Charity Audit UpdateSherry Head CRA K-W TSOApril 8, 2014

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Mandate of the Charities Directorate

Our mission is to promote compliance with the income tax legislation and regulations relating to charities through education, quality service, and responsible enforcement, thereby contributing to the integrity of the charitable sector and the social well being of Canadians.

83,000 Charities registered in Canada

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Audit Outcomes

Charities Directorate’s basic approach for achieving compliance:

First and foremost, facilitating voluntary compliance

Assisting clients to comply whenever possible Enforcing compliance where necessary Audit program is primary means of assessing,

monitoring and enforcing compliance.

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Audit Statistics (2013-2014)

Audits completed – 845 Results:

• Clean audits – 112• Education letters issued – 514• Compliance Agreements – 139• Voluntary Revocation – 20• Annulments – 6• Revoked for cause – 36• Penalties and Sanctions – 4• Other - 14

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Top 5 Audit Issues

1. Incorrect issuance of donation receipts

2. Incorrect allocations on the T3010

3. Books and records are inadequate

4. Gifts to non-qualified donees

5. Failure to maintain direction and control – domestic and foreign

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Sanctions

Late filing of annual information return $500 penalty

Issuing incomplete receipts 5-10% penalty

Not keeping proper books and records Suspension of receipting privileges

Improper business activities 5-100% penalty

Undue benefit 105-110% penalty

Improper gifts 105-110% penalty

Issuing false receipts Suspension of receipting privileges and 125% penalty

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Donation Receipts

A registered charity is allowed to issue donation receipts to enable the recipient to receive a charitable donation credit on an Income Tax Return.

A charity can issue a receipt for the “eligible amount of the gift”

Eligible amount of the gift is the difference between the FMV of the property transferred to the charity and any advantage received by the donor or any person not at arms length to the donor.

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Donation Receipts (cont’d) A gift of services is not allowed (services are not

property).

• A charity can pay an individual or business for the services rendered. That individual can, then, choose to make a donation of the property (the cash) back to the charity. An exchange of cheques should be used to document this transaction. (this will also be included as income for the person that provided the service)

It is the responsibility of the charity to ensure the FMV of a “Gift in Kind” is properly established before issuing a receipt. We recommend an appraisal for gifts over $1000.00. The charity should maintain this documentation.

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Contents of ReceiptsMandatory elements of a receipt:1) A statement that it is an official receipt for income tax purposes2) The serial number of the receipt3) The name and address of the charity as recorded with Canada Revenue Agency 4) The charity's registration number

If giving an advantage5) The FMV of the property transferred to the charity6) Value of advantage7) The eligible amount of the gift8) The name and the address of the donor

For property other than cash (gifts in kind):9) the actual date of donation10) a brief description of the property11) the name and address of the appraiser (if appraised)12) The place or locality where the receipt was issued 13) The signature of an authorized individual14) The day on which the receipt was issued when it differs from the date of the donation 15) The name and Web site of the Canada Revenue Agency – www.cra-arc.gc.ca/charities

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Municipalities Municipalities are now subject to audit on

donations received. They were always allowed to issue receipts in

the past, however, there were no repercussions if incorrect receipting was done.

All qualified municipalities are now listed on the CRA website.

If the municipality has being issuing incorrect receipts they are subject to removal from the qualified donee listing and subject to Sanctions under the Income Tax Act.

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Prescribed Universities Outside Canada

Must be on a publicly available listing. Available now through the CRA website.

Able to issue tax deductible donations. Must make their books and records available for

review in Canada upon request by CRA. If the University if non-compliant with CRA it will

be removed from the list and donations will not be tax deductible.

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Certain Charitable Organizations Outside Canada to which Her Majesty in Right of Canada has made a gift.

List of organizations now available on CRA website.

Must make its records available in Canada upon request by CRA.

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Bodies performing a function of Government in Canada

A list will be created and made available on the CRA website. None listed as of yet.

Examples would be certain provincial corporations, First Nations and Aboriginal self governments, schools boards and public transit authorities.

They must apply to CRA to appear on the listing. We are still working on the process for applying to the list.

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Safeguarding Charitable Assets through Good Governance

New requirements for persons who are directors, trustees, officers, or any individual who controls or manages a charity.

CRA may suspend, revoke registration if any of the following is applicable:

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Continued from previous slide been found guilty of a relevant criminal offence for

which the individual has not received a pardon; been found guilty of a relevant offence within the last

five years; was a director, trustee or like official of a charity or

association during a period in which the charity was engaged in conduct that constituted a serious breach of the requirements for registration for which its registration was revoked in the past five years;

controlled or managed a charity or association during a period in which the charity was engaged in conduct that constituted a serious breach of the requirements for registration for which its registration was revoked in the past five years; or

been a promoter of a tax shelter that involved a gift to a registered charity or RCAAA the registration of which was revoked within the last five years for participation in the tax shelter.

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Charity Audit priorities 2014-2015

Conducting random audits of all types of charities, from all walks of life.

• Testing for compliance.

Charities that engage in false receipting

Charities that are involved in Tax Shelters

Political Activities

Qualified donees

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Technical Amendments

Proposed Subsection 248(31):

- The eligible amount of a gift or monetary contribution is the amount by which the fair market value of the property that is the subject of the gift or monetary contribution exceeds the amount of the advantage, if any, in respect of the gift or monetary contribution.

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Technical Amendments cont’d Proposed Subsection 248(32)- Amount of advantage — The amount of the

advantage in respect of a gift or monetary contribution by a taxpayer is the total of

- (a) the total of all amounts, other than an amount referred to in paragraph (b), each of which is the value, at the time the gift or monetary contribution is made, of any property, service, compensation, use or other benefit that the taxpayer, or a person or partnership who does not deal at arm's length with the taxpayer, has received, obtained or enjoyed, or is entitled, either immediately or in the future and either absolutely or contingently, to receive, obtain, or enjoy

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Technical Amendments cont’d (i) that is consideration for the gift or monetary

contribution, (ii) that is in gratitude for the gift or monetary

contribution, or (iii) that is in any other way related to the gift or

monetary contribution, and (b) the limited-recourse debt, determined under

subsection 143.2(6.1), in respect of the gift or monetary contribution at the time the gift or monetary contribution is made.

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Technical Amendments cont’d Proposed Subsection 248(35):

DEEMEDFMV

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Not for profit organizations Operated for any purpose other than profit.

CRA has conducted a 3 year research project that has just concluded as of March 31, 2013.

No results as of yet.

Problems with fundraising, rental of property, sale of goods.

Results will be used to make a recommendation to the Department of Finance.

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Information for Donors Charities Information Line

• 1-800-267-2384 (English)• 1-888-892-5667 (bilingual)

On-line Listing of registered charities• http://www.cra-arc.gc.ca/tax/charities/online_listings/charity_listings-e.ht

ml• http://www.cra-arc.gc.ca/tax/charities/online_listings/charity_listings-f.ht

ml Giving to charity: Information for donors

• http://www.cra-arc.gc.ca/tax/charities/donors/menu-e.html• http://www.cra-arc.gc.ca/tax/charities/donors/menu-f.html

RC4142    Tax Advantages of Donating to Charity• http://www.cra-arc.gc.ca/E/pub/tg/rc4142/rc4142-e.html• http://www.cra-arc.gc.ca/F/pub/tg/rc4142/rc4142-f.html

P113    Gifts and Income Tax• http://www.cra-arc.gc.ca/E/pub/tg/p113/p113-e.html• http://www.cra-arc.gc.ca/F/pub/tg/p113/p113-f.html