On April 30, CRA Charities Directorate sent out a “What’s new” email to its mailing list that included a discussion of “Reporting suspected non-compliance by registered charities”. While we do not recommend or support non-compliance with a charity’s tax obligations, we have real concerns with complaints being used by ideological opponents of other charities.
The CRA email states: “If you have information that a charity may not be complying with the Income Tax Act, you can report it to the CRA by submitting a lead to the Leads Program. The CRA reviews all leads to determine whether non-compliance has occurred. Visit Reporting suspected tax or benefit cheating in Canada to learn more.”
We have seen occasional instances of complaints made against charities because of good faith concern about tax compliance. These complaints can be good for the charitable sector as they can lead to better compliance and to fairness between charities. As an aside, if the non-compliance related to donation receipts being used for offshore tax evasion, the person filing the complaint could actually be eligible for whistleblower payments from the CRA if tax was evaded and is recovered.
We have seen many more instances of complaints being made to CRA in bad faith by opponents of a charity’s purposes, activities, fundraising or business competitors. Some of these are individual complaints and others are well organized complaint campaigns.
The CRA does not always audit a charity that is the subject of a bad faith complaint (for example, if the complaint is clearly factually baseless, or if the complaint is really about the provisions of the Income Tax Act rather than the specific charity). However, we have represented many charities on audit where it was clear that the audit was caused by one or more complaints from the public. Even if the charity comes through the audit with a clean CRA bill of health, the audit itself is a significant distraction from the charity’s purposes and activities. Indeed, it sometimes appears that the ones complaining are really only seeking to distract the charity through the fact of the audit and do not actually believe that there is substantial non-compliance.
We encourage the CRA to continue to exercise its discretion in choosing the subjects of charity audits. Bad faith complaints need to continue to be screened out.
Charities that are being discussed in critical ways in the press or social media (particularly where social media threats of CRA complaints are being made) should take the possibility of an audit seriously. Faced with this situation, a charity should get immediate legal advice on whether it is actually compliant and on how to become more compliant if necessary. It is also often appropriate after getting advice on compliance for legal counsel to then reach out proactively to CRA to discuss the complaints that it believes are being submitted to CRA. Such a CRA discussion may reassure Charities Directorate completely. Even if the CRA still performs an audit, this kind of advance discussion can also help the CRA to focus an audit in a way that will reduce CRA’s workload and limit the disruption to the charity. Miller Thomson’s Social Impact team has deep experience with assisting charities facing CRA audits.
