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Exploring the ins-and-outs of Canadian Charity Law in a way that can be understood by the layperson, including Charity Registration, Not-for-Profit Incorporation, Charity Governance, Charity Fundraising, Tax Receipting, and much more!
Welcome to the deep dive.
Sarah:Great to be
David:here. Today, we're tackling a really interesting piece of work. The Canada Revenue Agency's report on the charities program 2023 to 2024.
Sarah:Yeah. It's basically the CRA's look under the hood at Canadian charities.
David:Exactly. Think of this as our guided tour through, the current state and regulation of Canada's charitable sector.
Sarah:And our main source is that official government report. It's, absolutely loaded with data and insights from the CRA's charities directorate.
David:Right. So our mission really is to pull out the key stuff.
Sarah:Yeah. Identify the main trends, understand the regulatory landscape, basically get a handle on this huge part of Canadian society.
David:We want to give you a clear, efficient understanding of how it all works, how it's overseen.
Sarah:Because it affects so many people.
David:For sure. Whether you're involved with the charity, maybe you donate, or you're just curious about how such a, you know, significant sector operates.
Sarah:It's size, the money flows, the rules.
David:Yeah. There's a lot here that could spark some real moments, I think. Okay. Let's unpack this.
Sarah:Where do we start?
David:Well, right at the beginning, the director general's message, it really emphasizes something fundamental, public trust.
Sarah:Seems obvious maybe, but she really hammers home how essential that trust is.
David:For a healthy sector, strong democracy, vibrant communities, it all connects.
Sarah:And what I found interesting is the clear statement of the CRA's dual mandate.
David:Ah, yeah. Explain that a bit.
Sarah:Well, they're not just there to, you know, police charities. They also wanna support the good work they do.
David:Alright.
Sarah:But at the same time, they absolutely have to make sure these organizations meet their obligations under the income tax act.
David:So it's a balancing act?
Sarah:A constant balancing act. Yeah. Encouraging good work while upholding the law.
David:And the CRA's mission, as they lay it out, kind of reinforces this.
Sarah:How so?
David:It talks about educating charities, offering quality services, and responsible enforcement.
Sarah:Right. All aimed at protecting the sector's integrity and ultimately benefiting Canadians' social well-being.
David:Okay. So what did they actually achieve in 2023, '20 '20 '4 according to the report? What were the highlights?
Sarah:Well, they point to several key things. Increased engagement with the sector, which is good, trying to understand their needs.
David:Vital for regulation, you'd think.
Sarah:Absolutely. Then there's the risk based approach to audits focusing resources where the risk seems highest.
David:Makes sense. And policy changes.
Sarah:Yeah. The updated t three ten form, that's v '24, and the new guidance on grants to non qualified dunnies, CG032.
David:We should probably circle back to that one later since it's Right,
Sarah:definitely. They also mentioned improved service standards for handling inquiries and doing more outreach. So a mix of support and oversight.
David:Okay, so that's the CRA's perspective. Now let's dive into the numbers. This is where it gets, well, really interesting.
Sarah:The scale of the sector.
David:Exactly. In 2023, Canada had 85,518 registered charities. Wow. And look at the breakdown. Nearly 74,000 are charitable organizations.
Sarah:That's the vast majority.
David:You've got private foundations, about 6,800, and public foundations, just under 4,800.
Sarah:And it's useful to remember the difference there. Charitable organizations mostly do the work directly. Right?
David:Yeah. Often relying on donations, government grants.
Sarah:Whereas foundations, both private and public are more about funding others. Private, usually from a single source, public, more broadly funded.
David:Right. Good distinction. Okay. Finances. Now these figures are from 2022, so a year behind,
Sarah:but still Let's let give a very clear picture,
David:I bet. Oh, yeah. Charitable organizations held, get this, $503,000,000,000 in assets.
Sarah:Half a trillion dollars.
David:Half a trillion. With revenue of $326,000,000,000 and expenditures of $318,000,000,000.
Sarah:Just staggering numbers. What about the foundations?
David:Private foundations, $92,000,000,000 in assets, much lower revenue and spending. Public foundations, $50,000,000,000 assets, $10,000,000,000 revenue, $9,000,000,000 spending.
