PEN Canada now in the crosshairs of Canada Revenue charity audit team

If you wondered whether the flying squad set up at Canada Revenue Agency to target charities for overstepping the allowable amount of political activity is close to the magazine business and journalism, think no longer. The Canadian Press reports that CRA has in its sights PEN Canada, which champions freedom of expression at home and abroad. It is perhaps best known for highlighting imprisoned journalists and writers around the world, but in the course of its work it has been highly critical of the Harper government and its policies. 

Two tax auditors showed up Monday morning at the tiny Toronto offices of PEN Canada, asking to see a wide range of internal documents. 

PEN Canada's president, Philip Slayton, says the tax agency gave notice of the audit two or three months ago, and that the group is "fully co-operating."

The federal government built an item into its budget in 2012 to finance special teams targetting charities such as  Amnesty International Canada, the Canadian Centre for Policy Alternatives, Environmental Defence, Canada Without Poverty, and the David Suzuki Foundation, although the CRA says it receives no direction from the government or the cabinet. 

A number of charities have said that they are feeling a distinct "audit chill", made worse by the fact that the possible loss of their charitable status hangs over them like a Damoclean sword, sometimes for years. The PEN Canada audit could take a year or more. 

Charities are permitted to spend up to 10 per cent of their resources on political activities, based on a 2003 government policy, though they cannot endorse any party or candidate.Slayton says PEN Canada has abided by the rules, but there are grey areas. 

Slayton said that the wave of audits raises the question of whether charitable status is worth having:

 "I refuse to let it have a chilling effect on us, We are not going to have some kind of fear — about having our charitable status questioned by authorities — stop us speaking out on issues ...If it means you have to live in fear of the revenue authorities, and if it means that there are things you want to say, you feel you should say, but you feel you cannot say because of the rules, well then, what price charitable registration?"

Canada Revenue inviting publishers to comment on charitable guidance document

The Canada Revenue Agency's charities directorate is inviting public comment on its proposed Guidance on Arts Organizations and Charitable Registration. The deadline for such comments is January 12, 2012.

This appears to be a genuine opportunity for arts and cultural magazine publishers and magazine organizations regionally and nationally to influence the way the charities directorate interprets the law as it relates to charitable registration in Canada. While it requires some work, the effort may (we say, may) be repaid with greater clarity.

The application and interpretation of the Income Tax Act and various related common law decisions over more than a century has often resulted in decisions that are opaque and infuriatingly arbitrary. 

One not-for-profit literary or cultural magazine might get charitable status while another, very similar, publication is denied, even though any sensible citizen would declare that both meet the requirements of being involved in "educational" activities of public benefit. (They are most certainly not in business for the money....) The ability to give charitable tax receipts to individual and corporate donors can make a significant difference to fundraising success.

From time to time, magazines or their foundations with existing charitable status even have to defend themselves from attempts to withdraw the status. And some magazines have had an expensive, multi-year struggle to achieve charitable registration.  The CRA has always maintained that every application is judged on its own merits and that none are precedents for others. The proposed guidelines may go some way towards better defining the rules, so the language and its interpretation is very important.

Part of the problem is that there is no specific rule book, no law of charity in this country and interpretations and rulings are made within the charities branch in what often a giant game of "Guess what we're thinking." The fact that a 21st century magazine can see its charitable status denied on the basis of an 1891 decision from Britain can cause considerable gnashing of teeth. 

Magazines urged to review new charitable fundraising rules

Changes to rules and procedures at the Canada Revenue Agency (CRA) should be carefully reviewed by magazines who have charitable status or are associated with a separate organization which does, according to a bulletin just released to its members by Magazines Canada.

As part of its crackdown on charities who spend too high a proportion of their fundraising revenue on expenses, CRA) is red-flagging returns that show more than 35% fundraising expenses. CRA has re-defined what is a fundraising expense. For instance, marketing or costs associated with a store (presumably physical or online) that sells items for charity will now be counted towards the 35% ceiling. While this is unlikely to affect those who are already charitable, it may affect magazines looking to get charitable status in future, the bulletin says. And, good advice at any time, it is recommended that a magazine that is puzzled about this should take legal advice.

For the magazine to get charitable status in the first place, CRA would have had to agree that it has a charitable and educational purpose and that it is not an unrelated side business for the larger charitable organization. Those rules have not changed and so it seems unlikely that any of the current magazines will suddenly be reclassified...

Additionally, if the magazine is being delivered for its own sake and not as a means of further solicitation of support, it will likely be considered a good that serves the beneficiaries and not as a fundraising vehicle. As such, costs associated with producing the magazine would not be considered fundraising costs.

However, if a charitable magazine is being used primarily as a gift for donations or as a vehicle for fundraising instead of having an "educational" goal, that magazine should be wary and a formal legal opinion should be sought.

In other words, an organization that says "Give us a donation and we'll give you a magazine subscription" could be courting trouble, while a magazine that says "Subscribe to our magazine and, by the way, we are supported in part by a separate charitable organization." will probably be OK.

The basic problem for magazines is that, under the antiquated rules of the CRA, for a magazine to get charitable status it must have an "educational" rather than a "commercial" or "information" goal and this designation is subject to interpretation that is sometimes murky and illogical. As has been said before in this blog, there needs to be a realistic review and renovation of charitable law in this country to reflect the reality that many small, not-for-profit magazines should be allowed to have charitable status according to a modern, common sense definition.

Related posts:

• Will cultural mags be able to meet the CRA fundraising benchmarks? (July 09, 2008)
  
• Not necessarily charitable (February 17, 2006)
• Comment about charity status (October 31, 2005)
• Good news, maybe, we'll see (September 28, 2005)

Will cultural mags be able to meet the CRA fundraising benchmarks?

Not only does the Canada Revenue Agency make it hard for small, not-for-profit literary and cultural magazine publishers to qualify for charitable status, now it is considering a new program that may make life more complicated even for those who do manage to qualilfy.

According to the the Ontario Non-Profits Network (ONN), CRA is proposing to monitor and audit charities on the cost of fundraising as a percentage of the funds raised. Government and other grants are excluded, this is just tracking the funds raised in return for a charitable receipt.

The Ontario Non-Profit Network (ONN) is participating in the consultation with Imagine Canada, the Association of Professional Fundraisers and the Health Charities. At ONN, we are particularly concerned about the potential impact on small and medium sized charities - specifically, the difficulty in tracking and accounting for time spent on charitable fundraising as distinct from other fundraising and the proposed benchmarks on the cost of fundraising which we feel are too low for smaller charities. These proposed guidelines could adversely impact smaller charities and newer charities.

ACTION: If you know your cost of raising charitable receipted donations, want to be included in the ONN survey, or if you have time to examine the CRA documents and have concerns, we want to hear from you: info@ontariononprofitnetwork.ca

The proposed policy and supplementary information are on the CRA website. The consultation period ends August 31. Submissions should be sent to consultation-policypolitique@cra-arc.gc.ca

Related posts:

• Not necessarily charitable (February 17, 2006)
• Comment about charity status (October 31, 2005)