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Canada Revenue Agency audits: what charities need to know
publication date: Jul 22, 2014
author/source: Bill Kennedy
The Canada Revenue Agency (CRA) has received a lot of attention recently. There are accusations of political interference; the Federal Government has been accused of using CRA audits to stifle opposition in such areas as the environment and human rights.
But whatever your position on these issues, when the CRA calls, you have to put them aside. A CRA audit is no place for a policy debate and the auditor who calls is just there to do a job. You need to have your ducks in a row.
What can the CRA do?
If the CRA believes that your charity is not complying with the Income Tax Act, it can revoke your charitable registration and/or impose financial penalties. But the CRA has said publicly that it is not in the business of shutting down charities. If it believes that an honest mistake has been made, it will issue a warning in the form of an education letter or a compliance agreement. If the charity takes steps to comply with the letter or agreement, it can continue to accept donations and issue charitable receipts.
What is the CRA looking for?
The CRA explains the audit process in a booklet called Auditing Charities. In it they list a charity’s responsibilities:
In the summer of 2012, the CRA received funding and increased its political activities compliance efforts. In its public disclosure of the general results of those audits in January 2014, the CRA pointed to inaccurate reporting and tracking of political activities.
What is a political activity?
The CRA presumes an activity to be political if a charity:
As a result of the measures introduced in the 2012 federal budget, a political activity also includes the making of gifts to other organizations intended for political activities.
What should a charity do when the CRA calls?
The first step in a CRA audit is a file review. Give the auditor exactly what they ask for, and do it in a way that gives them the context. Connect the dots:
What can a charity do right now?
Many charities only track the financial side of their political activities. That is only part of the picture. Many advocacy activities have no direct costs attached to them at all.
A Canada Revenue audit is not something to be feared, however, it is also not something to be taken lightly. Your internal controls and procedures need to be set up so that you are always ready for an audit, because when the CRA calls, there won’t be a lot of time to prepare.
Bill Kennedy is a Toronto based Chartered Accountant with Energized Accounting, focusing on financial and reporting systems in the charitable sector. He blogs at www.EnergizedAccounting.ca/blog/. Find out more at www.EnergizedAccounting.ca; follow Bill @Energized
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