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Revenue Minister Gail Shea Acts On Not-for-profits’ Concerns

Canadian Chamber of Commerce Report. A word of thanks is in order for federal Revenue Minister Gail Shea who has acted to deal with a threat to the survival of many Canadian not-for-profit associations. The not-for-profit sector includes a wide variety of organisations that range from local sports facilities to national associations like the Canadian Chamber of Commerce. The one thing they have in common is that they exist to serve their members, as opposed to making a commercial profit.
It’s appropriate for the Canada Revenue Agency to review the sector periodically, both to understand whether entities claiming not-for-profit status are respecting the rules and make sure the rules recognise how the sector has evolved. CRA is in the midst of auditing 1,400 organisations right now.

The problem with the agency’s exercise is that its purpose and methodology were not well explained to the sector and that the way the audits have been handled has created enormous uncertainty and fear. Organisations found themselves under audit without a clear understanding of what CRA was looking for. In a number of instances, the audits concluded with an “education letter” that indicated that the agency had found the organisation offside, although CRA did not intend to take any immediate action.

These education letters left the not-for-profit organisations in a very difficult position. While they had not been reassessed, they had been told that they weren’t complying with the law. The basis of CRA’s judgement was also unclear. For example, it appeared that the agency was insisting that not-for-profit organisations would not only have to plan to break even or run a loss in their overall budgets, but that every event or activity they undertook would have to follow the same pattern. This interpretation flew in the face of usual practice, where not-for-profits generate revenues from the events or services they provide their members and use that money to pay for other activities that are run at a loss. If organisations were forced to meet this new standard, hundreds of them would be wiped out. Equally unclear was whether not-for-profit organisations were allowed to build reserves that could be used in case the economy turned sour and they had to incur losses for a couple of years.

The volunteers who serve as directors in not-for-profit associations were put in an untenable situation by the education letters. They were told that CRA was not reassessing their organisations, but that it believed that they were not complying with the law. Their choice was either to ignore CRA’s findings and leave the organisation and themselves at risk if CRA decided to reassess the organisation at some point in the future, or make changes that could put their organisation out of business even if they felt CRA’s interpretation was wrong.
The CRA audits raised serious questions for a number of associations that belong to the Canadian Chamber. In addition, the Canadian Society of Association Executives, which does an excellent job on behalf of the people who run associations, was hearing the same concerns from its members.

CSAE and the Canadian Chamber worked together to address these concerns. It was clearly never CRA’s intention to put the very existence of legitimate not-for-profit organisations at risk, yet that was the unintended consequence of how the agency was conducting its audits.
We have heard from Minister Shea that she understands the problem and has acted to resolve it. Copies of my letter to her and of her response are available here.

We thank the Minister for her leadership and we repeat the offer we made to assist the government in its review of how the not-for-profit sector is regulated. We want to ensure that every organisation claiming not-for-profit status is legitimate, that all of us are following the rules, and that the regime that governs the sector is modern and appropriate.
The Minister’s actions take us an important step closer to that goal.

About the Canadian Chamber of Commerce – The Canadian Chamber of Commerce is the vital connection between business and the federal government. It helps shape public policy and decision-making to the benefit of businesses, communities and families across Canada with a network of over 420 chambers of commerce and boards of trade, representing 192,000 businesses of all sizes in all sectors of the economy and in all regions. News and information are available at Chamber.ca or follow us on Twitter @CdnChamberofCom.