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Ask an Expert

Welcome to CentrePoint's 'Ask an Expert' feature. Our experienced management consultants will endeavour to provide answers to your organizational and board development questions. On the left hand side is a 'Categories' bar that will help you navigate through the responses we have already posted. If you have a question we have a simple form that will confidentially submit your question to us, just make sure to check back for our response.

7/12/2011

Tax Receipt for Travel

I am Board member of a Canadian charity which runs an operation in a foreign country. If I travel to that country, which is also my home country, and take an active part in overseeing and directing the work there, can I get a tax receipt under the CRA rules for my travel cost?

Frank's Response:

Thank you for your question to CentrePoint’s “Ask An Expert” service.

To obviate and mitigate the question by CRA (Canada Revenue Agency) that you may have derived a personal benefit from the trip you should follow the process of having the Canadian Charity pay for the trip and then you may donate funds to cover the actual cost of the trip to the Canadian Charity in a separate transaction. In this way the Canadian Charity has the proper paper trail for its costs for support of its work in a foreign country and you in turn have made a valid donation to the charitable work of the Canadian Charity.

The CRA comments on gifts of this type are on their website.

Does this answer your question? Let me know if you have any further questions. Best wishes to you on your upcoming trip.

Posted at 2:38 PM by Maureen Weber | Category: Operating the Charity | Permalink | Email this Post

8/5/2010

Issuing charitable receipts before you have charitable status.

My group of colleagues has just received our Letters Patent for a NPO. We are in the process of applying for federal charitable status. We are opening a free school. Before we get our charitable status, we would like to know if we receive money from a corporate donor, can we tell them that our charitable status is pending and then issue a receipt at a later date?

Understandably, many corporations won't want to donate unless they receive a charitable receipt. We are starting from the ground up and need as much help as possible. Is there a statute of limitations for issuing receipts? Thank you for your help!

Judy's Response:

There is both a short answer and a longer version to answer your query. The short answer is “no”. You cannot issue charitable receipts with dates before you receive your actual charitable status.

Long answer: You have some options you might want to consider.

First, some corporations prefer to “sponsor” a non-profit organization in exchange for having you put their name on your web site, t-shirts, brochures, or other advertising mechanisms. A sponsorship is different from a charitable donation. You do not issue a charitable receipt for sponsorship because your sponsor is getting something in return for their dollars. You would issue a regular receipt or a letter of acknowledgement or you might sign a sponsorship agreement. The sponsorship agreement would describe how their sponsorship is to be acknowledged. You might want to speak with your proposed corporate partner to find out if they are interested in offering a sponsorship rather than a charitable donation.

Secondly, you do not know how long the Canada Revenue Agency (CRA) will require to review your application. It could be the next fiscal year before you receive charitable status. For that matter, you do not know if you will ever receive charitable status, if there is a concern with your application. It would be a false promise to offer a chartable receipt depending on a process that is outside of your control.

Finally, your corporate contacts should be aware of this restriction and should not be asking you for something you cannot deliver.

You might like to visit our response to a previous question on our FAQ: "I’ve submitted my application form to the CRA. How can I issue receipts for charitable donations while we are waiting for our charitable status?"

Posted at 8:59 AM by Judy Hansen | Category: Operating the Charity | Permalink | Email this Post

7/6/2010

Formal Shutdown of a charity no longer delivering services

I am one of the final remaining Board members in my charity. Our organization, registered in Alberta, is no longer providing services. Our Board hasn’t met for months and I’m not sure if anyone has submitted any reports to the government. How do I get out of this and shut down the organization? What should I do?

Judy's Response

Annual reporting requirements for my charity

As a registered charity, the organization is responsible to two levels of government—provincial and federal (Canada Revenue Agency). Both have annual reports which must be submitted. The Canada Revenue Agency obligation is a serious obligation that the Board is personally responsible to follow.

• Provincial obligations: There’s an annual report due to the province. It normally comes due on the anniversary of your incorporation date. The province sends a form to the organization which you must return.

