Worried about looking like a fool in front of the Canada Revenue Agency? In this two part series, Bill Kennedy takes some of the mystery out of working with the CRA.
One of the most feared phrases in Canadian charity management teams is “CRA Audit.” In most cases this is actually a fear of the unknown rather anything specific. People have heard horror stories about audits by the Canadian Revenue Agency, without realizing that the tax auditor who calls on a charity actually comes from a different place than personal and corporate tax auditors. The Charities Directorate Many of the regulatory functions relating to charities are housed in the Charities Directorate, which acts as a small scale version of the CRA within the CRA. The auditors it sends out understand tax legislation as it applies to charities. They also have a different mandate, something the CRA calls an “education-first approach to compliance”. Their strategy is to explain and correct. They recognize that tax situations can be complex for charities. Just ask any social housing charity that has constructed its own building or had a portion of its units deemed to be a Municipality for HST purposes!
I have seen the CRA reverse penalties and interest charges when the charity was able to demonstrate that it had recognized and corrected the problem that triggered the audit in a way that would prevent it from happening again. As you can see in this infographic, the vast majority of CRA audits result only in a letter expressing minor concern with the situation. Revocation of a charity’s official registration is seen as a last resort. Of the 1,429 revocations in 2015-2016, only 20 (1.4%) were issued as a result of an audit. The remainder were either voluntary or for failing to file forms (usually the T3010 Annual Information Return).
Infographic source: Canada Revenue Agency, 2015
In Part 2 of this article, Bill offers great tips for how to talk to CRA.
Bill Kennedy, CPA CA, of Energized Accounting, works with charity financial and fundraising systems. He can be reached at BillK@EnergizedAccounting.ca or @Energized
