CRA Compliance

Arguably, exceptions to laws work just as functionally as laws do. They give nuances to laws and make provisions in certain circumstances. The rules governing human activities in general — and in this case — charity operations, are not agonizingly rigid because of the contemplation of nuances, contexts, and unforeseen circumstances. Come hell or high water, there will always be the need for exceptions to general rules. 

The rules governing the registration and operation of charities in Canada are also not left out of this discussion of hardship-alleviating exceptions. Some of these rules are, under certain circumstances, not exactly followed to the letter with there being exceptions. 

There are certain situations under which a Canadian charity would be legally established, or continue to operate, which would have otherwise not been the case. 

Let’s have a look at some of these exceptions: 

1. Charities Established as a Matter of Urgency:

There are charitable organizations that don’t quite take the legally stipulated route for charities to be established and legally recognized in Canada. The decisions of some individuals or organizations to establish charities are sometimes motivated by disasters they’ve witnessed.

Disasters like earthquakes, floods, fires, tsunamis, storms, hurricanes and issues of emergency often motivate people to set up charities helping those affected. This exception acknowledges this reality.

Indeed, the CRA often receives charitable registration applications from organizations and individuals that want to help in any way that they can. And because the situation is usually urgent, the CRA assigns priority to these files.

Notwithstanding, these organizations must still meet the same legal requirements as all other applicants before they can be registered. Applicants must therefore be able to show how they will carry on their charity operations, direct, and control the use of their resources.

Local authorities may grant limited access only to well-established and experienced relief organizations. So, it’s almost always faster and more effective to support existing charities or other qualifies donees that already have the experience, resources and infrastructure to respond in these times of emergency. 

2. Transferring Resources to Non-Qualified Donees In Foreign Countries:

Legally, a Canadian charity is not permitted to give gifts (cash or kind) to a non-qualified donee. A non-qualified donee is an organization that cannot, under the Income Tax Act of Canada, issue receipts for donations received by it. Most foreign organizations fall under this category, and so Canadian charities cannot legally transfer resources to them.

Notwithstanding this rule, there are instances where a Canadian charity would be permitted to transfer funds to a non-qualified donee. A charity that is granted this permission must prove that such transfer is in furtherance of its own operations.

Also, for this exception to stand, the charity must prove that it is not a conduit. A conduitis an organization that funnels its resources to a non-qualified donee without having direction or control over how the resources are being utilized. Flowing from this, it’s crucial that the charity provides proof of ongoing direction and control of the resources. Acting as a conduit contravenes the Income Tax Act and the charity guilty of this could jeopardize its registration.

Of course, the transfer of resources directly to beneficiaries of the charity would require no proof of direction and control over these resources.

3. Allowance of Ineligible People to Operate Charity:

Unlike other professions or businesses where people considered as ineligible are prevented from operating, it is not the same with Canadian charities. According to the Income Act, an ineligible individual is one who has been convicted of an offence regarding financial insincerity or one relevant to the goal of an organization. An individual who is connected to an organization whose registration has been revoked because of a serious breach of the registration requirement is also regarded as ineligible to operate.

The Act does not restrict an ineligible individual from being in the employment or on the board of directors of a charity because the CRA recognizes that even people with offending pasts may be incidental to accomplishing the goal of a charity, or the training of beneficiary communities.

The onus to prove the relevance of an ineligible individual, meanwhile, is on the organization. For instance, a charity that offers counselling services can prove that an employee or a member of the board, who has been previously convicted of assault is beneficial to the organization, considering that many students of its management class have been convicted of assault.

Similarly, organizations whose registration have been previously revoked because of serious breaches of the Act may apply for re-registration and establish new entities. The CRA would not refer to their past history as part of its decision-making process.

The CRA reserves the discretion on whether or not an organization would be considered and registered.