It seems that everywhere we turn, not for profits and charities are being put under more and more scrutiny. Whether this is warranted or not remains up for debate but rest assured, this level of oversight is not about to let up any time soon.
While some of the scrutiny is well-known at this point, there are other new measures lurking on the horizon. These will be frustrating and will cause organizations to expend valuable time and energy in order to comply.
Below is a summary of the recent requirements that are now in effect, and a new area (potential changes to accounting standards) that is making its way through the system.
Canada Not for Profit Corporations Act – Deadline fast approaching
As readers are aware, federal charities and not for profit corporations have until October 17, 2014 to file their Notice of Continuance documents or face potential dissolution. At last check, only about 30 percent of organizations had completed their filing! To encourage organizations to ensure they meet the deadline, Corporations Canada has recently begun to make courtesy calls to those organizations that have yet to file. If you have not filed, you can expect to get one of these calls in the near future.
Ontario Not for Profit Corporations Act – Delayed
After much hype and activity, the ONCA has been further delayed due to the June provincial election. Present expectations are that this legislation will not come into effect until 2015 at the very earliest and more likely not until 2016.
Canada’s Anti Spam Legislation – Comes into effect July 1, 2014
The much-maligned federal legislation covering commercial electronic messages (CEMs) comes into effect in just three weeks. The impact on not for profits could be profound with the need to re-subscribe their email distribution databases, eating up time and potentially resulting in drastically smaller distribution lists. With three years to become fully compliant, and potentially huge penalties for non-compliance, this legislation will be something to pay attention to.
Canada Revenue Agency (CRA) - Not for Profit Risk Identification Project
Launched in 2009, this project looked at 1,337 not for profit organizations that were claiming tax exemption status, to determine if their activities were in compliance with the rules. The results of this project were released earlier this year. A large number of the organizations were found to not be in compliance with the Act, primarily due to engaging in activities that were deemed to be for-profit. While CRA states that they have always allowed not for profits and charities to earn a profit, that profit must be incidental to and must result from activities that contribute to the primary purpose of the organization.
What this means going forward is that we can expect CRA to be more vigilant in cracking down on charities and not for profits that are showing substantial surpluses on their financial statements.
Some of the things that may trigger a CRA audit of a not for profit or charity include:
While not connected directly with the Risk Project, here are some other potential CRA audit triggers for a charity:
Accounting Standards for Not for Profit Organizations – Potential Changes
We suspect that no one is aware of this initiative. We believe it has the potential to cause some major headaches for not for profits and charities, including sport organizations.
In 2012, all organizations actually underwent a change in accounting processes, which most people outside of employees in the accounting department, bookkeepers or auditors probably didn’t notice.
Now, there is a movement afoot to further change the ways that organizations record and report their finances. Financial Reporting and Assurance Standards Canada has been working with its international counterparts to realign the reporting requirements of not for profits and charities so that there is greater comparability between organizations both nationally and internationally. Some of the proposed changes will have significant impacts on financial statements. Unless the proposed changes are amended, they are expected to come into effect in 2015.
Some of the more critical changes currently being recommended are:
Other changes to the standards are also in the works with respect to arms-length organizations and consolidated financial statements.
As we said at the beginning, the microscope under which not for profits and charities find themselves is likely to only get stronger over the coming months and years.
If you have any questions about any of the above changes, please feel free to contact Kathy Hare at KEH@sportlaw.ca