Topics: What's New from the Charities Directorate of CRA, Canadian Charity Law, Political Activities and Canadian charities
Canadian registered charities must file the T3010 Registered Charity Information Return within six months of the end of their fiscal year, although some are not able to meet that deadline and file soon thereafter. It is a very important form because despite its limitations it is really the only uniform way to obtain information on all registered charities in Canada. Some people are surprised to find out that answers on the T3010 are not always reliable. I am going to make a few comments on the reliability of the T3010 and specifically with respect to questions relating to “political activities”.
I am going to argue that different questions on the T3010 are not uniformly reliable for a number of reasons including the complexity of the question, the complexity of the subject matter, the prominence of the question on the form, and the concern about repercussions in answering a question one way or the other.
Whereas the charities answers to questions such as name of charity is probably very correct, the amount in cash/bank accounts is probably quite correct (banks tend to give statements covering a lot of that), there are other more complicated or difficult questions that are not filled in correctly. One of the most incorrectly completed lines is line 5020 “total expenditures on fundraising” - you can read more about that below. Another question which I will discuss further is question C5a (line 2400) “Did the charity carry on any political activities during the fiscal period?” and “Enter the total amount spent by the charity on these activities? [ie. political activities] [line 5030]
My quick analysis of the T3010 shows that about 500 charities answer yes to them doing political activities out of 86,000 charities. This is far less than one percent. I was quoted in the National Post as saying the figure of those charities actually involved in political activities is probably far higher than 500
( http://news.nationalpost.com/2012/04/06/the-politics-of-charity-when-is-does-a-tax-exempt-organization-to-political/ )
If you want to read a piece put out by Imagine Canada on the number of charities doing political activities you might find this helpful. Imagine Canada surveyed 3,816 charity leaders and 1,625 complete responses were received (42% response rate) Imagine notes that “Responses have been weighted by organization size, region and subsector to produce more accurate national estimates.” Remember I support charities doing political activities, they just need to make sure they are conduting the political activities within the rules for registered charities.
“PERMITTED POLITICAL ACTIVITIES
Political activities seek to pressure the government on an issue related to the charity’s purpose. Political activities are permitted if the charity’s activities are non-partisan and if the charity devotes substantially all of its resources to other, charitable, activities.”
Just over a third (39%) of charities engaged in permitted political activities over the previous year. In terms of specific activities, charities are most likely to encourage the public to contact elected representatives or government officials (22%) or to make a statement to the media (19%; see Figure 3).
Interestingly, although organizations are comparatively likely to make use of research in their charitable public awareness and policy activities, they were much less likely to do so in contexts linked directly to specific political actions (14%).
Again, most organizations engage in these activities irregularly (40%) or a few times a year (37%) - just 6% engage in them a few times a week or more. As with charitable awareness and policy activities, organizations that engage in political activities are most likely to focus on influencing provincial governments (81%; see Figure 4). Compared to charitable public awareness and policy activities, specifically political activities focus even more closely on provincial governments.”
To read the full Sector Monitor see http://www.imaginecanada.ca/files/www/en/sectormonitor/resources/sectormonitor_vol1_no3_factsheet2_2010.pdf
Why do charities get the question dealing with political activities so wrong? I am going to take a guess at 4 top reasons.
1) They don’t understand what a “political activity” is for a charity and confuse political with “partisan political” which is prohibited. Therefore, when they say “no” they think they are really saying knowing to partisan activities. Most charities don’t scrutinize enough the T3010 Guide which is called the T4033-1 Completing the Registered Charity Information Return. The Guide has 25 pages of instructions and is discussed below.
2) They skip over the 3 or so lines dealing with political activities in the 9 page T3010 form. You might say that is impossible but generally this information is completed by humans, who are volunteers, and it is often done very last minute and frequently no one checks over the work. While I suggest that all charities provide the draft T3010 to every board member of the charity, that is not required by law and probably is not done by most charities. Larger charities, in addition to providing the T3010 to its board, should also have at least one person from programming, finance and fundraising each review the T3010 from their own particular perspectives. Also before around 2002 detailed questions were asked on the T3010 about political activities which made it more difficult to miss.
