CTV News article “Review of how CRA audits Muslim charities ‘inherently flawed,’ groups say in open letter to PM”

As we have noted before in our blog on November 28, 2022, entitled Statement by the Canada’s Taxpayers’ Ombudsperson on CRA examination will be significantly hindered by the confidentiality provisions of the ITA relating to charities, Canada’s Taxpayers’ Ombudsperson will be limited in their review of CRA and potential Islamophobia. We have been arguing for over a decade that there should be greater transparency, and the inability of Canada’s Taxpayers’ Ombudsperson to investigate these matters is just another indication that there needs to be far greater transparency when it comes to charities in Canada.

On December 3, 2022, CTV News covered the statement by Canada’s Taxpayers’ Ombudsperson and responses by certain groups to the statement by Canada’s Taxpayers’ Ombudsperson. The CTV article is at “Review of how CRA audits Muslim charities ‘inherently flawed,’ groups say in open letter to PM“.

So, Canada’s Taxpayers’ Ombudsperson cannot undertake the necessary review because of confidentiality concerns and limitations in the ITA.

Some Muslim groups have criticized the process and suggested certain recommendations:

1. A review body be established alongside the Ombudsman that brings together the Canada Revenue Agency, the Department of Finance, and Public Safety for a fulsome examination of systemic Islamophobia and racism;

2. Requisite clearances and legislative frameworks be addressed at the outset such that the review can be completed with rigor and integrity in a timely manner; and

Essentially they seem to want a review body that works with the Ombudsperson and that can review the necessary documents. They also want RAD to be suspended.

There are a number of complexities in the discussion around the regulation of charities and the allegations that CRA is Islamophobic. We will try to cover some of them here, and they include:

