The Taxpayers’ Ombudsperson is reviewing CRA audits of registered charities.  I have extensive comments at the bottom of this note, if you want to skip some of the background below.

There have been concerns expressed by some in the Muslim community as well as others that CRA is taking a harder line on Islamic charities and/or treating them unfairly.  As we discuss below I have heard about unfair treatment from almost every religious group and many secular groups who deal with CRA.    So it might not be as clear as some would make the issue out but that might in part be why the Taxpayers’ Ombudsperson is looking at CRA audits.

Here is just one example of those who criticize CRA:

Muslim charity heading to court over ‘unfair’ suspension levied by revenue agency

Here is the Office of the Taxpayers’ Ombudsperson press release from August 5, 2021 announcing the review:

News release

OTTAWA, August 5, 2021 – At the Government of Canada’s recent National Summit on Islamophobia, the Honourable Diane Lebouthillier, Minister of National Revenue, stated that systemic racism and discrimination are important issues that the Canada Revenue Agency (CRA) takes very seriously. As part of her commitment, the Minister has requested that the Taxpayers’ Ombudsperson, François Boileau, examine concerns raised by certain Muslim-led charities and engage other charitable organizations led by racialized communities about their experiences with the CRA. In particular, the Office will focus on the concerns linked to the selection of audit files, the quality of the services offered and the efforts taken by the CRA to sensitize its employees to unconscious biases.

To determine the exact scope of the examination, the Office of the Taxpayers’ Ombudsperson (OTO) will start by listening and inviting Muslim-led charities as well as other charitable organizations led by racialized communities to share their experiences to better understand the service issues they encounter with the CRA. The OTO will also carefully review all the publicly reported documentation and the information obtained from the CRA.

Mr. Boileau is committed to examining the issues fairly and will provide the Minister with an update on his examination by January 1, 2022.

Background information

The OTO is functionally independent and operates without influence from the CRA. We are here to improve the service that the CRA provides to taxpayers by reviewing service-related complaints and hold it accountable in its service to, and treatment of, taxpayers through independent and objective reviews. We also look at issues that can affect more than one person, or a segment of the population.

The Taxpayers’ Ombudsperson is mandated to ensure that the CRA respects eight of the service rights outlined in the Taxpayer Bill of Rights and that it remains accountable for its actions.

The Taxpayer’s Ombudsperson must review any matter within the Ombudsperson’s mandate at the request of the Minister, and can also open examinations on his own initiative.

Learn more about our open systemic examinations

Quotes

“Together with my Office, I commit to examining the concerns raised and will engage charitable organizations led by racialized communities to ensure that the service rights we so strongly represent, are upheld by the CRA. But before we take action, we need to take the time to listen and deepen our knowledge of the issues.”

François Boileau, Taxpayers’ Ombudsperson

In Justin Trudeau’s mandate letter to the Minister of National Revenue on December 16, 2021 said amongst other things:

• Provide support to the Taxpayers’ Ombudsperson for their study to address the concerns of charitable organizations, so that no equity-deserving organization is subject to bias.

Here is an announcement from the Government of Canada on February 9, 2022:

News release

OTTAWA, February 9, 2022 – In July 2021, the Honourable Diane Lebouthillier, Minister of National Revenue, requested the Taxpayers’ Ombudsperson, François Boileau, examine concerns raised by certain Muslim‑led charities, and engage other charities led by racialized communities, about their experiences with the Canada Revenue Agency (CRA). This was also confirmed in the mandate letter from the Prime Minister of Canada to the Minister dated December 16, 2021.

The main focus of the Office of the Taxpayers’ Ombudsperson’s examination will be on the fairness of the CRA’s Charities Directorate’s audit process.

The Taxpayers’ Ombudsperson has created a Special Ombudsperson Response Team (SORT) to primarily look at:

• how the CRA selects registered charities for audit, and if the process is designed and applied fairly
• if there are areas in the audit process that may be inequitable
• the impact the audit process has on registered charities

The examination intends to answer the following questions:

• Are charities selected for audit fairly?
• How are audits carried out?
• Is the audit process equitable?

In mid-December, the Ombudsperson provided the Minister an update on the progress of the examination.

Preliminary meetings have taken place with CRA officials and various stakeholders, including charities, to understand their concerns and identify issues, if any. Such meetings are ongoing and will continue in 2022. The Office also reviewed published reports that brought to light many of the issues raised by some Muslim-led charities.