Here are some of the questions that were asked before 2003: “During the fiscal period, did the charity attempt to influence public opinion or to affect legislation or policy using any of the following means?
conferences, workshops, speeches, or lectures
publications, or published or broadcast statements
rallies, demonstrations, or public meetings
mailings to elected officials or the public
meetings with elected officials or their staff
presentations or briefs to elected or appointed officials
other (please specify)
I understand from 2002 to 2003 when the revised form came in with the question being posed differently and less prominently that there was a substantial reduction in the number of charities indicating they were doing political activities. Here is the much more prominent question on political activities that used to appear in the T3010 before 2003. In all likelihood in the next few months we will have more prominence on the T3010 dealing with political activities and I will not be shocked that more charities acknowledge doing permissible political activities.
3) The person completing the form is not aware of the details of the activities of the charity, including political. A finance person, for example, in a charity may not be aware of all of the programmatic work. Many charities are spread out over the whole country and someone in Toronto may know little about the Halifax operation and vice versa. At the same time that expectations for transparency and accountability are increasing there are unrealistic expectations that charities not ‘waste’ funds on administration. Well completing the T3010 is administration, so is often completing reports to stakeholders on the work of the charity. Charities should spend no more than necessary on administration but they should also not spend any less than necessary on administration (you can see my article on this point http://www.globalphilanthropy.ca/index.php/articles/how_much_should_a_canadian_charity_spend_on_overhead_-_an_article_by_mark_b/ or read lots of academic studies on the subject)
4) They may know that they are doing political activities or suspect that perhaps what they are doing falls within political but are afraid to put in that they are involved with political activities or “lobbying” for fear that some stakeholders may object or cut funding.
Guide to the T3010
Most charities do not look at the Guide or certainly don’t read every section but the Guide goes into further information on answering the political questions:
“C5 – (a) – Line 2400 – Tick yes if the charity carried out any political activities during the fiscal period. We consider an activity to be political if a charity:
(a) explicitly makes a call for political action (for example, encourages the public to contact an elected representative or public official and urges them to retain, oppose, or change the law, policy, or decision of any level of government in Canada or a foreign country);
(b) explicitly communicates to the public that the law, policy, or decision of any level of government in Canada or a foreign country should be retained (if the retention of the law, policy, or decision is being reconsidered by a government), opposed, or changed; or
(c) explicitly states in its materials (whether internal or external) that the intention of the activity is to urge, or organize to put pressure on, an elected representative or public official to retain, oppose, or change the law, policy, or decision of any level of government in Canada or a foreign country.
Both the common law and the Income Tax Act allow registered charities to conduct limited political activities. The law recognizes the historical and continuing role of registered charities in contributing to the development of public affairs and policy. However, registered charities are not political bodies. Therefore, they face limits on the type and extent of political activities they can pursue.
There are three important restrictions:
Political activities must be entirely non?partisan in nature. Registered charities must not support or oppose political parties or candidates for public office. For example, a registered charity cannot purchase tickets to a fundraising event held by a political party;
Disbursements on political activities are allowed only as additional expenditures, provided registered charities have satisfied the requirement that they devote substantially all their resources to charitable activities. Registered charities may devote generally no more than 10% of their disbursements to political activities; and
Political activities must relate directly to the registered charities’ purposes. Registered charities are not permitted to commit their resources to campaigning on issues, policies, and laws that are unrelated to their formal purposes. For example, a registered charity established to protect the environment may press a government on its environmental policies but not on an unrelated issue, such as prison reform.
We accept that a charity is not necessarily engaging in a political activity when it addresses a government body or the public at large on legislative and policy matters. Instead, the activity can sometimes form a regular part of its charitable or administrative activities. Examples include:
conducting day?to?day business with government agencies (for example, the costs to a hospital of preparing reports for, or meeting with, officials of a ministry of health);
providing governments or the public with specialized information at the charity’s disposal; and
expressing the charity’s views to a governmental body on an issue affecting its ability to carry out its charitable mandate.
For more information, see Policy Statement CPS-022, Political Activities,
C5 – (b) – Line 5030 – Enter the total amount of resources, such as employees, volunteers, directors, equipment, and premises, devoted by the charity on political activities during the fiscal period.”
