Two Canada Revenue Agency initiatives designed to help charities and donors cope with the increased complexities of charitable giving are being applauded by tax advisors.

In the first initiative, the CRA is making up to $2 million available to charities and non-profit organizations during the federal government’s 2007 fiscal year ending March 31. The funding, to be used to develop and deliver training and education to registered charities, will be given out under the new charities partnership and outreach program. (Applications for program funding are due by Dec. 22.)

The two main goals of the outreach program are:

> to educate charities so they operate in compliance with CRA rules governing fundraising, issuing of receipts and maintaining books and records; and,

> to ensure charities conduct any foreign activities in a compliant manner.

Under the second initiative, the CRA has developed detailed Web pages geared toward helping donors contribute to charities safely and effectively. The pages provide access to information about which charities are registered for charitable-giving purposes; they also set out information on tax benefits, donation receipts and charity regulation. Advisors can direct clients who are charities or donors to the main Web page, www.cra-arc.gc.ca/tax/charities//donors//menu-e.html.

“The charities directorate of the CRA recognizes that the regulatory system has become quite complicated,” says Susan Manwaring, partner and chairwoman of the national charities and not-for-profit group at Toronto law firm Miller Thomson LLP.

The rules governing charities and donors have become increasingly complex over the past four years.

In late 2002, for instance, Ottawa introduced new rules to govern receipts issued by charities for donations. Charities generally are required to deduct from donation receipts the value of any gifts they give to donors in appreciation for the donors’ contributions. This is called “split-receipting.”

Confusion over split-receipting rules sparked a British Columbia court case known as Richert v. Sewards’ Charitable Foundation. Businessman Harry Richert accepted an invitation to a luncheon to raise money to fight AIDS in Africa. He donated $1,000, but his receipt was not for his full donation. The costs of the lunch ($45) and a coffee-table book about Africa ($100) had been deducted from his receipt.

He was so incensed by the deduction that he forced the foundation to defend itself all the way to the B.C. Court of Appeal. The court ruled against Richert, saying that the charity acted in reasonable compliance with income tax law.

The CRA’s education program and Web site should help charities and donors avoid the confusion that sparked Richert.

Free education via the CRA’s outreach efforts will be especially welcomed by smaller charities that don’t have the staff to sort through the complex rules that govern them. “They’re out feeding the homeless,” says Manwaring. “They don’t want to be worried about the new disbursement rules.”

The CRA’s educational initiatives seem to reflect a CRA desire not to impose penalties “too, too soon,” says Sandra Enticknap, a lawyer in Miller Thomson’s Vancouver office who is also a board member of the Vancouver branch of the Canadian Association of Gift Planners.

If a charity is not compliant, this does not necessarily mean that it is “skirting the rules,” says Manwaring: “There are a lot of questions about compliance with which many charitable organizations grapple.”

In the 2004 federal budget, Ottawa softened its policy of revoking the charitable status of a charity that has breached CRA compliance rules. It brought in lesser penalties, such as a $500 fine for late filing of T3010, the annual information return form.

Manwaring says one of the difficulties that charities face is filling out their T3010s, which are “very complicated.” She says the emphasis on foreign activities is part of the post-9/11 concern that charities are being used to raise funds for overseas terrorist groups. Canadian charities can conduct overseas activities or work in partnership with foreign charities, but they are not allowed simply to hand over cash.

About $1.4 billion in charitable funds flows out of Canada each year, says Enticknap.

Marina Pangourias, senior manager at Deloitte & Touche LLP in Toronto, says donors can check to make sure they are donating to a true charity before they donate.

Also, there should be fewer problems created by a charity being incorrectly named in a will, says Enticknap. If the name of a charity is inaccurate or vague, the executor has to make a court application, which costs the estate money. IE

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