So far, some stakeholders have said that they were comfortable with the CRA’s processes, while others raised the following concerns:

• sometimes the CRA’s charity audit process can last for years
• the CRA’s audit results and compliance approaches may not be provided in a timely manner
• the CRA’s compliance approaches are not consistent amongst charities
• some charities felt they are being treated arbitrarily or unfairly by the CRA

The team will analyze the information received so far, as well as any new information obtained throughout the examination.

A dedicated webpage has been created to keep Canadians informed of the examination’s progress. The webpage includes an online questionnaire to get feedback from the charitable sector about their service experiences with the CRA’s Charities Directorate. The responses will help identify potential areas of service improvement, and further opportunities for discussions. Those who wish to express their views can contact the Office and they will be met confidentially.

About the Office of the Taxpayers’ Ombudsperson

The Office of the Taxpayers’ Ombudsperson works independently from the CRA. The Office exists to allow people to submit complaints should they feel they are not receiving the appropriate service from the CRA. Its main objective is to improve the service CRA provides to taxpayers and benefit recipients by reviewing individual service complaints, as well as service issues that affect more than one person, or a segment of the population.

The Taxpayers’ Ombudsperson assists, advises and informs the Minister of National Revenue about matters relating to services provided by the CRA. The Ombudsperson ensures that the CRA respects eight of the service rights outlined in the Taxpayer Bill of Rights.

The Office encourages you to submit an individual complaint and then it can examine your specific issue(s). If you would like to submit a service complaint, or share your experience, call 1-866-586-3839.

Quotes

“When carrying out this examination we will remain cognisant of the Minister’s request of examining the quality of services provided by the CRA to charities and the training it provides to its employees on unconscious bias. That said, to best understand the issues facing charities we absolutely need to hear from you and your representatives.”

François Boileau, Taxpayers’ Ombudsperson

(Tweet this quote.)

Associated links

• Learn more about our open systemic examinations
• Past recommendations and updates
• Annual Report 2020-2021

Here is a recent note from the Taxpayers’ Ombudsperson on the process and asking for feedback:

Our examination into the Canada Revenue Agency (CRA)’s treatment of registered charities.

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Ombudsperson’s Message

“On August 5, 2021, I announced this examination, which I opened at the request of the Minister of National Revenue.

The examination will look into the compliance activities and selection of charities for audit by the CRA’s Charities Directorate. I will remain cognisant of the Minister’s request of examining the quality of services provided by the CRA to registered charities and the training it provides to its employees on unconscious bias. I will also be taking on this examination with fairness at the top of mind. At the end of this examination one thing that I will be confident in will be in the fairness of our process.

To best understand the issues registered charities are facing with the CRA we need to hear from you, and your representatives. Therefore, please complete our questionnaire and rest assured the information you provide to us will remain confidential.”

François Boileau 
Taxpayers’ Ombudsperson

Questionnaire

We want to hear from you to identify any potential service improvement opportunities for the CRA’s Charities Directorate. The questionnaire results will help us identify potential areas of service improvement, and further opportunities for discussions with you.

We encourage you to complete our questionnaire.

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Participate in our questionnaire

The questionnaire will be open until March 31st, 2022

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Here are the questions that the Taxpayers’ Ombudsperson is asking in their questionnaire:

Questionnaire – Audit Charities Examination

The following non-scientific questions will be used to help us identify potential areas of service improvement, and will provide you with the opportunity to meet with us, should you wish to do so. Please note that should you wish not to identify yourself at the end of the questionnaire your responses will remain anonymous. All responses to this questionnaire will remain confidential.
*1. Before today, I was aware the Canada Revenue Agency’s Charities Directorate audits registered charities.
• Yes
• No

*2. Before today, I was aware the Canada Revenue Agency has a division whose responsibilities include preventing the abuse of registered charities for the financing of terrorism.
• Yes
• No

Please rate how much you agree or disagree with the following statements:
*3. Information provided by the Canada Revenue Agency Charities Directorate on the responsibilities of a registered charity is
Strongly Agree Agree Neutral Disagree Strongly Disagree Not applicable
a) easy to find on Canada.ca

b) easy to comprehend on Canada.ca

*4. From my personal experience, in the last 5 years,
Strongly Agree Agree Neutral Disagree Strongly Disagree Not applicable
a) the Canada Revenue Agency Charities Directorate reviews applications to become registered as a charity in a timely manner

b) the Canada Revenue Agency Charities Directorate’s registration process is fair

c) Canada Revenue Agency Charities Directorate is transparent with how it selects registered charities for audit.

d) the Canada Revenue Agency Charities Directorate completes its audit of registered charities in a timely manner.

