Courts Raise the Stakes on Tax Filings

May 6, 2016 | Robert B. Hayhoe

The Canada Revenue Agency (“CRA“) and the Federal Court of Appeal have taken surprising positions recently that expose registered charities to revocation risk if they make mistakes on their T3010 – Registered Charity Information Return (“T3010“) and other tax filings.  While we may not agree with the Court or the CRA on this, we recommend that charities become much more careful in completing tax filings generally and in preparing T3010s specifically.

In Jaamiah Al Uloom Al Islamiyyah Ontario v. Canada (National Revenue) (“Jaamiah“) and Opportunities for the Disabled Foundation v. Canada (National Revenue) 2016 FCA 94 (“Opportunities“), the CRA put forth a surprising interpretation and the Court took a very broad approach to the provision of the Income Tax Act (the “Act“) which permits revocation of registration for failure to file a T3010.

Until these cases, we had always understood the revocation provision of the Act as really only applying to a charity that did not file a T3010 at all. However, in Jaamiah, the CRA argued that it could revoke the registration of a charity pursuant to the revocation section where the charity did not issue T4s and T4As properly.  In Opportunities, the CRA argued that it considered a T3010 containing errors to be a T3010 that was not filed and therefore it could revoke registration of a charity that made errors in its return.

Whether failure to issue T4s and T4As is actually grounds for revocation remains unclear as the Court in Jaamiah upheld revocation on other grounds.  It is unfortunate that the Court did not more clearly strike down the CRA on its position in this regard.  T4s and T4As have nothing to do with a charity’s compliance and revocation for such a failure would be capricious.  As well, there are separate penalties under the Act applicable to employers relating specifically to T4 and T4A filings.

Much more worryingly, in Opportunities, the Court concluded that the charity had made “serious” errors in the T3010 and that a T3010 with errors was not filed “as and when required” thereby supporting revocation.  This is very troubling.  The CRA often disagrees with T3010 filing positions but should not be able to revoke solely on that basis.  Leaving aside statutory interpretation, the CRA should not be able to revoke for failure to file a T3010 when one was actually filed.

As a result of these two decisions, charities should be careful to accurately prepare and carefully file their T3010s.  Charities should also be vigilant about other non-charity tax filing obligations.  Indeed, charities that can afford to do so should consider having their external financial auditors and their charity / social impact lawyers review their T3010s prior to filing.  This will help reduce errors in the T3010 and may also enable the charity to argue later that any areas of CRA disagreement were blessed by tax advisors and therefore cannot be “serious” errors.

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