By Tanya L Carlton
Canada Revenue Agency (CRA) recently released a new guidance on Ineligible Individuals (CG-024). The Income Tax Act (ITA) provisions around whether or not someone is an ineligible individual came into force on January 1, 2014, and the charities sector has been waiting for a more concrete explanation on how these provisions will be enforced by the Charities Directorate. Although there still seems to be no concrete answer on the actions CRA will take against registered charities and registered Canadian amateur athletic associations (“registered organizations”) if they have an “ineligible individual” involved with it, the Guidance does offer some helpful tools for charities in determining whether or not someone falls into this category.
Under the ITA, an “ineligible individual” (see section 149.1(1)), means an individual who has been:
(a) convicted of a relevant criminal offence or relevant non-criminal offence under provincial or federal legislation (whether committed in Canada or not);
(b) a director, trustee, officer or like official, or an individual who controlled or managed, directly or indirectly, in any manner whatever, a registered organization whose registration was revoked for a serious breach of the requirements for registration; or
(c) a promoter of a tax shelter that involved a registered organization, in which the participation in the tax shelter caused the registered organization to have its charitable registration revoked.
In order to determine whether or not someone is an “ineligible individual”, CRA has created a self-assessment questionnaire that individuals wishing to work with charities can use. Although the questionnaire may not give a definitive answer in every case, it is a good resource tool, especially for smaller organizations that do not have the resources to complete more thorough background checks.
What does “relevant” mean?
CRA considers the following offences “relevant”:
- criminal offences that relate to financial dishonesty
o this includes misappropriation of funds, intentional misstatements in financial records, forgery or other alteration of financial documents, or fraud
o unless a pardon has been granted, or a record suspension ordered, CRA will always consider an individual ineligible for these reasons
- non-criminal offences
o this includes breaches of charitable fundraising legislation, breaches of consumer protection legislation and breaches of securities legislation
o CRA considers an individual to be an “ineligible individual” for five years from the date of conviction
- an offence that is relevant to the operation of the organization
o this is determined on a case-by-case basis
o CRA looks at the nature of the offence and the relationship between the nature of the offence and the operation of the organization
o if the operation of the organization provides the opportunity for the individual to reoffend then CRA could deem them to be ineligible
What does “serious breach” mean?
If an individual was involved with a registered organization that had its registration revoked for a serious breach of the ITA, CRA will deem them to be an “ineligible individual” for five years from the date of revocation. CRA states in the Guidance that:
- a “serious breach” occurs with any revocation resulting from an audit
o issuing fraudulent receipts, misappropriating assets, or participating in abusive tax shelters are examples of such “serious breaches”;
- revocation for failure to file an annual return or to a lapse in governing documents “would not normally be considered” a serious breach for the “ineligible individual” provision of the ITA; and
- they may “consider repeated infractions as aggravating factors in determining whether the breach that resulted in revocation” was serious.
What actions will CRA take?
The Income Tax Act permits the CRA to take three courses of actions when it becomes aware of an “ineligible individual” being involved with a registered organization:
- CRA can refuse to register the organization;
- CRA can suspend the registered organization’s receipting privileges for one year; or
- CRA can revoke the registered organization’s charitable registration.
Before the CRA makes its final decision, the charity will have the opportunity to respond to CRA’s concerns, and if unhappy with the final decision, the opportunity to object. If adequate protections have been put in place to protect the beneficiaries and assets of the charity, then CRA may find that the “ineligible individual” involved in the charity can still stay in their position and CRA will not suspend the charity’s receipting privileges or revoke their charitable registration.
For more information on how CRA will administer the ineligible individual provisions and what factors they will consider when making a decision, please see the Guidance online at: http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/cg-024-eng.html?rss