*5. The Canada Revenue Agency Charities Directorate’s client service representatives provide:
Strongly Agree Agree Neutral Disagree Strongly Disagree Not applicable
a) clear information

b) accurate information

c) timely information

*6. The Canada Revenue Agency Charities Directorate provides
Strongly Agree Agree Neutral Disagree Strongly Disagree Not applicable
a) information on options (recourse rights) if a charity or applicant disagrees with its decision

7. Before today, I was aware the Minister of National Revenue requested the Taxpayers’ Ombudsperson open an examination into issues expressed by certain charities.
• Yes
• No

*8. Before today, I was aware the Taxpayers’ Ombudsperson was carrying out an examination into the fairness of the CRA’s Charities Directorate’s audit processes.
• Yes
• No
If you want to expand on any of the answers, or provide additional information, please do so below.

*Would you like to meet with us to discuss your experience directly?
• Yes
• No

 

 

1. Groups have until March 31, 2022, to complete the Taxpayers’ Ombudsperson questionnaire.   Although below I discuss my concerns with the questions on the questionnaire I still would encourage charities to complete this flawed questionnaire.   You can do so at a link on this page here.
2. I am not clear yet how the Taypayers’ Ombudsperson is going to be dealing with this file.   I have some concerns that it may not be fair.   The Alberta government spent millions of dollars looking at charities that received foreign money that was allegedly “anti-Alberta”.  It was a very unfortunate exercise and I refused to participate in the Alberta inquiry.  As I said I am not yet clear what is going on with the Taxpayers’ Ombudsperson.  I don’t yet know whether I will be asked or whether I would be prepared to participate in this review beyond submitting the questionnaire.    It certainly started off in August 2021 looking concerning.   How can you look at the way that “Muslim-led charities” and “charitable organizations led by racialized communities” were dealt with and determine whether it is fair without comparing it to other charities?  Anyway, now the Taxpayers’ Ombudsperson seems to have changed their tune in their update of February 9, 2022.
3. The press release notes that “some stakeholders have said they were comfortable with the CRA processes“ but then it doesn’t elaborate at all as to why they are comfortable with them.  It only goes on to say that others raised a number of concerns including the four above.
4. Some of the concerns included “sometimes the CRA’s charity audit process can last for years”. Well, why is it that the charity audits last for years?  Well in some cases it could be that CRA doesn’t have enough resources and is slow to deal with the audits but in many cases, it is because there are serious compliance issues and the charity is spending lots of money on professional advisors to draw the audit out for as long as possible hoping that either CRA will give up or that they can strike a satisfactory agreement or that if the charity will be revoked it will be long after the charity has ceased operations and moved over to another charity etc. As they say, it takes 2 to Tango.  When CRA and the charity both want an audit wrapped up quickly, it will often be wrapped up quickly.
5. I am concerned about the length of CRA audits but not because I think that CRA is deliberately extending their length but because I am seeing charities that are doing really bad things and then CRA discovers it and then it ultimately take CRA 10 or more years to issue a Notice of Intention to Revoke a Charity’s Registration.  Then even worse in many cases because of the significant internal and external appeals that are available to registered charities, it can take CRA another five years to “publish“ the notice of intention to revoke in the Canada Gazette.   Therefore in total, it can take 15 to 20 years to deregister a charity that the CRA is aware of as having been involved with major non-compliance. I think the public may expect more from CRA but that is what they are getting.
6. I had a client audited on the political activities audit under the Harper government.   They were sent a 25-page letter with various CRA concerns relating to political activities.  It was a very detailed letter. Political activities were a hot topic at the time.  The registered charity recognized that they had made some mistakes, they admitted the mistakes and agreed to make changes to their operations and the audit was quickly resolved.  If they were not prepared to acknowledge the mistakes and agree to make changes the audit could have gone on for years. Instead, it was completed in months.
7. The press release notes that another concern expressed was that “the CRA’s compliance approaches are not consistent amongst charities”.  How would one really know with the extensive secrecy provisions in the CRA that we have advocated should be loosened?   I am in general in favour of a consistent approach as there is no choice when many factors are baked into the ITA or other legal requirements but this is not a one-size-fits-all situation.  There was for example a small charity in Toronto issuing $600 million dollars in official donation receipts that were completely inappropriate.  Should CRA have the same approach to that group as another small charity that perhaps had some mistakes on the T3010 annual return?  There will be some similarities in the audit processes but I think the public would expect that CRA would deal with different levels of harm and risk differently.  There are charities that have supported armed groups around the world?  Should we treat them like all other charities?
