Creating and running a charity comes with its share of challenges. With so many legal processes to consider and a regulatory environment that has evolved significantly in the past few years, organizations that once viewed audits as rare occurrences are now finding their charities coming under scrutiny.
However, as stricter compliance needs become more prominent, it is more important than ever for an organization to understand that, to register a charity, there are several things to consider before putting pen to paper.
IMAGE: UNSPLASH The New Landscape Of Enforcement For Charities
The Canadian Revenue Agency's (CRA) approach to oversight has become more active. Audits are becoming more prominent with compliance affecting organizations across numerous sectors and sizes. Particular attention is being paid to governance structures already in place, their operational activities, and financial management practices.
This shift in action reflects a broader change within the CRA's philosophy. Where once they relied heavily on complaint-driven investigations, current practices now emphasize risk-based assessments that work to identify potential issues before they escalate.
Where The CRA Is Looking Harder
Organizations that are engaged in foreign activities are undoubtedly facing broader scrutiny. The CRA has worked to focus on how charities conduct their operations overseas, and is particularly examining whether these activities advance the organization's purposes, as well as whether or not adequate oversight exists.
This is especially true for charities that may be operating with cryptocurrency transactions.
Some enforcement actions that have taken place recently have centered around certain key areas, which include the adequacy of oversight control over foreign partners, the clarity of agreements governing international relationships, and the documentation supporting claims where activities serve Canadian charitable purposes.
Organizations that have previously operated with informal partnership arrangements are now discovering that the CRA expects detailed contracts, regular reporting mechanisms, and clear accountability structures to be set in place.
The agency has worked to increase attention on how charities demonstrate that their activities create sufficient benefits for Canada.
Related Posts:Highest Paid CEOs In Charity: Some Of These Are...Why It Is A Good Idea For Businesses To Have Regular AuditsGreat Tips On How To Find The Righ AdWords AgencyThe Quick Guide To The Employee Onboarding Process3 Tools Small Businesses Can Use To Shrink Legal Expenses The Boundaries Of Politics
Charitable work and its intersection with political advocacy have continued to generate significant activities. While the Income Tax Act permits charities to engage in political activities, determining where the line falls legally has become complex.
This is especially true regarding religious organizations and whether or not Canada's government will change the tax status of churches. Challenges in technology and privacy laws further complicate this.
Religious charities have encountered challenges surrounding the advancement of religion as a charitable purpose. Issues surrounding receiving for religious purposes, using religious facilities, and documenting religious activities have become focal points in audits.
Organizations that operate schools, camps, and other programs with religious and secular components face particular challenges in demonstrating their compliance with charitable requirements.
The Rise Of Receipting Reviews
Receipting practices have become a common enforcement priority, with common errors capable of triggering potentially severe consequences. The CRA's focus on this area stems from the revenue impact of non-compliant receipting and its use as an indicator of broader issues.
Split receipting arrangements continue to generate compliance problems. Organizations providing goods, services, or other advantages in exchange for donations sometimes struggle to calculate the eligible amount for reporting purposes.
Gift-in-kind receipting is another enforcement hotspot. Organizations that accept donated goods face complex valuation requirements, which the CRA has become more aggressive in challenging if they appear unreasonable.
This party receipting arrangement, wherein organizations issue receipts for donations directed to other types of entities, has also drawn significant attention.
Regulatory Grey Zones
Charities are increasingly navigating ambiguities in the Income Tax Act and related regulations. While the CRA works to refine its guidance through public statements and additional rulings, organizations can face uncertainty and question how general principles apply to their specific circumstances.
Organizations working in emerging areas, such as environmental protection and community economic development, may find limited guidance related to their activities. "Public benefit" definitions often require an organization to demonstrate that its activities serve broader community interests.
Modern CRA enforcement also reflects heightened expectations around organizational governance. While specific structures are not mandated, the agency evaluates whether organizations have appropriate oversight mechanisms, conflict of interest policies, and decision-making processes.
This focus on governance extends beyond formal policies to examine how organizations operate their charities.
Proactive Risk Reduction
Organizations can reduce compliance risks by implementing governance structures before issues arise. This can include establishing clear board oversight responsibilities, implementing policies that prevent conflicts of interest, and ensuring that decision-making processes are appropriately documented.
Regular governance reviews should also examine whether organizational structures remain appropriate for the charity's activities and whether policies reflect regulatory expectations. Boards should receive regular compliance updates and oversee high-risk areas, such as receipting, political activities, and when dealing with foreign operations.
As the regulatory landscape continues to shift and the CRA adapts to the changes that arise, organizations that work to invest in their understanding of these changes will be positioned to thrive.
IMAGE: UNSPLASH
If you are interested in even more business-related articles and information from us here at Bit Rebels, then we have a lot to choose from.
TweetPinShareShare