-wide unfamiliarity with the rules and the potential consequences of violating them.

Some CPAs and bookkeepers specialize in the sector, but many serve a handful of charities and focus most of their time on (more lucrative) business clients. Thus, an auditor, bookkeeper or finance-savvy board member might be at the top of their game in their core area of practice but be under-informed about the specifics of charity reporting in Canada.

An auditor might not have recognized the payments to board members. Catching them would have required making the connection between suppliers’ names as recorded in the books and the individual names on the board list – not necessarily obvious, especially if you’re not looking for the problem. And, if the auditor’s core expertise lay with business corporations, they might be less attuned to not-for-profit disclosure requirements and the risks that could arise from overlooking certain details.

Same applies to bookkeepers, with the additional thought that it’s typical for the government filing (in this case, the T3010) to be the auditor’s responsibility, meaning that a bookkeeper might be unfamiliar with the form and unable to back-stop disclosure deficiencies.

Add to this staff and board members who might acknowledge that they’re unfamiliar with charity regulation – but who might believe that they’ve covered this need by hiring experts. Of course, BBPA’s staff and board knew who they were contracting, but it’s quite imaginable that the connections weren’t flagged to the auditor or the bookkeeper.

As you can see, it’s conceivable that everyone involved believed that they were acting in the best interests of the organization, and that everything was in good hands. Sadly, the various players could all be looking at each other and trying to figure out who should have prevented this from happening.

The answer is that the board, as the governing body of the organization, is ultimately responsible for compliance. The board delegates operations to staff, and staff often hire expert service providers such as CPAs and bookkeepers. But, even if a deficiency arises at this lower level, the board must own it.

Ignorance of the law is no excuse for non-compliance. Given the plethora of regulations covering every aspect of business and charity affairs, how is this reasonable? The rationale for this foundational legal principle is that, if ignorance were an acceptable excuse, then wrongdoers could avoid liability by claiming that they were unaware of the rules. A companion concept states that the law must be properly disseminated – e.g., published and distributed – so that it is possible for all concerned to inform themselves.

So, it seems that BBPA has been caught out, fair and square. But is this a scandal, or a flaw in governance / management infrastructure that – if the truth were known – might not be all that uncommon across the charitable sector?

If my argument holds water – if I’ve presented a reasonable alternate view of the story – then perhaps the defenders of the sector should be discussing regulatory deficiencies and even ethical lapses as likely consequences of a situation where staff leaders hold sectoral expertise but are management generalists; where technical advisors (professionals plus those board members recruited for technical expertise) come up short on sectoral knowledge; and where, instead of that yin and yang adding up to a finely tuned whole, the matching deficiencies add up to disaster.

What do you think? Did you read this making mental additions to your charity’s governance to-do list? I’ll be very interested to read others’ comments!

UPDATED: T4As: Should we or shouldn’t we?

Staff Post
By Heather Young

According to the Canada Revenue Agency, fees for services provided by contract staff should be reported on a T4A slip in Box 048.

CRA’s Guide – titled “Filling out the T4A slip” under the Box 048 section – directs payers to: “Enter any fees or other amounts paid for services. Do not include GST/HST paid to the recipient for these services.”

A couple of observations.

The CRA makes no distinction regarding who provided the services. Many companies assume T4A slips are for freelancers – but that’s not what the Guide says. An email to the National Payroll Institute’s InfoLine as well as discussions with the CRA have confirmed that incorporated businesses should also receive T4A slips.

And for sure HST registration makes no difference! Every year, clients’ contract staff tell Young Associates bookkeepers that they don’t want a T4A slip because they have an HST number. Whether or not a contractor charges HST is irrelevant to the payer’s T-slip obligation.

Make no mistake: this has nothing to do with individual preferences. Our job is to do our best to help our clients – the payers – comply with the Income Tax Act.

We hear all sorts of variations from payers too. Some companies are willing to issue T4As to freelancers who work under their own name but not to those who have a company name. Other organizations make apparently arbitrary decisions; for instance, that they’re willing to issue T4As to actors but they don’t want to generate slips for technicians.

Indeed, there’s a lot of confusion out there – and, to boot, a tacit acknowledgement on the part of the CRA that the T4A requirement is unclear.

CRA’s Guide goes on to say: “Currently the CRA is not assessing penalties for failures relating to the completion of box 048.”

We don’t take this as a blanket pass for organizations to do whatever they want – and we don’t think you should either.

The wisdom from the National Payroll Institute – experts in the field – is that organizations should implement a process for issuing T4A slips to contractors so that when the CRA provides clear guidance they are able to comply immediately.

We can add to this some experience of payroll audits, where CRA examiners have scrutinized companies’ practices around T4A slip preparation.

Young Associates’ position is that clients need to work with their auditors and boards to interpret the Guide as best they can for their own situation. We always advocate for CRA compliance – and, if anything, for a more conservative interpretation that protects you from unwelcome attention from the government.

We appreciate comments on this post, although please note that Young Associates specializes in services for organizations. If you are an individual with a question about a T4A issue related to personal tax, we suggest that you contact a bookkeeper or accountant who prepares personal tax returns.