• Federal obligations: You must complete your Canada Revenue Agency (CRA) T3010 form within 6 months of the end of your fiscal year. For example, if your fiscal year ended on Dec. 31^st, then your report has to be submitted by June 30^th. If you do not comply,you will start to receive nasty letters from the CRA (something you don’t want).

• Annual General Meeting (AGM): As long as you are incorporated, you are obligated to hold an AGM. In fact, you will need to approve your financial statements at your AGM before you complete the federal T3010 form. Check your incorporating documents. If you are incorporated under the Alberta Societies Act, these are called “bylaws” and “objects”. If you are registered under the Alberta Companies Act look for your Articles of Incorporation and Articles of Association. These documents will tell you basic information required for your AGM.

Possibility of closure of the organization

If you are considering closing the organization, here are some basic, high-level steps:

• Pass a Special Resolution at a properly called General Meeting. Again, the first place to look for the rules is in your incorporating documents and the Act (where you are registered). Normally, you will require 21 days notice for a Special Resolution.

• Voluntarily request a revocation from your CRA charitable status. There are forms for this. Before you do so, make a decision about the disposal of any assets and the status of any contractual or legal obligations. As a charity, your assets will have to be assigned to another charity or you will be subject to a heavy tax hit. Check your incorporating documents which should specify any preferred recipients of assets.

• Once you have removed yourself as a charity, then you need to dissolve provincially.

This gives you the essence of what needs to be done. As with many of these formal processes, there are many details to consider, particularly if you have paid staff, ongoing programs and obligations. The closure process may take months by the time the forms go back and forth with two levels of governments and by the time you address all of your obligations.

By the way, if you never submit your reports to the government, both levels of governments will revoke your status eventually and you will be hit with the tax bill that I mentioned. It’s possible to just do nothing if you don’t mind closing in a sloppy, expensive and unprofessional manner.

Your role as a Member of the Organization

If you wish to withdraw or resign from the organization, the first place to look for how to do this is in your incorporating documents. If you are a paid employee or a volunteer, you could resign with a simple letter as one would with any employer.

CentrePoint is available to help with further steps in handling a closure. Our rates are on a sliding scale, depending on the size of the organization and whether or not it is a charity.

Posted at 1:40 PM by Judy Hansen | Category: Operating the Charity | Permalink | Email this Post

4/7/2010

Can Board members provide services to the organization?

In responding to this question, remember that as a Board member, you are obligated to consider the best interests of the organization and the community in all your decisions. If a Board member is providing services, it is very easy to confuse everyone around the table about whether Board decisions represent the best for those you serve or the best for the Board member.

If a Board member provides a service to the organization, then yes, the person could be paid for providing that service. The service would not be part of their Board role. The difficulty and ethical consideration arises in either a real or a perceived Conflict of Interest. If the service is material (such as being a long term consultant to the organization), then ethically, the person should either resign from the Board or resign from being a service provider.

If the service is not material (to either party), then the person should declare a conflict of interest and remove themselves from the room when the Board is discussing the matter. This may be simple if it is a one-time only purchase. If it continues, then eyebrows should be raised.

If the financial payment is substantial and even if it is a one-time service, I recommend that the Board obtain at least 3 independent quotes and evaluate the quotes without the board member participating. All bidders should be treated equally which means the person should be absent from the room and from any discussions. The Board member might not be selected. If the Board member’s service is selected, be prepared to handle the optics of favoritism.

Many Board members who offer a service similar to what an organization needs will refrain from bidding to avoid any accusations of unfairness. If the business is really important to the Board member, then the Board member should consider resigning from the Board. On a personal note, I am a chair of a Board and recently one of our Board members did exactly that. He wanted to bid on some work we were doing, so he resigned from the Board.

Posted at 1:38 PM by Judy Hansen | Category: Governance | Permalink | Email this Post

Can Board members of a charity be paid?

If you are a charity, you cannot pay Board members for their role in serving on the Board (CRA rule). You can reimburse Board members for reasonable expenses (mileage, hotels if they are expected to travel, etc.).