Sarah:Those asset figures, especially for the charitable organizations, are huge. That's a massive economic footprint.
David:It really is. And think about the responsibility that comes with that kind of financial power.
Sarah:Absolutely. And the revenue breakdown is fascinating too. Also, 2022 data.
David:Where's the money coming from?
Sarah:Okay. Hold on. Government funding. 70 percent.
David:70. Wow. $241,000,000,000. No.
Sarah:Yeah. Compare that to sales of good services at 8%, tax receipted gifts at 6%.
David:Only 6% from donations with receipts.
Sarah:Apparently. Non tax receipted revenue, 4%, money from other charities, 3%. Government funding is by far the largest source.
David:That definitely challenges the, you know, common perception of charities relying mostly on donations.
Sarah:It really does. It suggests a very close relationship, maybe partnership between the state and the sector in delivering services.
David:But it also raises questions, doesn't it? About independence, vulnerability to policy changes.
Sarah:Exactly. Those are really important implications to consider.
David:Okay. What about spending expenditures in 2022 totaled $334,000,000,000
Sarah:And where did that go?
David:Mostly charitable activities, 73% or $243,000,000,000.
Sarah:That's good to see. The core mission.
David:Gifts to other qualified dunnies were 4%, and then other expenditures, admin, travel, fees made up the remaining 23%.
Sarah:Which is still a significant chunk $78,000,000,000 but includes necessary operational costs.
David:Right. And one more number that stood out international reach.
Sarah:Ah yes, activities outside Canada.
David:In 2023 Canadian charities spent $4,600,000,000 abroad, mostly by charitable organizations.
Sarah:So a significant global impact as well. Their work isn't just domestic.
David:Not at all. Okay, so we've seen the size, the money. How does the CRA actually regulate all this?
Sarah:Well, the report stresses their role in ensuring compliance with the Income Tax Act. It's about protecting integrity.
David:Integrity of the tax system and the sector itself.
Sarah:Precisely. And organizations need to meet certain requirements to get registered in the first place.
David:The report doesn't list them all but notes they exist. You have to qualify.
Sarah:Right. There are established criteria.
David:And the CRA's involved throughout a charity's life, not just at the start.
Sarah:Yeah. Dialogue, monitoring through the annual t thirty ten forms, compliance checks.
David:And being registered comes with perks. Right? Tax exemption, issuing donation receipts.
Sarah:Big privileges. But they come with ongoing obligations. If you don't meet them, the CRA can take action.
David:Okay. Let's look at registration trends for 2023, '20 '20 '4. Seems like everyone's online now.
Sarah:Over 88% applied online. Yeah. Pretty high adoption.
David:They got over 2,300 charity applications, made decisions on over 2,000, and they mentioned trying to be more efficient internally.
Sarah:Speeding things up.
David:And using more people centric communication. Trying to make it smoother for applicants, it sounds like.
Sarah:Which suggests they're trying to be supportive, not just bureaucratic gatekeepers. The high online rate also shows the sector's tech savviness.
David:But here's a catch. Only 64% of applications were complete when submitted.
Sarah:Oof. So over a third had issues.
David:Yeah. Missing documents, incomplete answers, missing signatures, not enough detail on activities or finances.
Sarah:That suggests the process might be tricky or maybe guidance isn't clear enough for everyone. Incomplete applications slow everything down.
David:Definitely need that attention to detail. What about outcomes?
Sarah:Approval is most common, thankfully. Around seventy eight percent for charities.
David:Denial is rare.
Sarah:Less than two percent for charities. It's higher for other qualified Adarney, but their criteria are
David:different. And the reasons for denying charities?
Sarah:Pretty fundamental stuff. Not enough info on activities, doing non charitable things, just acting as a pipeline for funds, lack of control over money, or private benefit.
David:So failing the basic tests of being a charity?
Sarah:Essentially, yes. Underscores the core principles.
David:And looking at what kinds of charities got registered, other purposes beneficial to the community was the biggest group, 39%.
Sarah:Interesting category. What else?
David:Advancement of religion was next at 32%, then agitation at 15%, and relief of poverty at 14%.
