top 10 tax issues for charities
TRANSCRIPT
TOP 10 TAX ISSUES FOR CHARITIES
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• Potential issues
• Risk areas
• T3010 Preparation
1. STICK TO YOUR MISSION
• Charitable purposes and activities identified in application for registration
• Unintentional drift
• Intentional decisions
• New activities must be charitable under the law
• Must notify CRA of changes
• T3010 – New programs
• Foundations versus Charitable Organization
2. MAINTAIN CONTROL OVER YOUR ACTIVITIES OR GIVE TO “QUALIFIED DONEES”• Registered charities are allowed to operate in two ways
By carrying on their own activities
By giving resources to “qualified donees”
• Own Activities
Using its own staff and volunteers
Working with outside individuals and groups
Must maintain direction and control
Demonstrate this direction and control
• Gifts to “qualified donees”
Other registered charities, municipalities, UN agencies, universities, prescribed foreign charity
3. AVOID PROHIBITED POLITICAL ACTIVITIESCharities cannot have political purposes, only political activities
All "partisan" political activities are prohibited
Non-partisan political activities are allowed
Any non-partisan political activities must directly help the charity accomplish its purposes
4. AVOID PROHIBITED BUSINESS ACTIVITIES
• Private foundations cannot carry on any business activity
• Charitable organization or public foundation can carry on a business related
to its purposes
• Business: activities carried out on a regular basis that generate money from
providing goods or services with the intention of earning a profit
• What is a related business?
A business run 90% or more by volunteers
A business linked to the charity's purposes and subordinate to those
purposes
Asking for donations
Selling donated goods
Fees charged for programs and services (cost recovery)
Fundraising activities, as long as they are not a continuous activity
Getting income from prudent investments
4. PROHIBITED BUSINESS ACTIVITIES (continued)
Examples of "linked and subordinate" and therefore allowed:
Some activities are usually not considered to be a business:
A hospital operating a parking lot, cafeteria or gift shop
A university running bookstores and dining halls
A church renting out space in its parking lot on a weekday
An animal shelter selling pens with the group's logo
5. KEEP PROPER BOOKS AND RECORDS
• Allows CRA to confirm revenues, resources used, and purposes followed
• Includes F/S, bank statements, income tax records, expense accounts, copies of official donations receipts,
governing documents (constitution, trust document, letters patent, etc.), minutes of meetings, annual
reports, annual information forms, accounting ledgers, fundraising materials and written agreements
6. FILE AN ANNUAL INFORMATION RETURN
• Must file T3010 within 6 months of year-end
• Must include F/S, Basic Information Sheet (bar codes), and other applicable forms (Director’s
Worksheet, Qualified Donees Worksheet, Ontario Corporations Act Information Return)
• Information in the return is available to the public
• CRA sends Summary of Return after assessing the T3010 (NOA equivalent)
• Common filing problems: using wrong form, not providing all information requested, not providing
dates of birth of directors, not providing F/S, not providing all required attachments, not providing
Basic Information sheet
7. NOTIFY THE CANADA REVENUE AGENCY OF CHANGES AND GET PERMISSION IF REQUIRED
CRA must be notified of changes to the following:
• The charity's name, mailing address, phone
number, fax, contact person and address where
records are kept
• Governing documents (constitution,
incorporating docs)
• Bylaws (org structure, internal procedures)
• Status (ceases to be incorporated, merger, etc.)
• Purposes and activities
Charities must get permission for the following:
• Change in fiscal period
• Change in designation
• To accumulate funds for a special project
• To associate with another charity
8. MEET YOUR DISBURSEMENT QUOTA• Refers to the minimum amount registered charities must spend on charitable activities or gifts to
qualified donees
• Purpose of DQ:
Ensure charities actively use most of their resources on their charitable activities
Discourage charities from collecting large reserve funds
• DQ = 3.5% of assets not used directly by charity
• These assets include cash, investments, property not used
• DQ not calculated for small charities (assets < $100K) or small foundations (assets < $25K)
• Must accurately separate expenses between charitable, management & admin and fundraising,
and other (political, social, business)
• DQ excess from one year can be applied to a DQ shortfall in another year
9. ISSUE PROPER DONATION RECEIPTS
• Ability to issue donation receipts is one of the main advantages
• The tax advantages of donations encourages charitable giving
• This advantage is scrutinized by CRA
• Charities not required to issue receipts
• Can only be issued for a gift (voluntary, actual transfer, cash or in-kind)
• In-kind gifts <$1,000 valued by charity, >$1,000 formal appraisal
• In-kind gifts may be subject to “deemed FMV rule”
• If advantage received, split receipting may be required
• Very specific information must appear on tax receipts
• Must issue receipts in the name of the donor with limited exceptions
CRA has guidelines on how much can be spent on fundraising in relation to what it brings in (<35%/35%-70%/>70%)
Additional guidelines on fundraising practices (commissions and professional fundraisers)
Fundraising is not in-and-of-itself charitable and cannot become the main emphasis of a charity
Spending on fundraising reported separately for DQ
10. FOLLOW THE RULES ON FUNDRAISING
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