T3010 and Transparency in the Charitable Sector

Transcription

1 T3010 and Transparency in the Charitable Sector A presentation to AFP GTA Congress November 20, 2017 Mark Blumberg (mark@blumbergs.ca) Blumberg Segal LLP

2 Blumberg Segal LLP Blumberg Segal LLP is a law firm based in Toronto, Ontario Mark Blumberg is a partner at Blumbergs who focuses on non-profit and charity law Assists charities from across Canada with Canadian and international operations and foreign charities fundraising in Canada and Free Canadian Charity Law Newsletter. Sign up at: (416) or mark@blumbergs.ca 2

3 Introduction Legal information not legal advice Views expressed are my own Questions during and at end Logistics and timing 3

4 Charity Sector Environment Competition Insufficient resources (money, volunteers) vs. need Uncertain resources Maximize public benefit of charities Reporting requirements Desire for greater transparency and accountability Technology Standards Visibility National and International activities 4

5 Transparency

6 What is transparency? (UK) The Charity Commission interprets transparency and accountability as providing relevant and reliable information to stakeholders in a way that is free from bias, comparable, understandable and focused on stakeholders legitimate needs. 6

7 Why Charities Should Be Transparent? A high level of transparency when accounting for performance allows trustees to: demonstrate that resources are being used wisely and for the stated purpose; show that the charity is being organised and managed properly; demonstrate that the charity is carrying out its activities efficiently and effectively; and attract new resources to enable the charity to continue its activities. 7

8 Are Charities transparent? (UK) Our evidence is that the general standard of performance against the transparency and accountability framework is not satisfactory. Whilst there are some very good examples, too many charities in our study did not meet basic requirements. We hope that charities will take both this message and what the report shows about good practice to heart and respond constructively. 8

9 Does your charity describe impact? (UK) The impact of a charity s activities is of great interest to stakeholders as a measure of its effectiveness in applying its resources for public benefit. 16% of the Annual Reports explained in detail how the year s activities had benefited wider society. 34% gave limited information. 51% gave no details at all. 9

10 Transparency helps with running a better charity helps to prevent misuse of charity resources enhances stakeholder knowledge and confidence expectations are greater and T3010 has not kept up better data on the sector may improve discussion and decision-making 10

11 T3010

12 What is T3010 Canadian Registered Charities must file their T3010 Registered Charity Information Return every year Within six months of the end of the charity s fiscal period Form is mailed with labels to charity also can download form from: See for T3010 information (Blumberg Segal LLP) CRA Advanced Search 12

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14 When to File T

15 Complete T3010 Part 1 Form T3010, Registered Charity Information Return; Form TF725, Registered Charity Basic Information Sheet; a copy of the charity s own financial statements, including notes to the financial statements; Form T1235, Directors/Trustees and Like Officials Worksheet, with all the required information; if applicable Form RC232 WS, Director/Officer Worksheet and Ontario Corporations Information Act Annual Return, or Form RC232, Ontario Corporations Information Act Annual Return; if applicable Form T1236, Qualified donees worksheet / Amounts provided to other organizations; 15

16 Complete T3010 Part 2 if applicable Schedule 1, Foundations; if applicable Schedule 2, Activities outside Canada; if applicable Schedule 3, Compensation; if applicable Schedule 4, Confidential data; if applicable Schedule 5, Gifts in kind; if applicable Schedule 6, Detailed financial information; if applicable Schedule 7, Political activities; and if applicable Form T2081, Excess Corporate Holdings Worksheet for Private Foundations. 16

17 Why File T3010 Legally required Only uniform way to compare Canadian charities Advertisement for charity Important for transparency of charity Only beginning of transparency (website, annual report, newsletters, e- mail lists, etc.) 17

18 Consequences for Failing to File Revocation of charitable status within months Cannot issue receipts Lose benefits of registered status Revocation tax if not re-registered within 1 year May not be able to reregister Embarrassing $500 penalty 18

19 Mistakes with T3010 T3010 must be the correct form, accurate and complete including schedules and financial statements otherwise may be returned or considered incomplete Lots of help on internet with T3010 Budget 2012 if T3010 not complete and accurate charity can be suspended from receipting 19

20 Problems with T3010 Using wrong form Not providing all information Not providing accurate information Not providing all schedules Not providing financial statements Not providing date of birth of directors 20

21 Why Transparency for the Public Accurately reflect your organizations work Bring in more resources (tactical and strategic) Understand the sector or subsector Compare your organization to others Identify risks Safeguard reputation of your charity 21

22 CRA Caution We recognize that completing the information return requires an understanding of some complex provisions. We recommend that, if necessary, registered charities get advice from legal or accounting experts. 22

23 What is Confidential Most of the T3010 is publicly available including financial statements Confidential data is marked Section F (physical, books and records address and who completed form)(not mailing address) Schedule 4 (information on funders and foreign donors) the right-hand side of Form T1235, Directors/Trustees and Like Officials Worksheet; (contact information on directors) and Part II, Section B, of Form T2081, Excess Corporate Holdings Worksheet for Private Foundations. (material transactions by relevant persons) CRA can share even confidential information in certain circumstances such as court order, enforcement of ITA, CPP, EI, CSIS, Finance etc. 23

