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In July 2012, CRA released an updated summary of its procedures when dealing with an application for charitable registration. This guidance is a helpful tool both as an overview of the process, and as reminder of some of the tips and traps to bear in mind when applying for charitable registration.
In order to be registered as a charity under the Income Tax Act, an organization must submit to CRA Charities Directorate a completed T2050 Application for Charitable Registration. This requires that the applicant organization submit a detailed description of its proposed charitable activities and budget, along with certain other required information about the organization and supporting documents.
CRA notes that the first step in its review of an application is to confirm that the application is complete and that all required information and documentation is included. If the application is complete, CRA will send the organization a standard acknowledgement letter confirming that the application has been received and providing an estimate of when the application will be assigned to an examiner (typically 2-5 months). If the application is incomplete, it will be rejected and returned to the applicant, forcing the applicant to re-apply and lose its place in line.
This underscores the importance of ensuring that an application is complete before submitting it to CRA. This means ensuring that all questions on the T2050 Application have been answered. Failure to answer even one question can result in an application being rejected as incomplete. It also means that an organization must ensure that it provides the required supporting documentation, which includes the constitution of the organization (e.g. Articles of Incorporation, Trust Indenture, etc.), its general bylaws and financial statements if the organization has been operating for more than one year.
CRA states that delays commonly occur when applicants fail to provide the following:
- a complete list of the directors, trustees or like officials (with each person’s address, telephone number and date of birth);
- a complete set of governing documents (including any by-laws and amendments, if applicable);
- a certificate of good standing or similar document from the appropriate registrar (if the organization has been incorporated for five years or more, or if the organization is incorporated and applying for re-registration);
- complete financial information about the organization (this includes completing Q17 on the application form, as well as providing the organization’s latest financial statements, if applicable);
- a complete description of the organization’s activities to show that they are charitable and fulfill the organization’s purposes, as stated in its governing documents; and
- copies of any agreements or contracts the organization has with representatives carrying out the organization’s activities inside or outside Canada (if applicable) and complete details about these arrangements.
With respect to the governing documents, CRA notes that it will review these documents in draft on a one-time basis when reviewing an application. Thus, it is not necessary to proceed to incorporate before applying for registration. In some cases, particularly where the objects of an organization are unusual or may not be exclusively charitable, it may be more efficient to postpone incorporation until CRA has confirmed that the objects are charitable. This enables the organization to deal only once with the incorporation process and avoids the needs to make subsequent amendments to its objects if CRA does not agree that the original objects are exclusively charitable. Upon concluding that an organization will likely qualify as charitable, CRA will require that the organization provide certified copies of its governing documents before registration. It is important that organizations move quickly to incorporate or formally establish themselves upon receiving confirmation from CRA that it will register the organization.
The application process often involves follow-up questions from CRA regarding the purposes and activities of the organization. Where CRA is not satisfied that an organization qualifies for registration on the basis of its initial application, it will set out its concerns in a letter to the organization and provide the organization with a limited deadline to reply. It is important that the organization reply as promptly and fully as possible – the assistance of qualified counsel can be valuable in this process.
If CRA ultimately refuses registration, it will provide the organization with a Notice of Refusal of Registration. Upon receiving a Notice of Refusal, an organization has 90 days to file a notice of objection with the Appeals Branch of CRA. Again, it is important that an organization decides as soon as possible whether it wishes to file an objection.
If CRA grants registration, it will issue a Notice of Registration. The Notice will include the organization’s registration number, its effective date of registration and will outline in brief the new charity’s rights and obligations. Charities should review this information carefully as CRA will review the charity’s compliance with its obligations on audit.
CRA also addresses the topic of expedited or priority reviews of an application. CRA states that if an organization needs to have its application reviewed on a priority basis, it must send CRA details in writing that explain the reason. An application will not be reviewed ahead of others for reasons such as « to give tax receipts for donations » or « to receive grants from funding agencies ». These reasons are shared by almost all organizations applying for registration. It is generally necessary to establish that a specific time-limited opportunity will be lost if the application proceeds in the ordinary course.
Miller Thomson’s Charities and Not-for-Profit lawyers can assist organizations with all aspects of the application and appeals process.