• There is quite clearly tremendous Islamophobia in Canada. We have had terrorist attacks against a Mosque in Quebec City, a family killed on the streets of London, Ontario and numerous attacks on Muslims in Canada. There is frequent physical abuse of Muslims, especially Muslim women who are sometimes more easily identified by their clothing. We see in even mainstream newspapers anti-Muslim stereotypes and sometimes deeply hateful portrayals of Muslims.
• With all of this hatred, one could start with the assumption that almost all institutions in Canada are anti-Muslim, but it is probably not a great assumption. It also is not fair to label an entire group of civil servants as Islamophobic unless there is compelling evidence that the Charities Directorate is Islamophobic. I have not yet seen evidence that proves that. I have seen lots of vague allegations made about the CRA. I have seen allegations that are very specific but not likely to be accurate. I have seen well-intentioned people telling the Senate that they have been told A,B, and C, and I do believe they were told exactly that, but what they were told is not likely to be true. In most matters relating to the regulation of charities, there can be lots of misunderstandings by well-meaning people who don’t understand the regulatory system. (For example, see our article on fallacies around private foundations). If well-funded private foundations often do not understand the regulatory landscape, it is not surprising that others are also having challenges.
• Umbrella organizations that represent the interests of particular religious or ethnic groups must be free to criticize problems in the system. However, for their credibility, it is also important that the allegations are accurate and fair.
• One of the complexities with demonstrating that Muslim organizations are treated unfairly is one cannot generally just look at Muslim charities to see whether they are being treated unfairly. You need to compare them to how other similarly situated charities are treated. Are Muslim groups being revoked in greater numbers than other charities? Are Muslim groups being revoked for frivolous reasons, whereas other charities are revoked only for serious allegations of misconduct? Are applications for charitable status for Muslim charities declined more often than other groups?
• For example, a typical charity application takes about 4-6 months to get approved by CRA. We sometimes get them approved in 3 months; sometimes, it takes longer than the 6-month service standard. Based on the facts, we can usually predict how long it will take before the application goes in. The easiest charity applications we typically deal with are for simple foundations that will only make grants to other registered charities. The next simplest is typically churches, synagogues, mosques and temples. Much more complicated are healthcare charities and international development charities. Many applicants think they have a “simple” application when, in fact, it is not “simple.” Factors such as not providing detailed descriptions of activities or involving an ineligible individual can significantly complicate the application. So yes, to really make an accurate comparison, one cannot just compare a Muslim charity to a Christian charity – you also need to ensure that there are similar issues being dealt with. As noted above, mosques, churches, synagogues and temples are often the quickest registrations that we deal with. I have seen many instances over the years in which an application is having trouble, and the advisor to the group tells their client that CRA has a bias against their group. Quite clearly, it is not a poorly prepared charity application or that the advisor who has done many simple foundation applications has never dealt with the complexity of this application! We pick up many charity applications midstream and see that with additional information and a greater client understanding, CRA will register the charity. Or, perhaps it is not the additional information provided to CRA, but CRA magically loses its bias towards a group? It is also important to note that CRA, in their response to an applicant, usually gives a very thorough explanation to the applicant as to what inadequacies there are in the application, and they provide a ‘road map’ as to how to fix the application.
• There are a large number of people who work at the Charities Directorate (about 250) and a much larger number of people that work for CRA (about 45,000), so it is highly likely that some people have had or do have biases against Muslims or are Islamophobic, but does that mean that there is systemic Islamophobia in the CRA? Important decisions made by CRA are made with multiple levels of internal scrutiny, sometimes over many years, with a charity having huge amounts of time and opportunities to put material and arguments forward to CRA. This process makes it less likely that CRA will audit or revoke a charity because one or two people don’t like that charity or its work.
• There is a long history of groups criticizing the Charities Directorate. Some were religious groups; some were groups who were involved in tax avoidance schemes; some were libertarians who don’t like government involvement in almost any aspect of society (except when they want their views enforced!). So the criticisms of the Charities Directorate go back decades but probably for as long as the Charities Directorate has regulated charities either through registration or by revoking charity status. Some were well-meaning or well-intended, but some were just aggressive attempts by some to defend problematic organizations.
• Almost every religious group I can think of has complained at some point (and some for decades) that CRA discriminates against them. I have also heard it from gay groups, right-to-life groups, pro-choice groups, Black groups, women’s groups, health care organizations, etc. Some of those groups wanted to do or were doing things like lots of political activities, which previously were not allowed, or were acting as conduits, etc. It seems more likely that CRA wanted to enforce the charity rules and not that it had animosity towards a certain group.
• The CRA is by no means an expert in every religion, every branch of each religion, and every religious practice. It is easy to take potshots when they don’t understand every aspect of religious observance or when a CRA examiner makes a mistake that is later rectified by more senior levels of review. But the CRA’s knowledge of religion is far better than many religious charities’ knowledge and interest in compliance with charity law. No one forces a group to become a registered charity under the Income Tax Act, but if you want the fiscal and reputational benefits of being a registered charity, you do need to comply with those rules.
