CRA Questions & Answers Page:

  • How does the Canada Revenue Agency (CRA) monitor the activities of registered charities?
  • From the perspective of the CRA Charities Directorate, who should be a registered charity?
  • Is the Carver model of governance acceptable to the CRA?
  • If you are issuing electronic receipts, do you also have to have a paper-based copy of the receipts?
  • Can you clarify what is meant by a permanent employee? Is this different from an employee who is employed full time on a contract for service? If deductions are taken from an employee’s paycheque, does this mean they are permanent whether or not they worked for the entire year for which the information return is being submitted.
  • Where should the GST expense be identified – line 4920?
  • Where should a GST rebate be reported – line 4650?
  • Members of our executive are absorbing the total cost of running our organization so that all money collected goes towards to the children. This is our donation to the organization. If they save their receipts, can we give a tax receipt for gifts in kind representing the amount of money they spent?
  • Q - How does the Canada Revenue Agency (CRA) monitor the activities of registered charities?

    A - In order to ensure that charities continue to carry out charitable activities and programs, and to ensure that they comply with all other aspects of the Income Tax Act, the CRA:

    • routinely advises charities on compliance matters. In particular, the CRA provides a client assistance service and an outreach program (i.e., “The Roadshow”);
    • undertakes audits based on random selection;
    • undertakes audits based on risk criteria, such as public complaints or reviews of the annual information returns filed by registered charities; and
    • reats all public complaints seriously and, where warranted, takes follow-up action. This action may range from helping the charity to understand the rules, to applying sanctions and, ultimately, to revoking its registered status.

    return to top of page

    Q – From the perspective of the CRA Charities Directorate, who should be a registered charity?

    A – To qualify for registration, an organization must be established and operated for charitable purposes, and it must devote its resources to charitable activities. The charity must be resident in Canada, and cannot use its income to benefit its members. The courts have identified four general categories of charitable purposes. For an organization to be registered, its purposes have to fall within one or more of the following categories:

    • the relief of poverty;
    • the advancement of education;
    • he advancement of religion; or
    • certain other purposes that benefit the community in a way the courts have said are charitable

    (Note: This category is restricted to certain purposes that do not fall within the other categories, but which the courts have decided are charitable).

    • A charity also has to meet a public benefit test. To qualify under this test, an organization must show that:
    • its activities and purposes provide a tangible benefit to the public;
    • those people who are eligible for benefits are either the public as a whole, or a significant section of it, in that they are not a restricted group or one where members share a private connection, such as social clubs or professional associations with specific membership; and
    • the charity's activities must be legal and must not be contrary to public policy.

    Also, for purposes of registration as a charity, the organization has to be either incorporated or governed by a legal document called a trust or a constitution. This document has to explain the organization's purposes and structure. For a more detailed and comprehensive explanation of the criteria for charitable registration, please refer to our guide, Registering a Charity for Income Tax Purposes (T4063), available on our Web site at: www.cra.gc.ca/charities.

    return to top of page

    Q - Is the Carver model of governance acceptable to the CRA?

    A - The CRA does not specify the types of governance models that are acceptable. However, in order to qualify for charitable registration, governing structures are required to meet the following requirements:

    • The organization has to be either incorporated or governed by a legal document called a trust or a constitution, and this document has to explain the organization’s purposes and structure.
    • Only those objects that restrict an organization to charitable pursuits are acceptable for purposes of registration under the Income Tax Act. Therefore, vague and broad objects in a governing document usually constitute grounds for denial of registration.
    • The type of governing document needed for registration will depend on the designation that we assign to an organization. Charitable organizations can either be incorporated or established by a constitution or trust document. Public or private foundations must either be incorporated or established in the form of a trust.
    • A public foundation or charitable organization must have at least 3 directors. If a charity has only one or two directors, it will automatically be designated a private foundation.

    For a public foundation or charitable organization, it structure must be such that more than 50% of its directors deal at arms length from each other. For a more detailed explanation of our requirements in this regard, please refer to our guide, Registering a Charity for Income Tax Purposes (T4063), available on our Web site at: www.cra.gc.ca/charities

    return to top of page

    Q – If you are issuing electronic receipts, do you also have to have a paper-based copy of the receipts??

    A - No. The charity is permitted to keep electronic duplicates of receipts. However, the computer system used to store the receipts should be password protected and should restrict entry to and modification of donor contribution records, and donor records should be stored on non-erasable media, such as CD-ROMs or printouts, with copies kept off-site for recovery purposes.

    return to top of page

    Q - Can you clarify what is meant by a permanent employee? Is this different from an employee who is employed full time on a contract for service? If deductions are taken from an employee’s paycheque, does this mean they are permanent whether or not they worked for the entire year for which the information return is being submitted

    A- The term “permanent, full time” refers to employees who are employed indeterminately with the organization on a full-time basis, regardless of how they are compensated, what kinds of deductions are taken from their paycheques, or how long they have worked for the organization. Contracts for services normally have a predetermined end. Therefore, contract employees are not normally considered permanent.

    return to top of page

    Q - Where should the GST expense be identified – line 4920?

    A - GST expenses should be included as part of the expenses to which they apply. For example, if the charity purchased a computer for the charity’s office, it would record the entire price of the computer, including GST paid, as part of the total amount recorded on line 4840 (office supplies and expense). However, keep in mind that when you receive a rebate for the GST/HST you paid on your expenses, you should reduce the amounts of the business expenses by the amount of the rebate. This way, the charity’s Information return reflects only the true amount of GST paid.

    For example: a charity purchases a computer for $1500 and pays $84 in GST. After the GST rebate, the charity actually paid only $42 in GST. Therefore $1542 would be included in line 4840.

    return to top of page

    Q - Where should a GST rebate be reported – line 4650?

    A - GST rebates are not recorded as income. Instead, they should be subtracted from the GST spent by the charity on the purchase of goods. All expenses, including GST minus applicable rebates, should be recorded under expenditures.

    On a separate note: When a registered charity collects GST/HST on the sale of products or services, it may have a net GST gain to claim. If a registered charity has registered for GST/HST purposes, and uses the Net Tax Calculation for Charities, it will normally remit to CRA only 60% of the GST/HST it has collected on the sale of goods and services. The other 40% should be recorded as income earned on the sales to which it applies.

    For example: a charity sells $5000 in goods and collects $300 in GST. It remits $180 to the CRA and is entitled to keep the other $120. It should therefore report a total of $5120 on line 4640 (Total revenue from sales of goods and services). For further information on GST and GST rebates, please call the GST/HST Business Enquiries line at 1-800-959-5525. Or, for more technical information, please call the GST /HST Rulings line at 1-800-959-5525.

    return to top of page

    Q - Members of our executive are absorbing the total cost of running our organization so that all money collected goes towards to the children. This is our donation to the organization. If they save their receipts, can we give a tax receipt for gifts in kind representing the amount of money they spent?

    A -Members may receive tax receipts for the value of receipts relating to goods purchased for use by the organization (office supplies) but not for services (design of publications). For services, members would have to make a cash donation to the organization for which a tax receipt may be issued and the organization would then use that money to pay for the service in question.

    return to top of page