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Recently the Canada Revenue Agency (“CRA”) released a report summarizing the results of its three year non-profit organization risk identification project (“NPORIP”). During the course of this project, which started in 2009, the CRA reviewed 1,337 randomly selected files of approximately 30,000 organizations that claim a tax exemption under the Income Tax Act (the “Act”) and file a T2 corporation tax return, a T3 trust tax return, or a T1044 non-profit organization return. Based on the report there appears to be a significant gap between how the CRA expects an NPO to be organized and operate and what they observed happening in the NPO sector.
The NPORIP was designed to provide the CRA with an understanding of the issues faced by organizations claiming an NPO tax exemption in complying with the requirements of the Act. The report highlights a number of areas where the non-profit sector’s understanding of the law differs from that of the CRA and has revealed several significant compliance issues. These include:
• Organizations earning profits that were not incidental or not related to their non-profit objectives;
• Organizations with disproportionately large reserves, surpluses, or retained earnings; and
• Organizations where income is payable or made available for the personal benefit of a proprietor, member, or shareholder.
In the CRA’s opinion many organizations would not actually qualify for the NPO tax exemption and would need to be reassessed if they were audited outside the purview of the NPORIP. In most cases this would result in a tax cost to the organization.
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