At the end of August, the CRA published a lengthy Guidance (36 printed pages) dealing with its views on who are ineligible individuals under the charity provisions of the Income Tax Act.1
The ineligible individual provisions in the Income Tax Act came into force on January 1, 2012. These provisions give the CRA the authority to refuse or revoke the registration of a registered organization and to suspend an organization’s receipting privileges when an ineligible individual is a board member or controls or manages the organization.
When reading the guidance we had both positive and negative reactions. On the positive side the document is extremely detailed and gives anybody who is interested a good idea of how the CRA views the legislation. On the negative side, there is a huge amount of imprecision as to how any particular case the CRA will react and what penalties may be imposed on a charity if an ineligible individual is involved.
For example, the guidance even says that in some cases it may be appropriate for an ineligible individual to serve on the Board of a charity:
“The CRA recognizes that people with similar life experiences may provide important programming insights into the welfare, needs, and issues of certain beneficiary communities. It may, therefore, be appropriate in some cases for an organization to welcome an ineligible individual into its operations. The onus is on the organization to explain the role and contribution of the ineligible individual if the CRA expresses concern about him or her.”
The watchword seems to be “flexibility” which means in effect that the CRA can do whatever it wants and the organization will always be on the defensive. We are already aware of one case where a charity has had a notice of revocation under the ineligible individual provisions which suggests that that the CRA will not always be “flexible”.
There is no requirement that an organization be proactive on this issue, it seems:
“It is also important to note that the legislation does not require registered organizations to do searches or to proactively determine whether an ineligible individual is a member of the board or controls and manages the organization. Furthermore, there will always be an opportunity to explain why it is necessary to keep the ineligible individual or to outline what internal measures have been put in place to protect vulnerable beneficiaries and assets of the organization.”
But then at the end of the document taking up fully one-third of it there appendices including a “Self-Assessment questionnaire” to determine whether one is “ineligible”, one for the organizations, and then Questions and Answers. In this section we find the following:
“Must a registered organization notify the CRA if it knows of an ineligible individual?
No. A registered organization does not have to notify the CRA if it has an ineligible individual as a director, trustee, officer, or like official, or if it has an ineligible individual controlling or managing it. However, the registered organization should put appropriate safeguards in place to protect its beneficiaries and assets.”
Perhaps the most potentially troubling interpretation of the law is found in paragraph 39:
“Aside from a signature on an application form, an application for registration is not complete until the CRA has all the information it needs to determine the applicant’s eligibility for registration. Therefore, anyone who provides information to the CRA about the applicant organization—its authorized representative or the contact person authorized to answer the CRA’s questions—will also be considered to have made the application.” (Our emphasis.)
This seems to mean that anybody, lawyer, accountant or volunteer who is involved in making an application or answering a question from the CRA about an application becomes an individual who might (given the factual background) be a ineligible individual. Some professionals have already expressed the view that this provision is aimed at charity professionals, at least those who have been involved at one time of another with a revoked organization.
As we have said, the Guidance looks at first blush to be extremely comprehensive and thus, presumably, useful to the charity community. But a closer reading reveals that there is a huge amount of “fluff”, of the “we could do this, we could do that or we could do nothing” genre which in the end means that the organizations are at the mercy of the tax authorities.
There is the possibility that the interpretation of the law goes far beyond what the legislation calls for.2 While the Guidance doesn’t say so explicitly, there of course appeal procedures for refusal to register an organization or for revocation. We would expect that at some stage, perhaps a year or more down the line there will be a judicial challenge to some of the positions enunciated in the Guidance.
Given the breadth of the rules as enunciated by the Guidance, we strongly recommend that anybody involved with setting up, running or volunteering with a charity review the rules. You may well be surprised at the extent to which they might apply to your organization.
1 CG-024 http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/cg-024-eng.html?utm_source=charities&utm_medium=eml
2 See Appendix E