Here is another piece in the guide:
“Line 5030 – Enter the part of the amount on line 4950 that represents expenditures for political activities, inside or outside Canada. For additional information on acceptable political activities, refer to the policy statement CPS-022, Political Activities. “
One interesting resources is “PERSPECTIVES ON FUNDRAISING: WHAT CHARITIES REPORT TO THE CANADA REVENUE AGENCY” which was prepared by Imagine Canada and discusses in detail some of the issues with the information on fundraising. For example:
“The CRA recognizes that there are problems with the accuracy of the information that charities file and has attempted to improve the situation by warning charities about common mistakes on their website, offering information sessions on how to properly file T3010 reports, as well as providing guides and other resources, These efforts have been targeted mainly towards small and rural charities. Our analysis reveals, however, that errors are not confined to these types of charities.
There is a very high frequency of problems that include mistakes in simple arithmetic (i.e., the sums of individual items not adding to reported totals), errors of omission (e.g., the failure to itemize expenditures) and logical inconsistencies (e.g., active charities reporting that there have been no charitable expenditures). Over one-third of charities had at least one readily identifiable problem of these types in their returns. These problems are more common among the smaller charities. However, even 23% of the largest charities in the country have issues with their returns.
With respect to the evaluation of fundraising costs, one of the more troubling findings is that only 27% of charities report fundraising costs despite the fact that 84% report receiving dollars from tax-receipted gifts or fundraising revenues. We have reservations about whether this is a reliable estimate of the extent to which such costs are being incurred. Problems are most common with the returns filed by the more than half of all charities with revenues of $100,000 or less. These charities have the highest reliance on fundraising and rely predominantly on a narrow range of fundraising methods such as special events, the sales of products such as cookies or chocolate and the use of collection plates and boxes. They also appear to have the lowest fundraising costs.”
The Quality of Information That Charities Report
CRA provides public access to the information that charities report about their activities, revenues and expenditures. But what is the quality of this information? Problems with data
quality were identified by Sharpe (1994) but there has not been a recent public assessment of the information.
CRA is aware of the common types of errors that charities make and warns charities about them on their website (http://www.cra-arc.gc.ca/tx/chrts/prtng/rtrn/mstks-eng.html). They have also reached out to small and rural charities and offered information sessions about how to properly file T3010 returns as well as information guides and other resources (CRA, 2008a, CRA, 2008b). Nevertheless, our evaluation shows that it is very common for organizations to make a variety of errors when completing the T3010 form. Many organizations enter clearly impossible values, others leave critical lines blank, and many make arithmetic errors. For example, a small Lutheran church, with reported revenues of less than $100,000, inadvertently became the single largest source of tax-receipted gifts in 2007, when it reported that it had received tax-receipted gifts of $5,788,957,989 instead of the intended value of $57,889. This represents 41.6% of the total amount of tax-receipted gifts in that year. As another example, one organization neglected to round their tax-receipted donations to the nearest dollar, as is required, which increased their total donations from $1,239,079 to $123,907,997, a 100-fold increase.
Our review of the data identified eight systematic types of errors or issues that appear in the information reported by charities on Form T3010 (see Table 2). Six are simple addition errors and a noticeable, but relatively small number of organizations make these types of errors. Much more frequent are errors or issues that are related to expenditures. Specifically, 17.5% of charities report that they incurred expenses yet fail to report what types of expenses they incurred (e.g. fundraising expenses vs. charitable expenditures).3 In addition, 12.4% did not report any charitable expenditure, gifts or transfers to qualified donees despite being active and incurring expenses. Of course, not all errors are applicable to all organizations, and the discussion of each error is limited to those that the error is relevant for.
You can read the full report at: http://library.imaginecanada.ca/files/nonprofitscan/en/other_research/perspectives_on_fundraising_muttart_20090924.pdf
The CRA has all discussed in its report “Small and Rural Charities: Making a Difference for Canadians 2008” the difficulty many charities have for example in completing the T3010 http://www.cra-arc.gc.ca/E/pub/tg/rc4457/rc4457-e.pdf For example they note that of the charities audited “72% had incomplete T3010s”. I understand that CRA, which has done a lot of work over the last few years on helping charities understand and complete the T3010 will be doing more work in that area.
If you are interested in the rules around political activities for Canadian charities see CPS-022 CRA’s Guidance on Political Activities for Canadian Registered charities http://www.globalphilanthropy.ca/index.php/blog/comments/canadian_charities_and_political_activities_-_cps022_cras_guidance_on_polit/
By the way for those who are interested the US IRS has looked into the political activities of US charities http://www.irs.gov/newsroom/article/0,,id=161131,00.html
Any thoughts on this note and others would be greatly appreciated.
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.