Charity leaders are breathing a little easier after the Canada Revenue Agency said Friday it would not require charities to provide more detailed information for so-called internal trusts in their annual tax filings. 

“It’s a big relief,” said Bernadette Johnson, director of advocacy for Imagine Canada, the charitable sector’s largest association, which had been pushing for clarity on the issue for months.  

The concern stemmed from legislation passed in December 2022, which amended the Income Tax Act to require additional reporting on trusts to combat tax evasion and other financial crimes. 

While the legislation exempted trusts that qualified as charities, it did not explicitly exempt so-called internal trusts, such as donor-established scholarship funds, some donor-advised funds, and other donor-restricted funds. 

Johnson said that some community foundations, hospitals and universities have hundreds of these funds, dating back many years. 

Charities increasingly feared that beginning in January, they’d need to provide the government with information on these trusts they couldn’t quickly obtain, such as the date of birth of long-deceased donors. 

Some also feared the new requirements could hamper future fundraising efforts, as the legislation would have required charities to provide the government with some donors’ social insurance numbers. 

But Friday’s CRA update will bring these worries to a welcome close, Johnson said. 

CRA’s late notice causes extra work

While charities are gratified the reporting requirements won’t apply to internal trusts, the timing of CRA’s clarification meant some had already invested hours into understanding the implications of the new rules. 

The Alberta Cancer Foundation was operating as though the regulations would soon take effect, said Kirk Schmidt, director of fundraising optimization. 

“We’re proceeding as if it’s going to be a thing because we simply can’t do this at the 11th hour,” he said before the announcement, speaking on his own behalf rather than as an organizational spokesperson.

“Until I get that confirmation, I think it’s irresponsible for us not to begin work and begin planning for it.” 

The same was true for the BC Children’s Hospital Foundation team, where staff connected with colleagues across the country and engaged with their local elected officials, trying to understand the potential ramifications of the new legislation, according to CEO Malcolm Berry. 

Charity lawyer Terrance Carter said while most organizations were “holding their breath” waiting for news from the federal government, he was also aware of one large national accounting firm that had begun work to prepare their clients for compliance. 

Issue highlights need for ‘home in government’: charity lawyer

Johnson said part of the challenge in getting clarity from the government was a logjam between the CRA and the Department of Finance. 

In the summer and fall, Imagine Canada and other organizations working on the issue spoke with staff in both parts of government who said charitable internal trusts would not be subjected to the new rules. However, each said it was the others’ responsibility to resolve the issue formally, Johnson said. 

CRA staff said the matter could be solved through a Department of Finance legislative amendment, while staff at Finance said CRA could clarify the issue, she added. 

In October, less than three months before the new legislation was to take effect, Imagine Canada issued a joint letter to Minister of Finance Chrystia Freeland and the Prime Minister’s office with Community Foundations of Canada and Philanthropic Foundations Canada, stressing the lack of clarity was causing charities to squander tight resources for compliance.  

A week later, Johnson’s organization met with staff from Minister Freeland’s office to continue pressuring the case. 

While ultimately, their advocacy efforts paid off, Johnson said the delay in notice on this issue highlights the sector’s need for a government branch with a mandate to support the sector beyond its relationship with CRA’s charities directorate.

“We work with charities directorate, and they’re very nice people, but it’s not their job or mandate to help the sector through enabling policies,” she said.

“They’re tax auditors. They’re there to administer the Income Tax Act. They’re not there to enable organizations to succeed — that’s not their mandate.”

Asked about the delay in notification, CRA spokesperson Kristy Taylor said reaching the decision was “highly complex” and involved “a number of consultations both within the CRA and multi-departmentally.”

In British Columbia, there’s a parliamentary secretary for the non-profit sector. In Australia, the federal equivalent of CRA has a mandate to regulate but also to promote the sector, according to Imagine Canada.

If the sector had a home in the federal government, there would be a place for charities to go to share the impact of the legislation the Department of Finance created, Carter said. 

“If ever we wanted proof positive of why we need it, this shows it,” he said.

Editor’s note: This story has been updated to include a response from the Canada Revenue Agency.

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