Charitable Status and Charity Law
Overview
Obtaining status as a registered charity with Canada Customs and Revenue Agency (also known as "Revenue Canada") can be a complex process that requires careful planning on the part of the registering group. The major benefits of charity-status include (1) exemption from some or all forms of taxation (federal income tax, provincial corporate taxes, GST, PST and municipal assessments), and (2) the ability to issue charitable tax receipts to encourage gifts by individuals and corporations.
Revenue Canada
The role of Revenue Canada (http://www.ccra-adrc.gc.ca/) is to review applications and determine if a group meets, and continues to meet, the tests set out in the Income Tax Act for the special privileges given to charities. Most charities are only thoroughly examined at the application stage, so this initial stage of registration is somewhat onerous. Clear and precise descriptions of activities are required, and even one miscalculated word can result in a negative response.
Charitable Activities?
The law on what constitutes a charity is perhaps the best-known area in need of a makeover in order to improve and adapt the concept of charity to meet the evolving needs of society. Gaining charitable status is a well-known problem among groups including victims' self-help groups, web-based groups and arts programmes.
The term "charitable" is not defined in the Income Tax Act. Revenue Canada closely examines a proposed charity's purposes and activities, especially those "pioneering" new activities, at common law, that is, previous court decisions. Canadian charity law originates from laws established in England in 1601. And four hundred year later charity law is based on the same fundamental principles, most notably the four categories (heads) that define charitable activities: the advancement of education, the relief of poverty, advancement of religion and other purposes beneficial to the community as a whole.
Groups with activities unrelated to the advancement of education or religion, or to the relief of poverty might hope to fit the 4th head. According to Revenue Canada however, this category merely identifies an additional group of specific purposes that have been held charitable at law rather than qualifying as charitable any and all purposes that provide a public benefit.
Annual Reports and Audits
Charities are required to file annual reports. The current form is considered in the field to be complex and confusing. Audits, performed on a random basis or when irregularities are discovered, are used to monitor the activities of charities not just their financial performance. Audits can lead to a charity being deregistered, although this is rare and reserved for "extreme cases." Charities can also be deregistered for not filing annual reports. A penalty tax must be paid on assets that a group has not distributed to charities within a year following deregistration.
Appeals
The Federal Court of Appeal hears appeals arising from Revenue Canada's decisions not to register or to deregister a group. It is the second most senior court in Canada, so the costs associated with an appeal are a disincentive. Further appeals lie to the Supreme Court of Canada. Courts are able to develop law, unlike Revenue Canada, which must enforce the law it stands.
Other Government Bodies
A handful of federal government entities, such as the Canadian International Development Agency (http://www.acdi-cida.gc.ca/) and Canadian Heritage (http://www.pch.gc.ca/), have a role in advising and overseeing charities. Meanwhile, the provinces exercise of their jurisdiction over charities is inconsistent, with only a few having any comprehensive scheme for supervision, although all register non-profit groups.
In 2000, the federal government established the Voluntary Sector Initiative (http://www.vsi-isbc.ca/), a five-year project to support the sector in specific areas through research and development. While the project consults on a range of issues relating to non-profit groups, it prioritizes issues facing small volunteer organizations. In the government's definition, the voluntary sector "comprises self-governing organizations that exist to serve a public benefit, generate social capital but do not distribute private profit to members, depend to a meaningful degree on volunteers, involve participation on a voluntary basis, and are independent or institutionally distinct from the formal structures of government and the profit sector."
Other Countries
In England, the Charity Commission, a separate statutory body, has quasi-judicial status and registers, advises, investigates and supervises charities. The Charity Commission (http://www.charity-commission.gov.uk/) also helps protect the money the public gives to charity and helps charities operate efficiently. Charity law is under review in England in 2002. A proposal for a type of non-profit known as the public interest company is expected, especially in the context of finding new ways of running public services in health, education or transport. Public interest companies combine private enterprise with a public interest requirement where profits must be reinvested rather than handed out to shareholders.
In the US, taxation authorities regulate charities and public interest companies (also known as public benefit corporations) are the standard charity structure. There are varied procedures dealing with charities in other countries.