8. I think it is fair to say that every religious group in Canada has at one point or another said that CRA has animosity towards them.  I cannot tell you how many times Jewish groups have told me that CRA is Antisemitic or “they don’t like Jews”.  Certainly, we often hear that CRA hates Christians not to mention Muslim groups.   Many of the groups complaining the loudest about CRA in some cases are very extreme groups, in some cases don’t care that much about charity law or compliance, in most cases don’t know much about the legal requirements of registered charities (or did not before they had a lengthy audit) and often they are very upset when CRA points out problems with their operations.  I actually feel sorry that CRA even has to deal with some of these groups but they are paid to do it I guess.  There was recent revocation of two Jewish charities – I don’t even think that most people in the Jewish community are aware of these revocations.  I don’t think any media outlets have covered it even though one of the entities was a very prominent Jewish organization in its heyday.
9. CRA has information on its websites about the compliance requirements for registered charities.  We have over 2600 blogs on registered charities and their compliance requirements.  There are many other sources of information – some more updated and reliable than others.   I have argued for years that more education and capacity building is needed in the sector but charities who put in some effort can certainly determine their basic compliance requirements.
10. The press release notes that another concern expressed was that “some charities felt they are being treated arbitrarily or unfairly by the CRA”.  Hopefully, the Taxpayers’ Ombudsperson will dig deep into each file – I am not sure otherwise how they will know.  One way for CRA to not be “arbitrary or unfair” is simply to revoke all registered charities who are audited and who have any compliance issues which is almost all charities that are audited.   However, that is not what CRA does nor would I want that.    I think the argument can be made in many cases that CRA is far too lenient on some charities and gives too many chances in some cases, especially when there is serious non-compliance.  I find it very interesting that almost no charities that have been revoked for cause have released the correspondence between CRA and themselves.  Why not disclose all the information to the public with both the CRA concerns and the charity’s response?
11. There is little doubt that a CRA audit takes time and resources from volunteers, or staff if the charity has them, or both.   What is not sometimes appreciated is the huge tax advantages given to charities and the CRA has an obligation to audit charities.  The tax advantage is not for 1 or 2 years. It is for as long as the charity exists and files it T3010 form.   At the moment if the audit rate does not change (and I hope it does change) a random registered charity this year has a 1 in 400 chance of being audited.  Thought of another way a “typical charity” may not be audited for 400 years.
12. The Mandate letter to the CRA minister refers to “Provide support to the Taxpayers’ Ombudsperson for their study to address the concerns of charitable organizations, so that no equity-deserving organization is subject to bias.”  What does that mean?  If you are a religious group it is ok for CRA to be biased against you? If you are an educational institution it is ok if the audits are biased? If you are an environmental group it is ok if CRA is biased?  Some of the religious, educational or environmental have had similar concerns of unfairness or bias.  Not that it is correct but they have had those concerns.  This statement in the mandate letter may leave some people questioning the agenda behind this inquiry and at a minimum, it is a poor choice of words.
13. It appears to me that the main problem facing many BIPOC groups in Canada – it has been shown time and again is that they receive almost no funding and they are dealing with huge and systemic issues.  Funding is of course not the only important thing in life -you have volunteers and access etc. but BIPOC registered charities often receive almost no funding.  See the various reports on these topics. See Canadian charities giving to Indigenous Charities and Qualified Donees – 2018 and UNFUNDED: Black Communities overlooked by Canadian Philanthropy.  On a separate note, perhaps CRA should do an investigation into foundations and whether they have conscious or unconscious bias in their decision-making?
14. I am concerned because the ombudsperson sees their job as to check on the fairness of a CRA audit and the consistency and timeliness.  What they don’t seem to be looking at is bigger and perhaps even more important issues around the effectiveness of CRA and whether there are enough CRA audits.  Fairness to charities is important but what about fairness to taxpayers and others who donate to charities with the belief that their funds will be appropriately used, the public who volunteers with charities, etc.  Being too fair to one group and ignoring others completely is not fair.  The mandate of the Taxpayers’ Ombudsperson is related to the Taxpayer Bill of Rights and this gets to the awkward place of charities – they are not really “taxpayers” and people maybe need to start recognizing that.  They are entities that receive huge amounts of government subsidies.  So the Taxpayer Bill of Rights is awkward at times, to say the least.
15. We recently wrote about there being a significant decline in CRA audits over the last 7 or 8 years. We have also blogged about studies that show there has been a significant decline in public confidence in Canadian charities. It is not clear to me whether this will be relevant to the work of the Taxpayers’ Ombudsperson.  The Auditor-General has looked at issues with CRA audits in the past for example in Report of the Auditor General of Canada to the House of Commons Chapter 7 Registered Charities—Canada Revenue Agency.
