I often read commentators talking about the ‘increased burden’ placed by Canada Revenue Agency on Canadian charities operating abroad or the ‘increasingly complicated’ administrative rules. I then scratch my head and wonder what increased burden and what increased rules? The CRA has not modified RC4106 since 2000 (almost 8 years) and since the publication of that document the CRA has in fact provided greater leeway to registered Canadian charities in operating abroad for example charities that are umbrella organizations. The CRA has also provided clarifications in newsletters on various issues that they have been asked about. The CRA has also made far greater efforts to educate charities about compliance issues for Canadian charities operating abroad including through a recent educational partnership with certain charities.
To the extent that one can argue that it is increasingly complicated to operate abroad it is my view it has less to do with CRA and more to do with the complexity of the world and the increasing demands of donors.
I find it amazing the naiveté that many Canadian professionals and charities have in operating globally. After having lived in Africa for 11 years and the Middle East for three years I am probably a little more aware than the average professional advisor of the challenges for Canadian charities operating abroad. I have sat on boards of international charities that have been involved with hundreds of partner organizations and I have seen lots of interesting, good, bad, ugly and excellent. To get an idea of the consequence of having good intentions without real knowledge or verification you may wish to read a rather interesting story of the education of one American philanthropist – at least he had the guts to acknowledge he messed up. See http://www.globalphilanthropy.ca/index.php/blog/good_intentions_not_enough_with_global_philanthropy/
Canada is often compared unfavourably to the UK and US in terms of the ease with which UK and US charities can transfer funds to a foreign charity or NGO. Some lawyers have expressed the opinion that the rules contained in RC4106 are unfair, unnecessary or silly.
For those who argue that the rules should be less restrictive or nonexistent I often ask “If CRA would give your charity a pass for 5 years and that pass would allow your charity to not have to comply with any of the requirements of RC4106 then what would your charity do? Would your charity transfer a million dollars abroad to a nice sounding NGO that you found out about on Google, or the leader of which you have met on a couple of occasions, without any written agreement, due diligence, reporting etc.?” If the charity says “yes” to these questions and they would not want any agreement or control then I would suggest that perhaps I am not the right lawyer to assist them. My experience is that donors, especially strategic and sophisticated ones, are increasingly requiring that the charities maintain standards that are higher than those required by CRA.
When I am chatting with American lawyers and tell them that a donor receives on a simple donation 46 cents in tax relief per dollar donated - their jaws drops. Americans, we always hear, pay less tax and consequently the benefit of donating is also far less [unless one considers the very wealthy who die and have to pay a lot of death taxes in the US]. The fact is that when a Canadian donor donates money to a cause that is dear to him or her other taxpayers are contributing almost half of the amount. The CRA is in a sense the representative of the interests of the government or taxpayers in this instance. The CRA has very little control over the priorities and programs that charities choose to implement. If some charity decides that it wants to have a flying educational institution (like in the movie Sky High) but in the shape of rhinoceros with lots of hot air balloons attached which for argument sake they will spend $500 million to implement -well as long as there are “visionary” donors there is little that CRA can do. Almost $250 million of taxpayers’ money have been ‘spent’.
Sure it makes me cringe when I see how much money there is for certain projects and how little there is for what could be considered objectively more important priorities at home or abroad – clean water, prevention of certain easily preventable diseases affecting millions of people, better healthcare to avoid maternal death in child birth or infant mortality, etc.
I would only request one thing of CRA – if you ever do change the rules – please allow charities to operate under the old rules if they so wish. No matter how much complaining there is now, when there are changes there will be more complaints about the new rules. You will have legal commentators from a couple of the big law firms commenting on how bad the new rules are for x, y, and z reasons because CRA was not smart enough to understand the wonderful proposal that that lawyer had made. Please just leave the option for charities who are currently complying, or who only later see the light, to use the current rules.
If I were to have a dollar for every executive director or senior officer of an international charity who insists that their charity is fully compliant with respect to all CRA requirements for charities operating abroad, but who has not read RC4106 which is the main CRA document on the subject, and does not understand its content, well I could not go to an all-inclusive trip to Mexico but I could certainly take a few friends to Ethiopia House on Irwin St. (my favourite restaurant).
