Tips for charities: 5 pitfalls to avoid when completing your charitable information return

Navroz Janmohamed, CPA, CA, partner at Manning Elliott

Passion is often what drives people to charities and to charitable work. But passion goes only so far when running a not-for-profit, and it can be a complicated business.

Applying for and being rewarded charitable status is one of the first hurdles.

In 2015-16, the Canada Revenue Agency (CRA) received 3,484 applications for charitable status and approved only 1,670. Anyone who has gone through the application process is aware of the difficulty in ticking all the required boxes, but what is less talked about are the requirements of maintaining this lauded status.

Last year, the CRA released a Report on the Charities Program 2015-2016 – the first of its kind as a more reader-friendly version of its annual update by the director general. It summarized the programs and achievements of the agency’s charities directorate and how the directorate contributes to the effective regulation of charities in Canada.

Among the statistics was the total number of charities that had their status revoked in the reported year – 1,429, almost double the number of charities that were audited. The reason? “Most of them just didn’t file or had poor filing records,” says Navroz Janmohamed, a Manning Elliott partner and chartered accountant.

Janmohamed has worked with charities in a variety of sectors for over 15 years and is particularly involved in tracking changes in the accounting and auditing world. He knows that while applying for charitable status can be tedious work – especially if you’re a smaller charity with fewer resources – gaining back charitable status can be even harder.

Here are areas Janmohamed suggests paying attention to on the charity return so that your team spends more time on your charity’s important work and less on the administration of it.

Incorrect disclosure of compensation: If you issue T4 slips, then this section of Schedule 3 applies to you. Janmohamed says many charities leave this section of the return blank, thinking it doesn’t apply to them. Another common error in this section is gross versus net remuneration – the CRA is after the gross amount on your tax return, not the net.

Incomplete disclosure of fundraising expenses: If your charity hires a third party to do fundraising, for example, this needs to be disclosed. Your return needs to include how much money was spent to reach your fundraising amounts, however achieved.

Incomplete cross-disclosure: When charities provide funds to political activities or programs that take place outside of Canada, for example, they tick a box to say as much. But what many forget to do is complete the corresponding schedule that asks for more detail. Not completing this is a red flag to be audited.

Skipped or incomplete T1235 worksheet: This sheet asks for the detailed information of each of the directors or trustees. In many cases, Janmohamed says, this is not provided, so pay special attention to completing each and every question about the personal details of this group of people.

Donation receipts: This is the big one and the most important. Providing donation receipts is one big advantage charities have in raising funds, but there are a lot of rules around what constitutes a donation and how much information a charity needs to provide for the CRA when a receipt has been issued. For example, donations can be received only as gifts, not out of obligation, and charities need to figure out the fair market value to report for any gifts that aren’t cash. There are 12 key areas that need to completed on an official donation receipt; make sure you’re addressing them all.

“The main take-away is that charities should really ensure they have sufficient resources in place to comply with all CRA deadlines and the particular filing requirements,” says Janmohamed.

This is more difficult for smaller charities but not impossible. Hiring board members with this experience is a smart choice, as is investing in professional guidance for internal accountants so that they can avoid pitfalls and learn the nuances of this public return.

If your charity could use additional guidance, see the resources Manning Elliott has available and meet the team who have dedicated their careers to supporting charitable work.

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