Monitoring & Revoking Charitable Registration

Failing to live up to any of the obligations of a registered charity can result in the Charities Directorate taking action. Activities that could result in penalties include:

• lending a registration number to another organization
• not keeping adequate books and records
• issuing donation receipts with inaccurate or missing information

One way the Directorate checks to see if charities are living up to their obligations is by doing audits. Charities can be selected randomly for audits. A charity can also be audited, for example, because there have been:

• complaints from the public
• issues raised in the media
• concerns with information that has been provided in a return

The Directorate will perform an audit using the information and documents in the charity’s files. Some audits are conducted in the field and take place at the charity’s premises. Here, they may look at the charity’s books and records, interview directors and ask questions about the charity’s activities. They may also tour the premises to see the charity’s programs and activities in action.

If the Directorate finds that a charity is not meeting its obligations, they can take steps to correct the situation. They can:

• provide the charity with educational materials setting out what needs to be done
• enter into an agreement in which the charity agrees to correct the situation.
• impose financial penalties and fines
• impose restrictions such as suspending the charity’s ability to issue donation receipts
• in serious cases, revoke a charity’s registration

For example, a charity may not record all the required information on a donation receipt. If this happens, the Directorate requires charities to pay a penalty of 5% of the amount donated. If a charity is not keeping adequate books and records, their ability to issue donation receipts can be suspended. There are larger penalties for doing things like issuing a donation receipt with false information. This can result in a suspension of receipting privileges and a penalty of 125% of the amount of the receipts in question. Penalties increase in severity if there are further infractions.

There are a number of ways for charitable status to be lost. Once the status is lost, the organization still has certain obligations.

A charity can request that their registration be revoked. A charity may choose to do this if they are no longer operating at all. They may also simply no longer want to be a registered charity. A charity might decide they do not want to be registered because it has become too difficult to meet their obligations. This could be because they do not have the resources to pursue their purposes and activities. A charity cannot ask for its status to be revoked to avoid any action being taken for failing to meet their obligations.

You can ask to have your registration revoked by sending a letter to the Charities Directorate. The letter needs to be signed and dated by a director, trustee or someone who has signing authority. A charity’s governing documents may set out further requirements. You will get a letter confirming that the process has begun.

The Directorate can start the process to revoke a charity’s registration if the charity fails to meet its obligations, including when the charity:

• does not file a completed Registered Charity Information Return within 6 months of their fiscal year end
• is not devoting their resources to charitable purposes and activities
• is not keeping adequate books and records
• is not maintaining direction and control over their resources
• loses its status as a legal entity

The Directorate will first send you a notice setting out that they intend to revoke your charitable status. This notice will explain the reason.

If the reason was for failing to file an annual return, you will have 90 days from the date of the notice to do so. In any case, you also have 90 days from the date on the notice to file an objection.

If you do not file an objection or you are unsuccessful in your objection, your status will be revoked. In this case, you will receive a second notice setting out that your status has been revoked.

Once a charity’s registration is revoked, they lose all the benefits of being a charity. They cannot issue donation receipts, they are not exempt from income tax and they are not a charity for GST purposes.

The charity must file two final Information Returns. The first is for the time period starting after the period that the previous return covered. It covers up to the date when the charity received notice of the intention to revoke.

The second covers the wind-up period which is the year after receiving the notice. You must also file a special tax return during this period. The Canada Revenue Agency has a guide to help complete this form.

The charity must also pay a revocation tax on all of the charity’s assets after debts have been paid. The tax is equal to 100% of the value of the remaining assets. This tax can be reduced by using the assets for charitable activities or transferring them to another registered charity. This must all be done within one year of when the charity receives notice of the intention to revoke.

The charity that the assets are being transferred to must:

• be in good standing with the Directorate
• have paid any taxes owing
• have more than half of its directors or trustees at arm’s length of the directors or trustees of the charity that is transferring the assets

In the case of voluntary revocation, a charity may want to deal with their assets before applying. This way they will have a greater choice in where they transfer their assets to.