The world has become more complicated because of terrorism, money laundering, fraud, a desire to prevent corruption and bribery, sensitivity to human rights concerns, etc. It is cliché to say that major donors are no longer just writing out cheques and feeling a nice fuzzy feeling that their money will save millions of lives. Increasingly they are not only looking for accountability but also that the results are measurable and the programs are effective. (That is asking a lot more than what CRA requires and I don’t see any reference to measurement and effectiveness in RC4106).
Instead of mourning the “liberties” that US charities enjoy, although less and less every year, we should focus on achieving more than the minimum requirements of CRA. Also I would point out that although many charities in other countries operate according to the legal minimums, in the US, for example increasingly US charities are operating at higher standards than legally required. Why would they do that? Well for one thing it is cold comfort when your funds end up being wasted, or worse, in the hands of terrorists who kill Americans, to say that you have a legal opinion from a lawyer that all we had to do was x, y and z. Secondly, the goodwill of charities is so important, the competition so intense between charities, that they cannot afford to have a scandal which could cost millions or tens of millions of dollars. Thirdly, thankfully the average person working at a charity is intensely committed to fulfilling their mission and they realize that taking legal shortcuts, utilizing loopholes or listening to that gold medalist lawyer who knows more than CRA and the Supreme Court of Canada, might not be in the best interest of the charity.
As well, those commentators who hold up the US as a model tend to ignore some of the significant restrictions on activities that the US imposes on certain countries, eg. Cuba, which we do not have here in Canada.
I guess for some the grass is always greener on the other side of the border.
The rules are not increasingly complicated or burdensome, but there is increasing enforcement of the rules. In addition to the increasing educational efforts made by CRA, there has also been a dramatic increase in the number of audits of Canadian charities operating abroad. Yes CRA is not just mandating rules but also increasingly enforcing them. This horrifies some. Most normal people would think that it does not make much sense for a regulatory authority to have the rules without enforcing them. And most people would laugh if they realized that only about 1% of charities are audited every year. With multibillion dollar (yes billion Canadian $) tax evasion schemes out there peddling tax receipts I think, certainly with those schemes, CRA needs to take a far tougher line.
My experience has been that CRA is not on a witch hunt for Canadian charities that operate abroad, despite certain ethnic and religious groups who have been stoked by some professional advisors to think so. CRA is not looking for perfection – I don’t see the word “perfection” appearing in RC4106. In my opinion CRA is looking for a concerted effort by registered Canadian charities to comply with the rules. CRA I am guessing is particularly aggravated with charities who are aware of the rules, who have been warned of their non-compliance and who could easily comply with the rules, for example because they are sending large amounts of funds to one agent or partner, but would rather hire a litigator to argue that they should not comply with the rules, rather than just complying with the rules. If you want a multi-year audit and CRA attention which will almost certainly lead to revocation you may wish to retain one of those lawyers.
Another thing that CRA does not like is if a registered charity has a number of obvious technical violations of CRA rules and the registered charity vehemently denies that there are any violations, continues to assert that it knows more about charity law than CRA, and then accuses CRA of being “anti-Semitic”, racist, “anti-Muslim”, anti-Christian, anti-straight, anti-religious, etc. Even if the violations are minor technical matters the charity is probably going to be deregistered as CRA may perceive the charity’s behaviour as being ‘uncooperative’.
I have had the privilege of setting up some non-profit organizations that are not interested in obtaining charitable status, for example because they receive government or corporate funding and do not need to issue tax receipts. As these entities are not registered charities when they conduct foreign operations they are not constrained by RC4106 rules and many other restrictions on registered charities. Canadian non-profits are not forced to maintain their registered charity status. If you want to get the advantages of being a registered charity (and there are a few) then you need to comply with the rules governing registered charities.
If you read RC4106, and some of the material on this site, you will have a pretty good idea of the rules for Canadian charities operating abroad. And there is not that much which is “new”. Hopefully if you are a Canadian registered charity you will follow the rules, have the charity, its board and employees, focus on its fundraising and good and important charitable work and not get bogged down and be distracted by an extended CRA audit.
GlobalPhilanthropy.ca was created by Mark Blumberg, a lawyer at Blumberg Segal LLP in Toronto, Ontario. If you have legal questions about non-profit organizations or charities in Canada he can be contacted at or at 416-361-1982 x. 237. To find out more about legal services that Blumbergs provides to Canadian charities and non-profits please visit the Blumbergs’ Non-Profit and Charities page at http://www.blumbergs.ca/non_profit.php or http://www.globalphilanthropy.ca
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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.