If you are incorporated as a non-profit organization without charitable status, check your incorporating legislation to understand the regulations. Even if you legislation allows this for your non-profit, consider this deeply. We recommend that you don’t do it!

Posted at 1:35 PM by Judy Hansen | Category: Governance | Permalink | Email this Post

2/11/2010

We have just been accepted as a charity by CRA. What does this mean we can do?

Congratulations! As a new charity in Canada, you are now in the ranks of those who can issue receipts for charitable donations to your organization. With the privilege of being a charity, here are some things to consider:

Your CRA registration number is a very valuable asset for your organization and you should protect it. You will need to put internal controls into place to ensure that you are responsibly issuing charitable receipts with the proper information. You will also need to set up processes to discourage careless or fraudulent use of your precious number.
Make sure that you understand your obligations to CRA. For example, you will have to submit your annual T3010 to the CRA within 6 months of your end of fiscal year. This will include a stamped copy of any changes you may make to your incorporating documents.
Make sure you follow any legal, regulatory or professional requirements as needed according to the nature of your charitable business.

Inform the CRA of any changes of address. If you do not have a formal office, consider opening a post office box as your legal address, so that the CRA can be sure that any mail sent to your current Treasurer will be properly received.

This gives you an idea of some of the obligations as a registered Canadian charity. Visit the CRA website for details on any questions you may have. Best wishes for a great future fulfilling the mission of your newly registered charity!

Posted at 12:41 PM by Judy Hansen | Category: Operating the Charity | Permalink | Email this Post

Can my charity show a “profit”? Isn’t it a non-profit organization?

The word “non-profit” means that no one person or group receives an annual dividend or return on investment. It does not refer to operating surpluses (money you have in the bank at the end of the year).

A charity can earn surplus income in excess of expenses, to be retained within the organization. After all, the next payroll period is coming up in two weeks and you need enough money in the bank to pay your staff! You will also need to keep some “rainy-day” money aside in the form of a reserve.

If your accumulated surplus is far above what could be reasonably expected for you to meet your Objects, then the CRA may question you. Typical reasons why you might have a large excess could be:

Long term investments to produce income.
You are saving for a special project (expanding facilities, a handi-bus, etc.).

If such circumstances occur, you can contact the CRA and let them know why you are accumulating large sums and you can request permission to do so.

This can be a complex area. You may consider obtaining some professional financial advice from someone familiar with charitable law.

Posted at 12:41 PM by Judy Hansen | Category: Operating the Charity | Permalink | Email this Post

What are my annual obligations for being a charity?

Once you receive charitable status, you must:

Hold an Annual General Meeting
Submit your annual T3010 form to the CRA with the appropriate information completed. The CRA has prescribed strict receipting procedures/processes that you must follow to maintain your charitable status. This form must be submitted within six months of the end of your fiscal year.
Follow your bylaws. If your bylaws or objects change, you must provide an updated copy of these to the CRA. These must remain within the rules for charities. For instance, if you decide to start an unrelated business, under the umbrella of your charity, you could lose your charitable status.
Maintain proper books and records. This includes meeting the CRA’s retention requirements for books and records.

Posted at 12:40 PM by Judy Hansen | Category: Operating the Charity | Permalink | Email this Post

Can I pay the Board of my charity?

Within charities, Board membership is always a volunteer role. That’s the law. Board members can be reimbursed for reasonable expenses. Typical Board member expenses might include travel expenses to attend an out-of-town Board meeting.

Posted at 12:39 PM by Judy Hansen | Category: Operating the Charity | Permalink | Email this Post

Can I be an employee of a charity?

Charities employ many people in Canada. Canadian labour codes and regulations hold true for charities, the same way as they hold true for businesses. Once a charity hires employees, it is required to follow all rules, regulations and employment acts, as the same as any other employer.

If you are creating a charity in order to create personal employment for yourself or your family, the CRA will quickly recognize your motives and will deny charitable status for your organization. Charities must do something for the public good.