OTTAWA, ON-The federal government is introducing changes likely to affect the vast majority of Christian churches and other charities in Canada.
The March 2004 federal budget promises a complete overhaul of the tax rules governing charitable organizations and equips the Canada Revenue Agency (CRA) with a new arsenal of penalties. Currently, the only recourse the CRA has to deal with registered charities that do not comply with the requirements of the Income Tax Act is to revoke their charitable status.
"Because of its harshness, revocation is seldom imposed for minor infractions. As a result, lesser forms of non-compliance may go unchecked, which the government believes diminishes public confidence in the legitimacy of the charities and in how donations are spent," comments a release from the Canadian Council of Christian Charities (CCCC).
Under the proposed new rules, charities will be subject to penalties for an array of misdeeds such as late filing of annual information returns, issuing tax-deductible receipts inappropriately, paying exorbitant salaries to managers or operating an unrelated business.
"The sanctions will be progressive, generally increasing in severity for repeat infractions," says Terrance Carter, an Orangeville, Ontario lawyer who specializes in charity law and does a lot of work with the Christian community. The proposed penalty for filing a late return, for example, is $500, while failure to keep proper books and records earns a suspension of tax-receipting privileges.
The new budget provisions do not come as a surprise. For years charities have complained that the rules are too rigid and applied inconsistently. For its part, the government is now trying to rein in the vast charitable sector and ensure that the tax breaks they offer are used appropriately.
Canadians channeled donations worth about $5.8-billion through charitable organizations last year.
About 45 per cent of Canada's 80,000 registered charities are places of worship or religious organizations. The government audits only about 400 each year.
Spotty record
In an interview nearly a year ago, the CCCC's Dick Kranendonk (now retired) said that more than 90 per cent of churches in Canada are not in full compliance with existing tax law. Common problems, he says, include improper of handling of funds sent outside the country, and when churches issue receipts where benefits are received.
"Until now, very few churches have been audited. Those that were came as a result of specific complaints," says Kranendonk. The proposed new laws, which were signaled by then Finance Minister John Manley last May, will enable the government to demand higher levels of accountability without having to take the drastic measure of revoking charitable status.
Kranendonk compares the situation to traffic on a busy highway. Churches are reluctant to change their bookkeeping procedures because most have not had any problem with the tax agency just doing what they've always been doing, which is much easier, explains Kranendonk.
However, just because lots of people are getting away with driving 120 kilometers an hour when the posted speed limit is 100 doesn't mean the police can't give you a ticket if you're going 105. But they probably wouldn't want to take away your driver's license for that level of infraction, he says.
The changes are being introduced to encourage compliance among charities. "Those that don't comply are going to be hit," predicted Kranendonk.
Other potential changes to the tax rules contained in the budget include the formation of a new internal appeals process and a special committee to advise the minister of National Revenue on matters involving charities. There are also some highly technical changes to the rules governing the disbursement of charitable donations.
Beyond that, the budget calls for more transparency and promises greater public access to financial statements and other documents registered charities file with the government.