• There is little doubt in my mind that far-right/Neo-Nazi extremism has never been analyzed by the Canadian government in the same way and as closely as other types of extremism such as extremism in the Muslim community or the animal rights area. Over the last few years, there has definitely been greater awareness that far-right/Neo-Nazi extremism poses a significant challenge for Canada and the charity sector and, hopefully, that awareness will grow.
• We have, when it comes to registered charities, tremendous secrecy enforced by s. 241 of the ITA such that misuse or abuse by charities often will not be disclosed to the public for decades (i.e. when charities do horrible things, the public might not find out for 10 or 20 years, which I think is unacceptable). We have discussed the issue of confidentiality and lack of transparency in numerous submissions to the Finance Committee over the years. (Here is our latest submission.)
• There are a few people who would use charities (and even non-profits, which the Charities Directorate does not monitor) for nefarious purposes, including but definitely not limited to terrorism and money laundering. I have argued elsewhere that CRA should be focused not just on charities and whether they are vulnerable to terrorist abuse, but also on non-profits that are not charities.
• Very few registered charities are audited by CRA, and only a tiny percentage of those relate to the Research and Analysis Division (RAD). RAD seems to focus on charity audits that may or will require the use of highly sensitive intelligence information. If a group is non-compliant with the rules for charities, but CRA can demonstrate it in the normal course without such intelligence information, then RAD is not needed.  For the vast majority of audits, such information is not required. Public information and the books and records of the charity are sufficient to conduct the audit.
• Groups that are facing CRA scrutiny are generally not prepared to provide the public with detailed information, including CRA letters and the organization’s letters to the CRA, so the public is essentially told to trust them that CRA is X, Y and Z. There is no obligation on a group to release or allow the release of these CRA letters before or after revocation; however, if groups want to allege that they were treated unfairly and want the public to believe them, but they are not prepared to disclose the letters, it weakens (in my mind) the likelihood that they were treated unfairly.
• Over the last few decades, there have been about 132,724 groups on the CRA Charities Listing that have been registered at one point or another. Many dropped off through voluntary revocation or failing to file their T3010 form. The total number of groups revoked by CRA for significant problems related to audits is about 550 of the groups. There are currently 85,853 registered charities on the Charities Listing.
• We recently reviewed over 550 Canadian registered charities that were revoked by the Canada Revenue Agency as a result of a charity audit. These are revocations going back to 1992. We identified about 11 Muslim groups that have been revoked. We have also identified over 50 Jewish groups that have been revoked. For the record, we have not seen any indication that the Charities Directorate is antisemitic. You can obtain any of the letters from CRA. Many of the letters of revocation are available for free on our CanadianCharityLaw.ca website, and I would encourage people to read those letters and decide for themselves whether they think that the Canadian charity regulator has acted fairly. In some cases, those revocations are challenged in court and in those cases, you can read the actual court decisions.
• For some who think it is hard or impossible to register a mosque, just looking back a few years, we can see that since 2020 many mosques and Muslim religious groups have been registered by the CRA. According to the Charities Listing, 92 mosques and Muslim religious organizations have been registered by the Charities Directorate and countless other Muslim organizations involved with relief of poverty, health care, etc., have also been registered in different charity categories.
• Many of the people who donate to Jewish charities are Jewish. Many of the people who donate to Muslim charities are Muslim. If a Jewish or Muslim charity is acting inappropriately and the public does not know, it is going to be Jewish people and Muslim people who are disproportionately going to be donating to those charities and being taken advantage of. When a religious charity, for example, does not have good safeguarding, most of the victims are probably going to be adherents of the religious charity. To the extent that CRA does not appropriately weed out registered charities that are involved in harmful behaviour, it is allowing beneficiaries from that particular group to be victimized. I have heard from many people across almost all religions that one of the only moderating forces in some religious groups is the worry that they may be audited by CRA. Yes, it is fear of a CRA audit that is stopping some of the worst racist, bigoted, misogynist, Islamophobic, antisemitic, homophobic behaviour, etc.
• As we have discussed elsewhere, the number of audits by CRA has declined precipitously over the last decade. Public trust in charities has also declined. We need more audits of charities. We need greater transparency in the non-profit and charity sector.
• We need far better awareness and education to be provided to charities on compliance requirements for registered charities. Groups need to understand before they apply for status and after they apply for status that there are numerous rules that registered charities have to comply with. If your group does not comply with those rules and you are revoked, it does not mean that the Charities Directorate has acted inappropriately. On the contrary, it is a major part of the Charities Directorate’s role to remove registered charities that are no longer complying with the rules.
• We have been calling for many years for CRA to do more broad-based educational programs to help charities understand their compliance burden.  These activities will probably have no impact on groups that are interested in deliberately abusing the charity system, but they will be very helpful to the 99% plus who just want to do their good work and comply with the requirements.

It will be interesting to see what further developments will come.

Here is a list of charities registered since 2020 under the category of Islam. There are many other Muslim groups registered since then, but they are under different categories, such as relieving poverty, education, etc.