Article: Charity sector worth $300B per year, but CRA audits have dropped four-fold since 2010
I have been off and on ranting about this issue for years, but I never had the time or energy to determine if it was just me ranting based on my personal small sample of interactions with “charitable organizations” as a professional, or whether it was actually a thing that there are a lot of charities out there that are basically saying they are doing good when they are in fact actually just doing very well for the family behind the “business”.
So from here on in the ranting gets a little too “taxy” for normal people so normal people may want to stop reading.
Basically there are three types of not-for-profit organizations in Canadian tax law: a) not-for-profits; b) private foundations; and c) public foundations.
Not-for-profits are not charities and therefore cannot issue charitable receipts for donations. Not-for-profits can’t be charities because their activities do not fall under the “four heads of charity”: religion, education, health & medical, relief of poverty and general charitable purposes. Those who were counting would note that there are five, but that last one is impossible to get approved by the CRA so it does not exist. So your kids’ sports teams asociation is not-for-profit because it is not considered any of the above. It also causes issues with organizations like PEN, which protects journalists, and lobbies for freedom of speech, because it is not a charity. The group that advocated for physician-assisted suicide is also not a charity because it is a lobby group.
However “lobby groups” that focus on “education” about some issue, and do lots of support of academics and publish reports are charities because of their educational activities. Whether this is what people want and which entities should be charities and whether we should change the definition of charities vs. not-for-profit is a rant for another day.
The “real” charities are either private foundations or public foundations. Public foundations are the types of charties that you would normally think of the Red Cross etc. To be a public foundation you have to have a board of directors, the majority of which are independnt of the organization itself; i.e. the majority of the directors do not also work for the charity nor are related to people who run/work for the charity. They also have to be audited every year by a CPA, so that that money does not disappear.
However, and this is the key issue, PRIVATE CHARITIES do not have to have either of the above. The person who runs the charity as an employee can be chairman of the board, and their spouse and kids can be on the board and no one else. And there is no need for an auditor…. regardless of how much money they receive or purportedly spend on “charity”. However, private charities have to spend 90% of their charitable receipts issued on charitable things. So basically the executive director can pay themselves whatever they want, and pay their family members whatever they want, and there is no internal audit and the CRA is not auditing…. and even if they did audit and find something wrong, all they can do is revoke a charity’s standing. They can’t force fraudsters to give the money back to charity!
So you can see where this is going. The private foundation sector in Canada is rife with abuse and no one is watching. It is an absolute freaking mess and no one is doing anything about it. No one seems to care, anyone who complains about is seen as being “mean” because they “hate the poor”! When in fact many of the private foundations are only relieving poverty one family at a time…
And I always knew I was right but now I actually know. And now so do you.
Thank you for enjoying this entirely a-political, purely educational and FYI, rant.