Cover Story
Contributions to "Cover Story" are
welcome. You can e-mail it to us now at editor@charityvillage.com, or click here for our fax, telephone,
and mail information.
Special Report: Q&A with Terry de March of the CRA Charities Directorate
By Andy Levy-Ajzenkopf
February 4, 2008
As many of you already know, last December an investigative report by journalists at the Toronto Starrevealed the results of a year-long investigation into abuses by various Canadian charities. The report also focused on what Canada’s federal charities regulator, the Charities Directorate, and it’s new director general, Terry de March, were doing in response to the revelations of rampant, improper tax-sheltering and flat-out fraud being perpetrated by a small percentage of the more than 80,000 charities across the nation.
At the time, de March told The Star his directorate - run under the auspices of the Canada Revenue Agency - would "use whatever tools we have to stop abusive charities from harming the public and the system."
CharityVillage decided to ask de March some more questions about what the good people working in registered charities nationwide can expect from the directorate in the aftermath of the media hullabaloo.
The following is an interview conducted with de March at the end of January, and as you'll see, he is both candid and detailed in his responses.
CV: What is your renewed emphasis on registered charities’ compliance with CRA rules in general (and how are the interim sanctions working out so far)?
de March: Compliance has always been central to the work we do, but it’s true that we have recently applied more resources to the task of ensuring that we do our part to protect the integrity of charitable giving in Canada.
Let there be no mistake, by far the greatest majority of charities in Canada do great work and live up to their regulatory responsibilities. Unfortunately, a small number of organizations that choose to operate outside the law grab a lot of media attention and make us forget that fact. We want to help ensure that Canadian registered charities maintain the high level of trust that charities have for them.
On the compliance side, we are dealing with two serious issues at the moment, the most serious is what we call “tax shelters”. These are investment schemes that promise investors a tax credit that will exceed the total amount of money invested. These are often very complex financial arrangements that have one common denominator: a charity that issues a grossly inflated tax receipt.
The directorate has now reached the point where we have, are, or will be reassessing the annual returns of some 100,000 people who participated in these schemes, involving nearly $3 billion. What these investors are facing is a large tax bill as claimed donations are reduced to the correct amount allowed by law.
We use the term “investors” and not “donors” because these individuals, although they end up with a charitable tax receipt, are not really interested in donating to a worthy cause, and, in fact, rarely have any contact whatsoever with the charity that issued the receipt. What they are really trying to do is make a fast buck at the expense of other Canadian taxpayers.
So the agency is doing its part to fix this problem by investigating registered charities that are involved with these schemes and taking quick and appropriate action. These registered charities, and in some instances very dubious registered charities, are the lynchpins in these schemes. Without a registered charity to issue an inflated tax receipt, they can’t succeed.
The second major compliance issue that we are facing is even more blatant than tax shelter...the fraudulent issuance of receipts. We have a very generous system in Canada that provides significant tax credits to people who donate to charities. Unfortunately, with that generosity comes the temptation by some to abuse the system for their own personal gain.
So as with tax shelters, the agency is devoting resources to this problem to ensure that it closes down these abusive practices and does what it can to prevent them from occurring in the future.
With regard to our new sanctions, with the exception of our $500 penalty for charities that lose their registered charity status and reapply, they are really just in their infancy as a compliance tool. The agency issued one to date, and that one received significant media attention. And yes, we will be using them more frequently in the future, where it is clear that a charity is knowingly refusing to meet their regulatory responsibilities.
I should also mention that we are talking to and working with charitable sector leaders on compliance issues: these are not just CRA issues. As I mentioned before, these few bad apples that get the media attention detract from the great charity story that unfolds each day across Canada. Our working together to remove these compliance issues will help ensure that the focus returns to the positive elements of the Canadian charity story.
CV: There seems to be an improved/more significant focus from the directorate on the education of and communication with charities. How is this being implemented and followed up?
dM: It’s true that the directorate is making a concerted effort to educate charities as a means of improving compliance. [There are] our computer accessible forms and Canada-wide information sessions, but we have other ongoing work in the hopper too.
We’re going to be issuing new policies and guidance in key areas such as fundraising, where many charities really aren’t sure what they can and can’t do. And we’ll be improving our website, giving more information to both the general public and charities and making it easier for them to find the information they need. And we’ll continue to work on our forms and publications, making them simpler and easier to understand.
I have to mention, too, a recent [CRA] initiative announced in September, our Small and Rural Charities Initiative. In the fall, we held workshops in six cities across Canada where we invited small and rural charities to tell us how we’re doing in helping them understand and comply with our rules. And we heard a lot. We heard that while they appreciate the help we provide, there is a lot more we can do to “get it right”. First and foremost, in their view, was recognizing that a “one size fits all” approach to charity regulation doesn’t always work - that you can’t treat the small food bank in a remote northern town the way you would a large, national charity with significant resources at its disposal.
These workshops were followed by a series of meetings with a small and rural charities panel, chosen from workshop participants, who were asked to come up with a report for the Minister containing a series of recommendations on how we can serve the small and rural charities community better, with the goal of improving their regulatory compliance. The report will be made public in a few months, and we are looking forward to implementing some of the key ideas coming forward.
