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Charity Filing and Compliance Obligations: The CRA Has Checklists to Help

The CRA Charity Directorate provides a number of fairly comprehensive and easy to read checklists relating to various responsibilities associated with operating a registered charity. These can be particularly helpful as a reminder for individuals who are involved (employee, volunteer, or even Board Member) with a charitable organization. For example, clear guidance is provided on what is required to be included on a donation receipt for both cash and non-cash donations.

Provided checklists include: Basic guidelines, Activities, Books and records, Receipting, Spending requirement, T3010, Legal status, Changes, GST/HST, and Terrorism.

The Checklists can be found at https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/checklists-charities.html.

If participating as a Board Member with a charitable organization, it may be useful to encourage or require use of these checklists by staff or volunteers.


Operating a Business in the U.S.: The IRS is Targeting Smaller Foreign Entities

The IRS has recently noted that they are rolling out campaigns to focus on entities below the “big fish” that have historically been targeted. Such campaigns include:

  • Related party transaction campaign – a redefined focus on mid-market entities to determine compliance with U.S. transfer pricing requirements.
  • Inbound distributor campaign – reviewing whether S. affiliates distributing imports from other countries are realizing adequate returns based on their assets, risks assumed, and functions performed.
  • Form 1120-F non-filer campaign – targeting corporations (the IRS believes there are many) with a S. permanent establishment or branch which have not filed U.S. income tax returns. The IRS indicates external data sources will be used to identify these companies, commencing with a “soft letter outreach”. There is no indication of any amnesty, meaning penalties and interest are likely for Canadian corporations which have not complied with any U.S. filing obligations.

 

If operating as a mid-market business in the U.S., be prepared for the possibility of more scrutiny from the IRS.


Support of Refugees: Tax and Filing Requirements

Two Technical Interpretations (May 26 and March 3, 2017) considered whether support provided to a refugee would be required to be reported on a Form T5007, Statement of Benefits.

Essentially, the CRA considered whether the support would constitute “social assistance” which would require a T5007. If the amount is not considered “social assistance”, no T5007 would be required.

CRA opined that amounts would be considered “social assistance” if provided by a government or government agency, or other organization such as a charity (the “source” test”) and the payment is made on the basis of one of the following (the “purpose” test):

  • an “income” test, which is based solely on the income of the applicant;
  • a “means” test, which is similar to the income test but also takes into account the assets of the applicant; and
  • a “needs” test, which not only takes into account income and assets but also financial needs of the applicant.

 

Social assistance payments should be reported on Form T5007, unless a specific exclusion applies (related to, for example, medical expenses, child care, legal fees, job training, or funeral expenses). Also, payments that are paid in a series that total less than $500 need not be reported on a T5007.

While CRA opined that, for example, support provided by a church would likely constitute “social assistance”, support provided by an individual would not constitute “social assistance”. A review of the specific facts should be conducted to determine the filing obligations.

Further, if the amount is considered “social assistance” the amount must be reported on a tax return. While a deduction may be available, such that no tax may be owing on the amount, certain other income tested benefits such as the Canada Child Benefit may be affected. If the taxpayer had a spouse or common-law partner when the payments were received, the individual with the higher net income must report all of the payments, regardless of whose name is on the slip.

 If you are involved with supporting refugees, consider whether you or your group should be issuing a T5007 slip to the recipients of the support.


Tax Tip: tuition tax credit extended

The tuition tax credit has been extended to include courses at a post-secondary educational institution that are not at a post-secondary school level. This may include, for example, courses on basic literacy or numeracy, or learning a second language.