This is part three in our series that that simply and clearly explains the most important legal issues charities and their boards of directors need to be mindful of.
7) Providing resources to non-qualified donees
In 2010, CRA released its Guidance “Canadian Registered Charities Carrying out Activities Outside Canada” and in 2011, released its guidance on “Using an Intermediary to Carry out a Charity's Activities within Canada”. If a Canadian charity is transferring resources to a group that is a non-qualified donee (i.e. it cannot issue official donation receipts) such as a foreign charity, or a non-profit in Canada that is not a registered charity, then the registered charity must be able to show that it has direction and control over the use of its resources.
Failure to maintain direction and control can result in a 105% penalty of the amount transferred and/or revocation of charitable status. More information about foreign activities is available at www.globalphilanthropy.ca. For charities conducting foreign activities or working with intermediaries in Canada, such charities should review the sufficiency of their direction and control.
8) Maintenance of adequate books and records
Canadian registered charities must keep adequate books and records at a Canadian office. The charity must also keep source documents that support the information in the books and records. The purpose of these requirements is to facilitate CRA’s review of the charity’s revenue and expenditures, verification any official donation receipts that the charity may have issued and to be able to determine that the charity’s activities are appropriate.
In terms of record retention, charities are required to keep duplicates of receipts for at least two years from the end of the calendar year in which the donations were made. Most other documents need to be kept for 6 years from the end of the fiscal year. Some other records must be retained in perpetuity or until two years after the charity has been dissolved. This includes such things as minutes of meetings and all governing documents such as articles of incorporation. If in doubt, keep it!!
9) Avoiding inappropriate political activities
Over the last few years, there has been an added focus on charities that conduct political activities. Under the Income Tax Act, a registered charity can be involved in non-partisan political activities, as long as it devotes substantially all of its resources (90%+) to charitable activities. Any political activities must be related to the charity’s purposes and must involve generally less than 10% of resources.
A registered charity cannot be involved in any partisan political activities. A political activity is considered partisan if it involves direct or indirect support of, or opposition to, a political party or candidate for public office. See the CRA policy statement on Political Activities (CPS - 022) and our blog postings on political activities.
Don’t forget that registration of lobbyists (federally, provincially or municipally) is a separate issue. You may wish to review the various lobbyist registration laws to check whether you and your organization are compliant.
10) No compensation for members of the board
In Ontario, board members of charities generally are not entitled to compensation. In fact, directors of charities that operate in Ontario are very much constrained in terms of their dealings with that charity. If there is an accountant serving on a board, the accountant and their firm are prohibited from conducting an audit or charging the charity for accounting services. Similarly, law firms cannot charge for legal services provided to a charity if one of their partners is on the Board of Directors.
Directors are only entitled to be reimbursed for reasonable out-of-pocket expenses incurred to further the activities of the charity. Directors of charities that operate in Ontario generally cannot receive salaries, stipends, grants, honorariums, or consulting fees from that charity without a court order.
You can read part one of this series here and part two here.
