The final report by the ACCS, which marks the culmination of a year’s work between the sector and the federal government, reveals that many charities “fear” the Canada Revenue Agency.
The third report by the Advisory Committee on the Charitable Sector (ACCS) has revealed that many charities dealing with vulnerable populations have a “fear” of the Canada Revenue Agency (CRA), believing that reaching out for help or direction could result in an audit or even revocation of their status.
The ACCS found that many in the sector feel there is a lack of transparency and accessibility in the CRA and communications often involve inconsistent explanations, unclear language, and unnecessarily harsh warnings.
“We weighed the impact of the word ‘fear’ heavily,” says Paulette Senior, president and CEO of the Canadian Women’s Foundation, who chaired the working group on charities dealing with vulnerable populations. “We used it because we heard it repeatedly.”
This reticence by charities to seek guidance or clarification from the CRA has created a “freeze effect” in which some small groups do not fulfill their program goals because they are unclear whether their direction would be approved by the agency. Anecdotally, committee members found that some non-profits do not seek charitable status – which would make them eligible for foundation grants – because they find dealing with the government regulator too restrictive.
We weighed the impact of the word ‘fear’ heavily. We used it because we heard it repeatedly.Paulette Senior
The ACCS also called for more clarity on the CRA policy on earned income for charities, an imperative given that demand for services during the pandemic rose at the same time as revenues plateaued or declined. Earned and investment income was already the second-largest source of revenue for the sector, at $36 billion in 2019, behind government grants and contributions ($199 billion). A growing number of charities see a widening gap between demand for their services and the revenue needed to meet that demand. They don’t believe fundraising and government grants will be enough to bridge that gap and are seeking more clarity on what they are allowed to do to raise revenue through commercial activities.
This third report marks the culmination of a year’s work between the sector and the government and was released just before a federal election. It also comes as the advisory committee prepares for turnover with the expiration of the terms of some members.
These recommendations come on the heels of three key points from the previous reports, which called for a policy “home” in government for the sector, an end to the patriarchal “direction and control” provisions of the Income Tax Act, and a federal data strategy to allow for better evidence-based policy-making. (See The Philanthropist Journal’s previous reporting, here and here.)
The report called for the CRA to adopt an “education first, sanctions last” approach in dealing with charities serving vulnerable populations, which are often vulnerable themselves, being thinly staffed and focused on delivering often life-saving services. It also found CRA’s language in dealing with diversity and systemic racism to be outdated.
Rania Younes, the treasurer of the Canadian Arab Institute (CAI), thinks “fear,” though a strong word, describes the situation perfectly. Her organization has an annual budget just under $300,000 and only two staff members.
You are fearful that one little mistake will cost you all those years of work. That’s how the language and information given always sounds.Rania Younes
Just protecting her charitable status and decoding CRA guidelines is costly and time-consuming. The CAI had to spend $10,000 to $15,000 to apply for charitable status and spends about that much consulting with lawyers to protect its status each year.
“You are fearful that one little mistake will cost you all those years of work,” she says. “That’s how the language and information given always sounds.”
Having a question answered by a CRA representative by phone may mean four or five hours on hold; emails can take days or longer. For two years, Younes did not contact the granting system at the CRA because she was told she had to provide a contact name from her organization or they couldn’t deal with her. Because of natural turnover, she provided the wrong name. A CRA official ultimately said they could not help.
“Find solutions,” she says. “Help me. They make you feel like a hacker.”
Younes has openly discouraged others from seeking charitable status because of the user experience of smaller charities. Instead, she suggests they join established charities rather than deal with potential frustration in starting new charities.
The lack of user-friendly language by the CRA often leads to the fear of revocation, the committee found. But Kevin McCort, CEO of the Vancouver Foundation, says it is hard to have your charitable status revoked. It takes a long history of refusing to do what the CRA asks you to do.
Revocation is the last step, but if you read the guidance it sounds like a first step, like a ‘one strike and you’re out’ policy.Kevin McCort
“Revocation is the last step, but if you read the guidance it sounds like a first step, like a ‘one strike and you’re out’ policy,” he says. Charities also fear that word would spread if they were under investigation, harming their reputation, even though the CRA never discusses revocation until a decision is made, he says. This audit fear can freeze them, and they won’t deal with the CRA, so they never have an opportunity to have their fear assuaged.
“The smaller the organization, the greater the fear,” says Peter Robinson, former CEO of the David Suzuki Foundation, who served on the ACCS’s vulnerable populations working group. “It’s almost like you don’t want to pop your head up from the trenches and ask a question because you will draw the attention of the CRA. And that may not be a good thing.”
A lack of clarity on earned income policies also means charities may be leaving some potential income on the table, says Miller Thomson partner Susan Manwaring, chair of the charities and non-profit section of the Canadian Bar Association. These charities, too, fear the sting of an audit if they seek guidance, so they are looking for more certainty on what they can – and cannot – do. “You have uncertainty, and uncertainty breeds fear.”
The smaller the organization, the greater the fear.Peter Robinson
Don McRae, a former federal employee who dealt with charities for many years, knows that the fear of a CRA audit is not restricted to the little guys in the charitable food chain.
“People fear it because they know the auditors are there for a reason – to find something wrong. They’re not out there to provide education,” says McRae, who now researches charities.
He has also tested the CRA’s call centre, phoning three times to ask the same question, and receiving three different answers. The call centre, he says, “flunked with flying colours.”
Still, as McCort reminds, audit anxiety is not exclusive to the charitable sector. “After all, everyone is afraid of the taxman.”