24 Partial Section by Section

25 Programs 25

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27 Ongoing and New Programs If the charity was not active, tick no. This means that during the entire fiscal period, the charity did not use any of its resources to carry out its charitable activities, or to further the charitable purposes for which it was established. To keep its registered status, the charity must file its information return and explain why it was not active in the Ongoing programs space at C2. C2 Describe any ongoing and new programs the charity carried on. New programs are those that the charity began in this fiscal period. 27

28 Ongoing and New Programs (Cont) The term program covers all the charitable activities the charity carries out on its own through employees or volunteers, and through intermediaries, as well as gifts it makes to qualified donees. Grant making registered charities should describe the types of organizations they support. The charity can use this space to give details about the contributions of its volunteers in carrying out its activities, including the number of volunteers and their hours. Since this section is public information, do not include the names of volunteers. Do not send documents such as annual reports in place of describing the charity s activities in question C2. Do not report information on fundraising activities here. 28

29 Ongoing and New Programs (Cont) If the charity is considering new activities that we have not yet approved, contact us before starting them to make sure that the proposed activities are charitable and fall within the charity s approved purposes. Use active verbs such as do, offer, operate, conduct, perform, educate, feed, give, or house to describe how the charity carried out its charitable activities during the fiscal period. You must give enough detail for a reader to understand what the charity does. Do not repeat the charity s purposes. For example, saying we advance religion, or we relieve poverty, is not enough. 29

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31 Foreign Donors 31

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33 Political Activities 33

34 Fundraising

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37 Fundraising Costs and Practice Fundraising is important for charities but it is not a charitable activity Lots of media and donor concern about costs and practices CRA Guidance on Fundraising recently released Must read for anyone very involved with fundraising: 37

38 Organization of Guidance Fundraising by Registered Charities A. Introduction B. Summary C. Application and jurisdiction D. What is fundraising? E. Definitions F. When is fundraising not acceptable? G. Evaluating a charity's fundraising H. Factors that may influence the CRA s evaluation of a charity s fundraising Appendix A Examples of fundraising activities Appendix B Allocating fundraising expenditures Appendix C Best practices Appendix D Questions and answers Footnotes 38

39 Fundraising Ratio Ratio of costs to revenue over fiscal period under 35% This ratio is unlikely to generate questions or concerns by the CRA. Ratio of costs to revenue over fiscal period 35% and above The CRA will examine the average ratio over recent years to determine if there is a trend of high fundraising costs. The higher the ratio, the more likely it is the CRA will be concerned the charity is engaged in fundraising that is not acceptable, requiring a more detailed assessment of expenditures. Ratio of costs to revenue over fiscal period above 70% This level will raise concerns with the CRA. The charity must be able to provide an explanation and rationale for this level of expenditure to show that it is not engaged in unacceptable fundraising. 39

40 Questions on Ratio What are your total fundraising expenditures? What are your total fundraising revenues? What is the ratio of expenditures to revenue? Is the ratio high? What are you doing to reduce ratio? Is your board and senior staff aware of ratio? Are you disclosing to public accurately ratio? What other steps are you taking to be more transparent and provide more disclosure? Do you report regularly to your board about compliance with the Guidance? 40

41 Exclusions from fundraising Fundraising does not include: seeking grants, gifts, contributions, or other funding from other charities or government, recruiting volunteers to carry out the general operations of the charity, or related business activities. (See CPS-019, What is a Related Business?) 41

42 Understating Fundraising Revenue Where a charity knowingly or negligently understates its fundraising expenses on line 5020 of Form T3010 or elsewhere, this is taken into account in assessing whether the charity has acted reasonably. Inaccurate reporting is grounds for compliance action under the Income Tax Act. 42

43 Employees and Compensation Compensation includes all forms of salaries, wages, commissions, bonuses, fees, and honoraria, plus the value of taxable and non-taxable benefits paid by a charity to its employees. Compensation generally includes all amounts that form part of an employee s gross income from employment, plus the charity s contributions to the employee s pension, medical or insurance plan, employer Canada Pension Plan/Quebec Pension Plan and employment insurance contributions, and workers compensation premiums. Do not include reimbursements for expenses incurred while working for the charity, such as travel claims. 43

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47 Non-Cash Gifts Gifts-in-Kind (GIK) 47

48 Gifts-in-kind 1 Lines If the charity received gifts in kind for which it issued official donation receipts, tick all the types the charity received during the fiscal period. Does not cover gifts-in-kind that were not tax receipted 48

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52 Schedule 6 Detailed Financial Information 52

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54 Expenditures Line 5000 Enter the part reported on line 4950 that represents all expenditures on charitable activities, except for gifts to qualified donees. Examples include: running the charity s day-to-day programs; occupancy costs (such as rent, mortgage payments, hydro, repairs, and insurance) for buildings used to carry out charitable activities; most salaries; and education and training for staff and volunteers. Do not include expenditures for management, administration, fundraising, or political activities on this line. 54