16. The Taxpayers’ Ombudsperson is not writing a letter to each of the thousands of charities that were audited over the last decade and asking them to complete it but instead putting up an online form that states that it is “non-scientific”.  That is an understatement.  You can imagine that largely the only people who are going to fill in an online form are those who are aware of it and are highly motivated to complete the form which tends to be some groups that had an adverse interaction with CRA.  Some of that adverse reaction could be related to the conduct of their organization.  The Taxpayers’ Ombudsperson should obtain from CRA the full file of any group that complains that it was mistreated – I don’t see how they can make such a determination without seeing both sides of the story.  They should also look at groups that had different experiences with CRA.
17. Only a very small number of charities in the audit process, for example, will get revoked but in almost every instance that I’ve spoken to a charity that has been revoked, they felt that it was completely inappropriate for CRA to revoke them.  In addition some were not completely forthcoming about the reasons for the revocation.  Some charities revoked for cause or as a result of audit have publicly said they were revoked for failing to file a T3010 form.  Because we have limited transparency in the charity sector in Canada, groups can get away with that. I have been trying to increase the level of transparency and one of the ways is to publish revocation letters.  We have made them available for over a decade.  These letters set out CRA’s views as to why a particular charity should be revoked and often the letters provide detailed information on the CRA concerns and in some cases in areas that CRA does not have a guidance product (such as administrative costs, internal controls, etc.)  They also provide sometimes lengthy responses from the charity so that a reader can understand both CRA and the charity’s perspectives.    Here are some examples of the CRA letters when revoking charities.
18. CRA is not allowed to say anything about individual charities until they are revoked and even then except for providing those letters referred to above to those who request them, CRA will not generally say anything about revocations. So the only groups that are saying anything about revocation tend to be the groups themselves and their supporters.  There are some really really bad charities in Canada.  Revoked ones and ones that have not been revoked.  It is a small number of charities and people that are doing the greatest abuse.  But with 86,000 charites, even if 1% are deeply problematic that is 860 charities.   In fact, probably the vast majority of charities are ok or good to great.  But even a few hundred bad charities, some with lots of resources, can do a lot of harm.   Have we forgotten so quickly about residential schools and the damage caused by them?   Who ran those residential schools?  My understanding is that it was largely done by charities.
19. The questionnaire from the Taxpayers’ Ombudsperson tries to be short and manageable and therefore misses many important questions.   Also, a lot of the questions are fluff.  How many people are going to complete this questionnaire and answer no to the question “Before today, I was aware the Canada Revenue Agency’s Charities Directorate audits registered charities.”  Probably most Canadians are not aware of this but like I said most of the people completing this questionnaire are probably not going to be representative of anything except highly motivated people who are upset with CRA.   There are other questions that are certainly interesting but not clearly related to the issue of audits such as whether the information on the responsibilities of registered charities is  “easy to find” and “easy to comprehend”.   First of all, if the Federal government did not force CRA to move its website over the Canada.ca website it would be easier to find documents. Secondly, there are some things that are very easy to find and other things that are not.   The same with comprehension.  There are some CRA guidances that seem more geared towards tax litigators and not the public or directors of charities.   But the simplistic question does not get at that.  There is a small character limited box at the end to put in comments but not much more than that. There are questions such as “From my personal experience, in the last 5 years, the Canada Revenue Agency Charities Directorate reviews applications to become registered as a charity in a timely manner”.  Interesting question.  I see how this relates to customer service but not sure what this has to do with audits.  Also, the CRA’s responses have not been uniform over the last 5 years so one might have a different view 5 years ago versus today when many charity applications are being completed in 3 months or less.   As well there are huge differences between simple foundations versus international charities and their applications.   More importantly the better the information provided to CRA, usually the response time is better.  Also, clients who provide us with information quicker to respond to any CRA concerns raised during the application process and don’t need extensions, tend to get a response back more quickly.   I am constantly being told by people that they think that the charity application process takes 9-12 months or longer.  Very rarely would that be the case but there is a widespread belief amongst advisors that this is the case.   There are no questions on the questionnaire about ‘whether there are enough CRA audits?’, ‘whether people have confidence in the charity sector because of CRA audits’, ‘If you have complained to CRA about the conduct of a charity audit whether you felt that CRA followed up properly with their complaint?’ etc.   It may seem like perhaps some people are not interested in knowing what people think about those issues?
20. So I welcome any review of CRA’s auditing practices as it is very important not only that CRA is accountable but that these audits are fair and effective.  Yes, not just fair.   If the CRA audits are not effective at ensuring basic compliance with legal requirements in the sector then public confidence will continue to decline and that’s will result in many problems for the charity sector.