At the 2014 National Charity Law Symposium held on May 23, 2014, Cathy Hawara, the Director General of the CRA Charities Directorate, gave a speech that covered several important topics relating to the Directorate’s constitutional role, institutional structure and approach as tax regulator for registered charities. CRA has published the text of Ms. Hawara’s speech here.
Ms. Hawara covered three main topics in her comments. The first is the constitutional role that CRA plays in regulating the activities of registered charities. Ms. Hawara acknowledged that CRA’s jurisdiction over registered charities is limited to ensuring that such charities comply with their obligations under the Income Tax Act, and that the general responsibility for managing the operations of charities is constitutionally assigned to the provinces. However, she also noted that, in practice, most provinces in Canada have very limited involvement in regulating charities, making CRA the de facto regulator. She acknowledged the disagreement that sometimes arises as to the proper scope for CRA’s regulatory role, and explained the balance that the Directorate has endeavoured to strike. This has included publishing occasional “best practice” suggestions designed to help avoid non-compliance with the Income Tax Act – but which do not constitute free-standing tax compliance requirements.
Ms. Hawara then addressed the concerns that are sometimes raised regarding CRA’s independence as a regulator. She focused on two issues: (a) whether the CRA can operate effectively when housed in a tax authority the mandate of which is to collect revenue for the government; and (b) whether the regulator can operate independently from the government if it is located in a line department as opposed to being established as a stand-alone entity.
In response to the first issue, Ms. Hawara emphasized that the CRA’s role is not to maximize revenue or minimize tax credits, but simply to administer the tax, benefits and related programs under the Act and ensure compliance with the rules. This includes the approval and issuing of tax benefits as well as enforcing compliance. Ms. Hawara encouraged that CRA’s role not be viewed too simplistically.
Ms. Hawara also addressed some of the concerns that have been raised about CRA’s independence from political interests, and the perception that some audits of charities are politically motivated. She emphasized that charities are not selected for audit based on political influence, and noted some of the resources that CRA has published to provide more transparency as to how CRA operates. She also commented on the ongoing political activities audits, noting that 52 charities were selected which represent a wide range of different types of charities.
The third major topic covered in Ms. Hawara’s remarks is the issue of CRA’s effectiveness as a regulator and how it approaches its responsibilities, including its use of a compliance continuum that takes account of the diversity of the sector, as well as its efforts to engage with the sector, including collaborations with related umbrella organizations, professionals and their associations.
Ms. Hawara’s speech is very much worth reading in full. Registered charities and their advisors are sometimes critical of the Charities Directorate and sometimes disagree with how the Directorate interprets and administers the Act. Ms. Hawara’s comments remind us of the challenges that CRA faces in its role as regulator, and how it is trying to meet these challenges. We appreciate Ms. Hawara’s willingness to address these issues candidly and with a view to encouraging continued dialogue and engagement with the sector.