Sarah:Gives you a sense of the focus for new charities coming online, a diverse mix.
David:Okay. Shifting to compliance. The report says it's a shared responsibility.
Sarah:Not just the CRA. Charities, accountants, donors. Everyone has a role.
David:And the CRA sticks to its risk based approach, balancing education and enforcement.
Sarah:Which is pretty pragmatic for such a huge sector. Focus the resources where the perceived risk is highest.
David:But does that mean lower risk stuff gets ignored?
Sarah:Well, that's where the non audit interventions come in. For lower risk things, they use education.
David:Like letters.
Sarah:Exactly! Reminders about filing, pointing out common errors on the T3010. They do thousands of these, 8,000 to 12,000 a year.
David:Wow! That's a lot! So a preventative measure.
Sarah:Yeah, helping charities fix things voluntarily before they escalate. Support, not just punishment.
David:But for higher risk issues, it's audits.
Sarah:Right. They did a 96 audits in 2023, '20 '20 '4.
David:And what did they find most often?
Sarah:Top issues were incomplete or wrong t 30 tens, problems with donation receipts, and inadequate books and records.
David:The basics really.
Sarah:Pretty much. But interestingly, almost 70% of those audits had less severe outcomes.
David:Like what?
Sarah:Education letters, voluntary revocations.
David:So not always the hammer coming down.
Sarah:No. Compliance agreements were also used and notices of intention to revoke for more serious cases. Mhmm. But actual revitations directly from an audit were relatively few, only nine.
David:Okay. So that's audit outcomes. But what about overall revocations? Losing charitable status entirely.
Sarah:Right, the report gives those numbers too. Total compliance revocations were 2,106.
David:And the main reason?
Sarah:Failure to file the annual return. Over 1,100 cases. Just not filing the paperwork.
David:Seriously, that's the biggest reason.
Sarah:By far. Voluntary revocations were also high, almost a thousand. Revocations for cause, meaning serious bruises found through auditor investigation, were only nine.
David:It's striking that administrative failure is the top reason. What about the high number of voluntary ones? Any clues why?
Sarah:The report doesn't really dig into the why for voluntary ones. Could be many reasons mission complete, merging, restructuring, hard to say from this data. But the failure to file numbers really highlight that basic admin is crucial.
David:A reminder about ongoing responsibility.
Sarah:Definitely. And when registration is revoked, there's the revocation tax?
David:Right. 100 percent of remaining assets after debts.
Sarah:The idea is to keep charitable property within the sector. It shouldn't just disappear or go to private hands.
David:A safeguard, essentially.
Sarah:Exactly. And the CRA actively follows up on collecting this tax.
David:Okay. Let's switch gears slightly. Program policy and talking to stakeholders.
Sarah:How the CRA develops rules and guidance.
David:They say it's driven by law changes, government priorities, and what's actually happening in the sector.
Sarah:So, trying to stay relevant and responsive.
David:A few key policy updates were mentioned. One sounds like a simplification. Charities don't need to file T3 trust returns for internal trusts anymore.
Sarah:Okay. That's interesting. Less paperwork.
David:Then there's guidance CG 32. We flagged this earlier, grants to non qualified dunnies.
Sarah:Ah yes. This clarifies how charities can fund organizations that aren't registered charities themselves like grassroots groups or international partners maybe.
David:So it fosters more collaboration, allows more flexibility.
Sarah:That's the goal. It's a significant shift, potentially opening up new ways for charities to work.
David:And the updated T3D10 form, V24, includes a new schedule for the disbursement quota.
Sarah:Right. That's the minimum amount charities have to spend each year on their charitable work. So clearer reporting on that.
David:Seems like these updates try to streamline things but also adapt to new ways of operating.
Sarah:Yeah. Like the granting rules reflect a changing landscape.
David:And they emphasize engaging with the sector. The Advisory Committee on the Charitable Sector, ACCS.
Sarah:That's a key forum. Brings sector voices to the table.
David:Apparently, their input helped shape that CG032 guidance and the T3010 changes. They're working on a new report now.
Sarah:That collaboration is important, should lead to more practical rules.
David:There's also a technical issues working group, TIWG. More in the weeds.
