Registered Charities every year must file the T3010 Registered Charity Information Return. It is supposed to be filed within 6 months of the fiscal year end for each charity. Here are excerpts from the comments by Cathy Hawara, Director General of the Charities Directorate of the Canada Revenue Agency, Canadian charities and late filing of their T3010 in a May 2015 speech.
Here are Cathy Hawara's comments:
I wanted to update you more specifically on one of the initiatives we pursued this year. We decided to tackle one of our longstanding compliance problems through a new mechanism. We launched an Innovation Lab in the Charities Directorate, gathering key employees from across the Directorate, to examine the issue of late filing of the annual information return. Late filing is a serious problem, which was highlighted in the 2010 report by the Auditor General on the Charities program. One in five registered charities do not file their annual T3010 information return on time and hundreds are revoked each year after an exhaustive effort on the part of the Charities Directorate to encourage them to file – including notices sent by mail, email reminders and phone calls. Ultimately, some 10% of incoming applications for registration are received from charities that have been revoked for failing to file their return. All of these activities are resource intensive for the Directorate – and are diverting scarce resources from areas of greater benefit to the sector as a whole. A late-filed return also hinders the public’s access to information. While we have made progress in the last few years, we want to continue improving filing compliance.
The lab began by considering the wealth of data available on the issue of late filing. Here are some of the highlights:
- approximately 20% of charities file late on an annual basis;
- the majority of late filers file within 30 days of the deadline;
- the majority were “repeat offenders,” filing late two consecutive years; and
- data shows that the majority of late-filing organizations are charities that have no or few paid staff; revenues under $100,000 and expenditures under $100,000.
The innovation lab also examined the Directorate’s own practices and messaging with respect to filing compliance. In the end, the innovation lab asked an insightful question: whether we had inadvertently created a culture of “filing before a charity is revoked,” rather than a culture of “filing on time.”
The lab proposed a series of recommendations for consideration by the Directorate. Some of the recommendations propose the use of behavioural economics (or nudging) to encourage charities to file on time. The use of nudging to promote tax compliance has become more prominent over the last decade. Nudging uses messaging that incorporates social norms, morals and financial cost messaging to encourage people to change their behaviour, such as by paying their taxes on time, or in our case, filing the return on time!
The keys to using concepts of behavioural economics effectively are experimentation and understanding underlying motivations. Our next steps will involve experimenting with different mechanisms to encourage charities to file on time and determining how our current interventions can be more effective, particularly in light of what we have learned about charities who file late.
Here are a few comments:
1) I am actually surprised that only 20% file late on an annual basis and most of them still file within 30 days - I thought the figure was much higher. So obviously the reminders by CRA are working.
2) As an advocate for transparency in the charitable sector I don't think that the central problem is or should be that charities file on time. I have noticed that the Charity Commission is focusing in on it as well - it is a sexy issue perhaps because it is so easy to determine whether a charity is on time in its filings. ie. it is an easy metric to determine. I think that if a regulatory effort is going to be made in terms of regulatory resources I would prefer that CRA focus on encouraging charities to be more careful and accurate with their filings. In other words if a charity would file a more accurate return I would rather they file it 1-2 months late. CRA should be particularly focusing in on larger charities, who I don't think it is unfair for them to be more accurate and careful in their filings. CRA should have a major educational program to enhance understanding on what is required in filing the T3010. It is interesting that US charities only lose their status as a 501(c)3 if they are supposed to file an annual return and they don't for 3 years! The US system is a joke that we don't want to follow. Oh, by the way about 1/2 of US charities don't even have to file a US return as they are churches, mosques or synagogues.
3) The best idea for encouraging on time filings of the T3010 is one that CRA is forbidden from utilizing. In the UK the Charity Commission on its website database lists whether a charity is up to date in its filings or late and how late. Because of the confidentiality provisions of the Income Tax Act, CRA is prevented from letting anyone know that a charity is non-compliant (whether for a trivial matter or even because the charity is a major supporter of terrorism) until after the charity has been revoked. We need to change the confidentiality provisions of the ITA to give CRA more room - if CRA's database would be updated to say that a charity is deficient in its filings then supporters of the charity or detractors would remind the charity of the problem. At the moment it is all hidden under a rug.
4) CRA should ask on the T3010 for social media links for the charity if it has one or more. Who knows perhaps one day the secrecy provisions will be modified and CRA will be able to tweet to a charity that it needs to file. Most charities seem to respond a lot quicker to a tweet than an email!
If you want to read Cathy Hawara's full speech it is at http://www.cra-arc.gc.ca/chrts-gvng/chrts/bt/2015-lwsympsm-eng.html?rss
Do you require legal advice with respect to Canadian or Ontario non-profits or charities?
Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.