government

Thank you to Nadine Riopel, Bob McInnis, Derek Brechtholdt and the others who tweeted out the draft of this brief, and most especially provided valuable feedback.

This brief was developed in response to a call from the House of Commons Finance Committee as they undergo a review process of Canada's charitable sector and the tax laws that govern the sector.  Recommendations range from the creation of a government appointed Ambassador of Philanthropy, creating clearer legislation around "reasonable profit" and social enterprise, and addressing the inconsistencies in the T3010 tax filing that do not address the critical information that donors need in order to make informed charitable decisions.

I just read a press release issued by the British Cabinet office of the Third Sector announcing the appointment of philanthropist and thought-leader, Dame Stephanie Shirley to the new post of Ambassador of Philanthropy.

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The CRA released the minutes from the most recent Charitable Sector Stakeholder Forum Meeting.  This is a meeting that brings together individuals representing different areas of the charitable sector to discuss key issues ranging from audit and compliance to rural development.  For a copy of the minutes click here.

One of the topics of interest to me is the compliance and auditing issues.  I received a phone call the other day from a gentleman asking about a tax shelter he had heard about.  My flat answer was, that if there is any type of "kick back," whether it is cash or a larger tax reciept than the amount donated, then the donor should be wary.  CRA not only audits the charities for false receipting, but the audit the donors as well for those false receipts.

Here is an excerpt from the minutes of that meeting as it pertains to this topic:

... The top five issues found during an audit are:

1) Incomplete, inaccurate or false donation receipts;

2) incomplete or inaccurate information on the T3010;

3) insufficient or non-existent books and records;

4) gifting to non-qualified donees; and

5) lack of control and direction over foreign activities.

In 2007–2008, the Charities Directorate focused its audit and compliance resources on two major issues: tax shelters and fraudulent donation receipts. The CRA is taking a three-pronged approach to combating these issues:

1. Subjecting registered charities participating in abusive or fraudulent schemes to revocation and/or monetary penalties;
2. Reassessing donors participating in these schemes to disallow or reduce the amount of donation claimed; and
3. Exploring the application of penalties against persons promoting such arrangements.

As I have stated before, it is really up to the donor to do his/her due dilligence when it comes to charitable investing.  If you think the benefit from your gift is too good, it probably is.  The best and easiest way to avoid any audit pitfall - ask questions in advance.