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President and CEO of Imagine Canada, Marcel Lauziere. (Aaron Vincent Elkaim/The Canadian Press)
President and CEO of Imagine Canada, Marcel Lauziere. (Aaron Vincent Elkaim/The Canadian Press)

Tax rule changes take charities by surprise Add to ...

Many charities across Canada are scrambling to figure out the impact of a surprising number of rule changes spelled out in this week's federal budget, which caught the sector off guard.

Even if the budget dies because of an election call, many of the measures affecting charities will go ahead because they require only regulatory changes, not legislation.

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The changes include new compliance rules, restrictions on some types of donations, and significant reforms in the way national sports organizations operate.

"I knew something was coming in the budget but the extent of it really took me by surprise," said Marcel Lauzière, president and chief executive officer of Imagine Canada, an Ottawa-based umbrella group for Canadian charities. "We're going to have to sit down with the legal community and figure out what all of this means."

The bulk of the changes concern so-called Registered Canadian Amateur Athletic Associations, or RCAAAs, and take effect Jan. 1, 2012.

There are about 100 RCAAAs in Canada; most are national sports bodies such as Triathlon Canada, Cross Country Canada and Wheelchair Basketball Canada. Others include KidSport Canada, Canadian Athletes Now Fund and the Canadian Council of Provincial/Territorial Sports Federations.

RCAAAs are considered charities and they can issue tax receipts for donations. But they have so far been excluded from the rules and sanctions that govern charities. The budget ends that exclusion and compels RCAAAs to adhere to regulatory requirements.

The changes mean RCAAAs will have to file annual reports to the Canada Revenue Agency, just like other charities. They will also have to abide by charity regulations affecting bookkeeping, tax receipts and fair value of donated property. And they will face sanctions for any violations.

The budget also tightens the mandate of RCAAAs. While other charities are required to operate exclusively for charitable purposes, RCAAAs were only required to promote amateur athletics as a "primary purpose." That meant they could engage in other, unrelated activities. Under the changes, the promotion of amateur athletics on a nation-wide basis must now be the "exclusive purpose" of RCAAAs.

The changes come after the CRA stripped several RCAAAs of their charitable status last year for participating in what the agency alleged was an improper tax shelter. The CRA alleged Biathlon Canada, the Canadian Lacrosse Association, Little League Canada (baseball) and Football Canada issued millions of dollars in improper tax receipts. The associations denied any wrongdoing and said they believed the tax shelter complied with tax rules.

Chris Jones, head of Sports Matters, an Ottawa-based sports lobbying organization, said the vast majority of RCAAAs already comply informally with charity rules. But he said the budget changes "will doubtless create new administrative burdens for them."

Others said the new measures are overdue. The budget "is just saying that the normal sort of good rules that apply to charities also apply to RCAAAs," said Mark Blumberg, a Toronto lawyer who works with charities. "There's no longer going to be this [CRA attitude of] 'Oh, we'll just trust you guys because you are dealing with high-level sports so that would mean that you are going to be honest.'"

The budget also put restrictions on donations to all charities of flow-through shares and stock options. And it includes a requirement that charities take action if concerns are raised about the conduct of a board member or official. Charities do not have to do background checks, but must respond to concerns.

Charities must also now alert CRA if they return a gift to a donor, so tax officials can make sure the donor doesn't hang on to the corresponding tax deduction. Returning donations is rare but it has happened. In 2005, Queen's University gave back a $1-million pledge made by former Hollinger Inc. executive David Radler after he pleaded guilty to fraud.

 

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