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Changes to Charity Rules
Adam Aptowitzer,
January 30, 2006
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The advent of 2006 will bring with it
the fulfillment of several proposed changes that affect
charities and which have been promised or in the planning
stages for some time. Considering that the Charities
Directorate is more determined and more capable than ever
to be an effective enforcer of the law it is important for
charities to have a basic idea of the changes in store for
them. Here are the five changes charities should keep in
mind as we begin the New Year. |
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1) Changes to Receipts |
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In addition to the information required
on charitable receipts prior to 2005, receipts issued
after the beginning of 2005 are also required to show
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The “Canada Revenue Agency” and
“http://www.cra-arc.gc.ca/charities”. The new development
for 2006 is that while the CRA has stated they will not
penalize charities for not including the information for
receipts issued in 2005, they “expect” charities to
conform to the new regulations by January 1, 2006. |
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2) Intermediate Sanctions |
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Before the passing of Bill C-33 last
year, the CRA’s sole punishment for a charity that broke
the rules was deregistration. As the penalty was too
draconian for anything but the most severe infractions it
was rarely imposed by the CRA. Bill C-33 implemented a
variety of lesser penalties for infractions (although
deregistration still remains an option of the CRA). This
year will likely see the first impositions of these
penalties. Below is a chart of the new penalties.
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See Penalties Chart in PDF format |
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3) New Tax Dispute Resolution
Mechanism |
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Starting in June 2005, (although
practically speaking 2006 will likely see the first
cases), the tax dispute resolution mechanism for
individuals and corporations will apply to charities.
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The process of levying a penalty will
likely begin with an audit of the charity. Where the CRA
sees fit to levy a penalty, the charity will receive an
official Notice of Assessment. If the charity objects, it
will have 90 days to file a Notice of Objection with the
CRA. In the normal course, the CRA will assign the file to
an internal ‘Appeals Officer’ who will review the CRA’s
position in light of any submissions made by the charity
and included with its Notice of Objection. If the charity
disagrees with the Appeals Officer’s decision, it will
have 90 days to file a Notice of Appeal in the Tax Court
of Canada. Appeals from the Tax Court go to the Federal
Court of Appeal. Questions of registration/deregistration
or annulment go straight to the Federal Court of Appeal. |
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The imposition of a new deadline
schedule on charities, a group otherwise unaccustomed to
dealing with this dispute resolution mechanism, is bound
to lead to confusion and missed deadlines. Fortunately,
there are mechanisms that allow a charity to file beyond
the deadline under certain circumstances. The imposition
of these penalties is new for both the CRA and charities
and therefore it is critical for charities going through
the process to have a professional legal advisor from the
audit stage through the Tax Court and Federal Court of
Appeal level. |
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4) Disbursement Quota Changes |
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The disbursement quota is a complicated
calculation that stipulates how much each charity must
spend on their charitable objects in a year. In 2005, the
government passed changes to the disbursement quota that,
among other things, further complicated the calculation
and dealt with donations of ten year gifts, the definition
of ‘enduring property’, and transfers between charities.
As a charity's spending requirements for 2006 are based on
amounts collected in 2005, this year will see the first
impact of the changes in 2005. Given that it still lies
with the CRA to deregister a charity that fails to
disburse its quota, charities should speak with a
qualified professional advisor to ensure that they have
properly calculated the quota with the new changes. |
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5) Possible Implementation of
Proposed Changes |
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There are a variety of changes that the
Liberal governments tabled in 2005 and preceding years,
which are waiting official passage into law. Many of these
relate to the use of tax shelters as a way to provide
increased donation credits for donated dollars. The CRA
policy is to begin enforcement of these provisions from
the date of their announcement (when passed they are
usually passed retroactive to their date of announcement).
However, with the change in government it is possible that
some of these provisions will not become law. The more
cynical among us may argue that as there is no real
difference between the Conservatives and Liberals on these
issues, we will see the Conservatives pass the majority if
not all of the provisions. However, if this analysis is
wrong, we may see the entire sector thrown into disarray
before the end of the year. |
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