Sarah:Yeah, discussing specific technical problems like issues with the online my business account or understanding revocation notices.
David:And a network for federal, provincial and territorial regulators to coordinate.
Sarah:The FPT network shows that regulation happens at multiple levels and they need to talk to each other. Lots of moving parts.
David:Okay. Last big area, serving the sector and the public.
Sarah:How the CRA provides support and information.
David:They mentioned call centers, written inquiries, webinars, their website, the usual channels.
Sarah:An accessible service is pretty crucial if you want charities to comply. Right? They need to understand the rules.
David:They got a ton of inquiries in twenty twenty three, 20 20 four. Over 52,000 phone calls.
Sarah:Wow. And written.
David:Over 11,000. Most common written questions were about account updates.
Sarah:Okay. And phone calls.
David:Mostly about the annual t thirty ten return, registration questions, account changes, and donation receiving rules.
Sarah:Makes sense. Those are core operational things charities deal with constantly. High volumes show the need for clear info and support.
David:And they track service standards? They meet their targets?
Sarah:Mostly. Yes. 79% for written inquiries within the target time. 85% of calls answered within two minutes.
David:And nearly everyone got through on the phone.
Sarah:99% accessibility. Yeah. So the service seems reasonably responsive based on their metrics.
David:Good. What about public information? Transparency?
Sarah:Yeah. They provide access to the t thirty ten data, processed over 1,500 requests from the public and almost 200 from the media for documents.
David:T 30 tens and financial statements mostly requested.
Sarah:And lots of outreach webinars reached over 2,300 people. They even surveyed users about the online t thirty ten filing to make it better.
David:Trying to improve the user experience?
Sarah:And updating the website, adding info on terrorist financing risks.
David:Yeah.
Sarah:It's all part of that transparency and education piece.
David:Okay, one final area: external reviews. The CRA isn't operating in a vacuum.
Sarah:No, they face scrutiny. Internationally, they're involved in anti money laundering and anti terrorist financing efforts, supporting FATF recommendations.
David:FATF being the global watchdog.
Sarah:Right. And there's a big FATF evaluation of Canada coming up, so CRA's role will be under the microscope there.
David:Domestically too.
Sarah:Yes. The National Security Intelligence Agency is currently reviewing the CRA's national security activities related to charities.
David:Checking if they're reasonable, necessary, compliant.
Sarah:Exactly. And the Office of the Taxpayers Ombudsperson, the OTO, did a review.
David:Ah, that was the one related to concerns raised about Muslim led charities.
Sarah:That's right. The OTO report recommended unconscious bias training.
David:And has the CRA acted on that?
Sarah:Yes. The report says they implemented mandatory bias and inclusion training for all employees, specific modules for the charity's directorate, tools for auditors. Quite a few steps.
David:So responding to that external feedback.
Sarah:Seems so. Which is important for maintaining trust, especially when dealing with sensitive issues like national security or potential bias.
David:Okay. So let's try and wrap this up. Key takeaways from this deep dive into the CRA report.
Sarah:Well, first, the Canadian charitable sector is huge, diverse, and maybe surprisingly very reliant on government funding.
David:Yeah. That 70% figure is sticky.
Sarah:And the CRA is actively regulating it. Registration, compliance checks, audits, but also education and engagement.
David:There's a definite focus on trying education first for lower risk issues.
Sarah:Right. And dealing with noncompliance at different levels, from letters up to revocation, though failure to file seems to be the biggest reason for revocation.
David:And they're clearly responding to external reviews, trying to improve service, address bias concerns.
Sarah:At the end of the day, it taints a picture of a complex ecosystem. Vital work being done by charities, overseen by a regulator trying to balance support and enforcement.
David:A tricky balance for sure.
Sarah:Absolutely. The health of the wholesaler kind of depends on getting that balance right.
David:Okay. So on that note, here's a final thought for you, the listener. We've talked about the scale, the funding, the rules, the oversight. Considering all that, what aspect of the charitable sector's operation or maybe its regulation do you think is most critical?
Sarah:Yeah, what's most important for ensuring its continued health and crucially maintaining that public trust we started with.
David:Definitely something worth pondering. Thanks for joining us for this deep dive.