Despite their best efforts, it is not uncommon for a charity to uncover an internal issue that, in some way, puts the charity off-side the rules in the Income Tax Act (Canada) (the “Act”) or a Canada Revenue Agency (“CRA”) policy. When this happens, charities often ask us whether they should disclose the compliance issue to CRA through the voluntary disclosure program. Some clients are surprised to learn that CRA does not have a formal voluntary disclosure program for charities. That being said, there are ways for charities to approach CRA to help resolve compliance issues if the situation warrants involving CRA.
CRA’s voluntary disclosure program was designed for taxpayers (essentially, individuals and for-profit corporations) to contact CRA to voluntarily correct inaccurate or incomplete information in their past tax filings. By voluntarily disclosing issues to CRA, taxpayers can also apply to CRA for relief from any penalties that might apply to them, interest on any tax liabilities that may be owing to the government and prosecution by the Department of Justice (the “DOJ”) in cases where the DOJ would have pursued the taxpayer in court. The decision of whether to use the voluntary disclosure program is up to the taxpayer.
When it comes to disclosures from charities, CRA’s published position is that it encourages charities to contact the Charities Directorate when they identify errors. However, there is no formal disclosure program. Charities are encouraged to contact CRA by calling the Charities Directorate’s main telephone line.
It is important to note that CRA will agree to speak to a charity about an error on either a named or no-names basis. The question of how a charity should contact CRA depends on many factors, including the nature and severity of the particular error. We often recommend to clients that, as a starting point, a representative of the charity contact CRA on a no-names basis to obtain some initial feedback and guidance on the risks that relate to the particular error, as well as ways to correct the error going forward, if possible.
The approach described above will not be appropriate in every circumstance. It is often best for the charity’s legal counsel to have these discussions with CRA. Legal counsel can also assist the charity in determining whether the particular issue or error needs to be discussed with CRA in order to be resolved. For example, in some cases, the error may not, in fact, be an issue that puts the charity offside the requirements in the Act or a CRA policy.
When a charity contacts CRA on a named basis, CRA has indicated that it will ask for all of the details of the non-compliance and will then work with the charity to get it back on track. In serious cases of non-compliance, penalties and other more serious sanctions may apply. Notably, CRA does not have a published position on whether there is a way for charities to obtain relief from penalties and other sanctions when approaching CRA on a named basis (unlike the formal voluntary disclosure program, which expressly allows taxpayers to apply for relief). That being said, approaching CRA on a no-names basis is not a means of avoiding penalties and sanctions since errors remain discoverable by CRA on audit.
These are some of the points that charities need to be aware of when dealing with potential compliance errors and considering whether a particular error warrants having discussions with CRA. We always recommend that charities be proactive in identifying and implementing the most appropriate solutions to their compliance problems.