publication date: Jun 25, 2011
author/source: Adam Aptowitzer
Next to a charity's actual mission,
filing the annual T3010 information return may be the most important thing a
charity does in a year. Of course, like most things in life, we usually do not
realize its importance until it gets missed.
When this happens, the Canada Revenue Agency
charity's registered status as a matter of course. It then falls to the charity
to reapply for its former status.
Re-registration not guaranteed
In these circumstances, charities
often simply assume that their application will succeed. And there is some
logic to the idea that an organization which was not revoked for anything
substantive but rather for simply missing a filing should be able to remedy the
defect and move on.
However, the CRA is under no
obligation to approve the application for re-registration. In fact, we have
been involved in several circumstances where the CRA rejected the
re-application by the (now former) charity. Generally, this has come as a
result of an investigation by the CRA into the activities and the purposes of
the applicant organization - an investigation the CRA would otherwise not have conducted.
(One recent case, though, did
strike us as unusual in that the applicant organization was refused
registration for having chronic problems filing the T3010). Unlike a new
organization with no track record, an active organization may have decades of
operations (or purposes) with which the CRA takes issue.
Pay taxman or give assets away
Adding additional colour to the
situation is the application of the Revocation Tax. This tax is payable by any
organization which has lost its registered charity status, and is calculated as
100% of the organization's assets (less liabilities and certain expenses) at
the time of receiving the Notice of Intent to Revoke.
Assuming the organization does
not file the information return (the T2046) due on revocation, the CRA will
calculate the tax owing based on the information filed in the last T3010 (or
perhaps gleaned on audit). That may be an amount far in excess of what the
organization has on hand to pay its taxes.
In lieu of paying the Revocation
Tax, a revoked charity can transfer its assets to an eligible donee (often an
arm's-length registered charity). Generally, this should be done within one
year of receiving the Notice of Intent to Revoke.
However, it seems more often than
not that revoked charities take their time in transferring their assets and so
are often left with assets well after the one-year period has expired. While
the government has been rather accommodating in accepting transfers to eligible
donees after the one-year period as payment in lieu of the tax, it is under no
compulsion to do so, and may in fact demand a transfer of all of a charity's
assets. A wise charity will keep this in
mind if planning a strategy for either re-registration or unwinding.
While the cost of compliance with
the charity regulatory regime may be high, the implications of non-compliance
are far worse. All organizations must file their charitable information returns
on time every year so as to avoid these complicated, confusing and costly
Adam Aptowitzer of Drache
Aptowitzer LLP is a charity law lawyer with a national practice based in
Ottawa. He has been published in Canadian Taxpayer and the Not-for-Profit News.
He has also published a widely distributed study on the regulation of Canadian charities
with the C.D. Howe Institute.
As a speaker,
he has presented to the National Symposium of Charity Law, the C.D. Howe
Institute, the Association of Fundraising Professionals, the Canadian Association
of Gift Planners, the Ottawa Estate Planning Council and various large and
small Canadian charities. He has also given expert advice on Parliament Hill.
Adam is an executive member of the Canadian Bar Association's Charity and
Not-for-Profit Law section.
For speaking engagements and consultations, contact
him at 613-237-3300 or visit http://www.drache.ca.