55 Expenditures Line 5010 Enter the part reported on line 4950 that represents management and administrative expenditures. These may include expenses for: holding meetings of the board of directors; accounting, auditing, personnel, and other administrative services; buying supplies and equipment, and paying occupancy costs for administrative offices; and applying for grants or other types of government funding, and gifts from other qualified donees (usually foundations). 55

56 Expenditures Some expenditures can be considered partly charitable and partly management and administration, such as salaries and occupancy costs. In these cases, divide the amounts accordingly between lines 5000 and Expenditures must be allocated consistently and on a reasonable basis. 56

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58 Certification 58

59 Media, Watchdog and Database Use of T3010 Information

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61 Many Databases Utilizing T3010 Information (subscription) (subscription) 61

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66 CharityCan report on registered charity 66

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69 AJAH report on registered charity 69

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77 CAVEATS with T3010 Volunteers often completing Some don t understand Income Tax Act terminology Some don t know every facet of their charity Usually completed in a hurry Rarely is their enough input (finance, legal, accounting, program staff) Most are inputted manually Some charities are deliberately deceptive GAAP vs. tax form Many important questions are not asked (tree vs. forest) Some questions are ambiguous Based on fiscal year and can be huge swings between years 77

78 A Closer Look at the T3010 Using Different Lenses

79 Examples of uses of T3010 information Individual charity, vs subsector vs sector analysis and benchmarking Charity sector spends almost $225 billion per year perhaps your organization offers services or programs that could capture some of those funds. Only limited by your imagination Grants vs. loans. 79

80 Specific Examples Use postal code data to find foundations geographically located near your hospital. Which charities or foundations worked in which country if you want to support your work in a particular country You are interested in a particular person what boards of directors does the person serve on gives you idea about what they care about and who they are connected to. Which charities gave to which other charities that are similar to your charity? Which charities could we work with or collaborate with? Which charities are new? 80

81 Specific Examples (Cont) Which charities have grown in revenue? Which foundations have the biggest asset base? Which ones are not receiving a good return on their investments/may be interested in an PRI. Which charities are conducting political activities? Which charities received funds from abroad? Which charities received a lot of government revenue and from which level of government? Benchmarking how is your charity comparing to others in terms of fundraising, government revenue, expenditures, etc. Awareness of directors of charities that were revoked 81

82 Specific Examples (Cont) Find charities across country to implement programs or partner with Selling organizational memberships, e.g.. APRA, AFP especially in new Territory Gain a better understanding of the charities within a particular charitable sector, e.g.. Arts organizations Find out which charities do work in which countries Find out which organizations have had their charitable status revoked and who has been involved with them Find out which organizations have failed to file Investable assets and marketing investment services 82

83 Specific Examples (Cont) Real estate the property management New Foundations with large assets and their directors How much money is CIDA providing for foreign activities and to whom 83

84 Obtaining a Copy of T3010 Database you can request electronic versions of the lists by calling or toll free , or by sending an to charitylistings- ListeBienfaisance@cra-arc.gc.ca. 84

85 We have created four websites to use technology to inform and provide accessible, understandable information for free to the Canadian public

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90 Other Sources of Information Industry Canada Search for a Federal Corporation ale=en_ca Under CNCA pay for documents but can get them. CRA Can request copies letters patent, by-laws, charity application Financial Statements 90

91 Recent Developments CHAMP CRA Charities Modernization Program November 2018 will be able to file T3010 electronically Using CRA s My Business Account (MyBA) secure online portal, charities will be able to: 1)File T3010 (can also use paper based) 2) Charity applications (only electronically from November on) 3) Change certain account information and upload documents 4) Correspond with CRA electronically through portal 91

92 Effect of CHAMP Registered charities should open a My Business Account (MyBA) if they don t have one Charities listing may look different Eventually but not now more questions or changes to content of T3010 Quicker processing of T3010 information and availability to public Will reduce CRA error in inputting but not charity human error 92

93 Mockup of Champ interface My BA from CRA 93

94 Mockup of T3010 from CRA 94

95 Ideas to Improve Transparency Ask stakeholders what information they want. Update website Provided audited financial statements on website Provide simplified financial information as well. Have directors and non-finance staff review T3010 before filing Start preparing T months before filing date Try to file T3010 on time (sooner filed, sooner posted) Improve knowledge of those people filing form 95

96 Ideas to Improve Transparency Check for mistakes in past T3010 filings Utilize social media to increase access to important information What languages do stakeholders require Is mission within legal objects? Provide links to your information on CRA, etc? Provide details of value of the contribution of volunteers Have a policy on transparency, reserve funds etc. 96

97 Ideas to Improve Transparency Discuss impact Describe affiliated entities, subsidiaries etc. (and be mindful of the disclosure requirements or lack thereof for such entities) Tell CRA you are using the T3010 information Ask Finance to changes s. 241 of the Income Tax Act (Canada) to allow release of information on non-profits who file T1044 and charities that are abusing the system. 97

98 Thank you! Blumberg Segal LLP Barristers & Solicitors 390 Bay Street, Suite 1202 Toronto, Ontario, M5H 2Y2 Tel. (416) ext. 237 Toll Free (866) Fax. (416) Twitter at: and 98