What Happens If a Registered Charity Doesn't Meet its Obligations?

TL;DR: When a registered charity breaks the Income Tax Act (ITA) rules, the CRA Charities Directorate chooses from four tools in its Guidelines for applying sanctions: an education letter, a compliance agreement, a sanction (a financial penalty under ITA s. 188.1 or a one-year receipting suspension under ITA s. 188.2), or revocation of registration under ITA s. 168. The CRA usually starts with education, but it can move straight to a sanction or revocation for serious non-compliance or for failing to file the T3010 annual return. A revoked charity owes revocation tax under ITA s. 188 equal to its remaining net assets, unless it uses or transfers those assets within one year.

If you chair or treasure a small registered charity and a letter from the CRA just arrived, your first question is how serious it is. The answer depends on what went wrong and how quickly your board fixes it. This guide explains each CRA compliance measure, what triggers it, and what your charity can do at each stage.

What counts as “not meeting obligations” for a registered charity?

A registered charity’s core obligations come from the ITA. They include filing the T3010 Registered Charity Information Return within six months of fiscal year-end (ITA s. 149.1(14)), issuing complete and accurate official donation receipts, keeping adequate books and records, and using its resources for charitable purposes. A charity also must not confer an undue benefit on a director, member, or related person.

A few terms come up throughout this guide:

• Charities Directorate: the CRA division that registers and audits charities.
• Qualified donee: an organization, such as a registered charity, that can issue official donation receipts and receive gifts from other charities.
• Sanction: a financial penalty or a one-year suspension of receipting privileges.
• Notice of intention to revoke (Form T2051A): the CRA’s formal notice that it plans to revoke registration.
• Revocation tax: a tax on a revoked charity’s remaining net assets.

How does the CRA decide which measure to use?

The CRA’s Guidelines for applying sanctions rank its tools by severity. The Charities Directorate generally starts with education and escalates only if the problem continues or is serious.

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Will the CRA always start with an education letter?

No. The CRA Guidelines for applying sanctions allow the Charities Directorate to go straight to a sanction or revocation in serious cases. Serious cases include breaches of core ITA requirements, Criminal Code matters such as fraud, and ignoring a compliance agreement.

The CRA moves directly to revocation in aggravated cases. Those include repeat serious and intentional non-compliance, substantial harm to donors or beneficiaries, and a charity that cannot or will not comply.

For minor issues, an education letter is the usual outcome. An education letter explains the rule your charity missed and does not affect your registration. Our guide to the letters a charity may receive after a CRA audit explains each letter type.

What is a CRA compliance agreement?

A compliance agreement is a written agreement, negotiated with your charity and signed by both your charity and the CRA. It names the problems, the steps your board will take to fix them, and what happens if your charity does not follow through. Under the CRA Guidelines for applying sanctions, breaking a compliance agreement is itself treated as serious non-compliance. That can lead to a sanction or revocation.

What financial penalties can the CRA charge a charity?

ITA s. 188.1 sets the penalties for specific infractions, and the CRA Guidelines for applying sanctions explain how the CRA applies them. A repeat infraction means the charity was already sanctioned for the same type of problem.

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Under the CRA Guidelines for applying sanctions, a charity can pay a penalty above $1,000 to an eligible donee instead of the Receiver General. The money then stays in the charitable sector.

When can the CRA suspend a charity’s receipting privileges?

The CRA can suspend a charity’s right to issue official donation receipts for one year under ITA s. 188.2. Inadequate books and records, including refusing an auditor access, lead to a suspension on the first infraction. A suspended charity is also not a qualified donee, so other charities cannot make gifts to it.

During a suspension, your charity can still accept gifts but cannot issue official receipts for them. Your charity must also tell anyone planning to donate that it is suspended. Under the CRA Guidelines for applying sanctions, the CRA intends to revoke any suspended charity that issues a receipt during the suspension.

What happens if a charity does not file its T3010?

The CRA revokes the registration of a charity that does not file its T3010 after a reminder. The CRA Guidelines for applying sanctions describe this as a zero-tolerance policy, because the annual return is how a charity accounts to donors and the public. Revocation for non-filing usually skips the education and compliance agreement stages entirely.

A charity revoked for non-filing that wants to re-register must file the missing returns and pay a $500 late-filing penalty under ITA s. 188.1. Our step-by-step guide on handling a revocation for not filing a T3010 covers the process.

What happens to a charity’s assets after revocation?

Under ITA s. 188, a revoked charity owes revocation tax equal to 100% of its remaining assets after debts. The one-year winding-up period starts the day after the CRA issues the notice of intention to revoke (Form T2051A). Form T2046 is due one year after the date of that notice.

Your charity can reduce or eliminate revocation tax during the winding-up period. It can spend remaining assets on charitable activities, transfer them to an eligible donee, or re-register within one year. File through the CRA’s Revocation tax and the T2046 tax return page. For a full walkthrough, see our guide to revocation tax and the T2046 return.

A revoked charity can usually continue to exist as a corporation under provincial law. However, it is no longer a registered charity and cannot issue receipts.

Can a charity object to a penalty or revocation?

Yes. Before the CRA imposes a sanction, your charity has 30 days to explain to the auditor why it should not apply. After a sanction notice, your charity has 90 days to file a notice of objection, with further appeal to the Tax Court of Canada.

For revocation, your charity has 90 days from the notice of intention to revoke to object under ITA s. 168(4), with further appeal to the Federal Court of Appeal. The CRA’s full process is set out in its Guidelines for applying sanctions.

Frequently Asked Questions

Does an education letter go on our charity’s record?

An education letter does not affect your charity’s registration and requires no response. The CRA can, however, consider a past education letter if the same problem shows up in a later audit.

Can our board refuse a compliance agreement?

Yes, because a compliance agreement needs your charity’s signature. Refusing it, though, leaves the CRA free to choose a sanction or revocation instead.

Can a suspended charity still accept donations?

Yes. A suspended charity can accept gifts but cannot issue official donation receipts for them, and it must tell donors about the suspension before they give.

Can we pay a CRA penalty to another charity?

Yes, for penalties over $1,000. The CRA allows those penalties to be paid to an eligible donee instead of the Receiver General.

Can a revoked charity register again?

Yes. A revoked charity can apply to re-register. If re-registration is granted within one year of the notice of intention to revoke, the charity avoids revocation tax.

What should your board do next?

If your charity has received a CRA audit letter, a T3010 reminder, or a notice of intention to revoke, note the date on the letter today. The 30-day and 90-day windows run from that date. Our charity governance and compliance team can review your letter and help you respond. Book a free consultation with Dov Goldberg to start.