CV: Tell me about your new focus on educating the voluntary sector about the need to file T3010s (the Registered Charities Information Return document).
dM: It’s not so much that we have a new focus; we have always worked hard to make charities aware of their obligation to complete the form accurately and on time. What we have now, though, is a new set of tools that we are promoting, along with a new sanction - a $500 penalty for those charities that lose their registered charity status and reapply.
One of the new tools is a form that charities can download from the web to complete on their computer and mail to us rather than completing it by hand. (Writer’s Note: The directorate expects to introduce an online filing system sometime in the future. They say they are working on it now.)
We also have a new contribution program that allows us to fund innovative projects designed by voluntary sector organizations to help charities understand and meet their regulatory responsibilities. Two ongoing projects deal specifically with the annual return and provide tools and resources to charities to help them accurately complete and file their return on time. The Legal Information Society of Nova Scotia and the Centre for Voluntary Sector Research and Development, Carleton University, are running these projects.
This is all in addition to our annual information sessions that we hold in major centres across Canada and encourage charities to attend. More information on the contribution program projects and our annual information sessions is available on our Charities and Giving Website.
Getting charities to fill out the [T3010] form properly and submit it is still a problem. Last year, more than 1,600 charities lost their registered charity status for failure to file their return. By the end of this fiscal year, the directorate should be in a position to report a significant reduction in that number due to both our efforts, and those of charities themselves as they step up their efforts to comply with our rules.
CV: Has the increased media coverage of questionable charitable activities affected your work?
dM: The media tends to report on what the directorate is doing and what it observes generally in the charitable community. So much of that broad-based coverage is focused on what is known to us.
We do, though, closely monitor the media. While we often see stories relating to issues about specific charities that we are already aware of and are investigating, we also see stories about issues that are not on our radar screen. And that’s helpful to us. We take a close look at any issues that are reported in the media.
The media provides a great service in bringing important issues relating to the charitable sector to the attention of the public. This in turn creates a more knowledgeable group of donors who will be more diligent in ensuring that their charitable donations go to legitimate charities. The media also regularly tells readers about our website, where people can access the annual returns of all 83,000 charities and go to our donor pages for tips on donating wisely. And again, the more aware donors are of these resources, the more they will be able to safeguard their donations.
CV: Will the directorate make any moves toward revamping/revising the definitions of what's charitable?
dM: The agency relies on the common law, which is a body of court decisions that serve to provide guidance on what is and isn’t charitable. So, in that context we don’t “revamp” the definition of what is charitable, but rather interpret what the courts have lain out and apply those precedent cases to individual cases.
To help us in this interpretive function, we issue policies that provide general guidance on how charities need to be constituted and conduct their activities in order to be considered registered charities under the Income Tax Act. We continue to produce these policies and will be posting new ones on our website in the near future.
CV: Will the directorate make any moves toward establishing an oversight body outside of the CRA (like the Charity Commission in the UK)?
dM: Well, first of all, how the structure of our regulatory regime should be constructed is really something that is outside our area of responsibility. We are provided with our regulatory responsibilities under the Income Tax Act and fulfil those duties to the best of our ability.
That being said, this issue does come up from time to time and has been a point of discussion in such reports as the 1999 Broadbent Report: Building on Strength: Improving Governance and Accountability in the Voluntary Sector, and the Voluntary Sector Initiative report: Strengthening Canada’s Charitable Sector: Regulatory Reform.
When people compare our system to that of the Charity Commission in the UK, it’s important to remember that there is a very different context for charity regulation in the two countries. Our duties in the Charities Directorate are limited specifically to our responsibilities under the Income Tax Act, with actual constitutional responsibility for charities resting with the provinces. In the UK, the Charity Commission is specifically excluded from responsibilities dealing with the tax side of charity regulation that fall, similar to Canada, to their Revenue and Customs Ministry. The Charity Commission role is, to a great extent, what falls within Canada to the provinces.
CV: Will the directorate consider any moves toward developing a standardized accounting definition of fundraising/admin expenses?
dM: We are committed to issuing new guidelines on fundraising practices by April 1st of this year. We’ll be posting a draft of our policy on our website and will be inviting the charitable sector and the general public to provide us with their views on the policy at that time.
CV: Has the directorate initiated any movement on the advocacy file? (i.e., percentage of resources charities can direct to partisan advocacy)
dM: Political activity is not a subject that comes up in our conversations with the sector, nor did it come up in our current Small and Rural Charities Initiative. We issued a comprehensive policy on political activities (advocacy) in 2003 that can be found on our website as CPS-022 Political Activities. We believe that the policy has been well received by the sector and adequately explains what charities can and can’t do under the law.
While the law does allow for a certain percentage of charitable assets to be devoted to political activities (generally 10%), the law does not allow charities to devote any resources to “partisan” political activities. This is explained in our political activities policy.
Enough said
If you’ve made it this far and you’re part of a registered charity in Canada, you’ll likely be heading over to the Charities Directorate website to check out some of the policies noted in the interview above. It seems as if 2008 will see some interesting information and developments in the directorate.
Our thanks to Terry de March for his time and candour.
Andy Levy-Ajzenkopf is president of WordLaunch professional writing services in Toronto. He can be reached at andy@wordlaunch.com
