Can the CRA Revoke Your Charity's Status? How to Protect It

For many charity board members, the mere thought of losing their charitable status is close to a nightmare.

Without it their charity can’t issue tax receipts for donations. That removes one of the biggest incentives for donors to give to the charity. Without charitable status, donations are certain to dry up, and the charity may well have to close its doors.

Unfortunately, losing charitable status is more common than most boards realise. And in most cases it was completely (and easily) preventable.

Fortunately, in most cases it is also reversible, sometimes in a matter of months (assuming you handle everything promptly and correctly).

I’ve devoted most of my career to helping charities across Canada, and have seen just about everything under the sun. If you’re facing charity status revocation, or simply want to ensure that your charitable status is rock-solid, feel free to reach out for a consultation.

In this article I want to walk through what actually triggers revocation, what it costs an organisation when it happens, and the handful of habits that keep your status safe.

The most common trigger is the simplest one

If there is one thing that ends a charity's registration more than any other, it is not fraud and it is not scandal. It is a missed deadline for filing. By far the most common reason charities lose their status is simply failing to file the annual T3010 return.

The return is due six months after your fiscal year-end. The CRA does not treat that deadline as a suggestion. If the return does not arrive, the agency begins the revocation process on its own. A notice of intention to revoke usually follows within a few months, and the registration can be gone within about a year of the date you missed.

What makes this so painful is how quietly it unfolds. Many boards do not realise anything is wrong until a donor mentions that their receipt was refused, or a grant application is turned down because the charity no longer appears on the CRA's public list. By the time anyone notices, the damage is usually done. 

The reassuring part is that the fix is dull and entirely within your control: file your T3010 on time, every year, without exception. No one ever decides to stop being a charity. The deadline simply slips during a busy season, or in the gap between one volunteer treasurer and the next, and the consequence ends up wildly out of proportion to the mistake.

The other triggers

Failing to file the T3010 is the big one, but it is not the only way to lose your registration. The CRA can also revoke a charity that has drifted away from what it is meant to be doing. A few patterns come up again and again. 

The first is improper donation receipting. A charity cannot issue an official donation receipt for someone's services, for an amount larger than the true gift, or to a person who was not actually the donor. The receipt is the privilege at the very heart of charitable status, so the CRA pays close attention to how it is used.

The other triggers tend to involve a charity straying from its purpose or its people. Revocation can follow when an organisation

• stops devoting its resources to genuine charitable work
• confers an undue private benefit on a member, director, or insider
• makes gifts to organisations that are not qualified donees
• slides into serious and repeated non-compliance with the rules

The thread running through all of these is the same. The CRA expects a charity to operate as a charity: for the purposes it registered, with its resources flowing to the work, and with records that can prove it.

What revocation actually costs

It would be easy to assume that revocation just means dropping back to being an ordinary non-profit. The reality is considerably worse than that.

First, you lose the power to issue donation receipts, and for most charities the funding starts to dry up almost at once. You also lose your exemption from income tax, so an organisation that never had to think about tax is suddenly taxable. Including property tax!

Then there is the revocation tax, which catches almost everyone off guard. In broad terms, it can equal the full value of everything the charity has left after its debts are paid, unless those assets are transferred to another registered charity within the wind-up period. A charity that has carefully built a reserve over the years, or that owns its own building, can find that entire value on the line.

Re-registration is possible, but it is not automatic, it takes time, and it carries a penalty. While you wait, you cannot operate as a charity. How serious all of this becomes depends on why you were revoked. A revocation for simply missing a filing, caught in time, is usually recoverable, with the gap bridged, as I explain below. A revocation for cause is a far harder thing to come back from.

How to protect your status

None of this should keep a board awake at night, because protecting your status comes down to a few steady habits rather than constant vigilance.

Put the T3010 deadline on the calendar the moment your fiscal year ends, and treat it the way you would treat payroll or rent. Make sure more than one person knows it is coming, so it does not disappear when a volunteer moves on.

Get your receipting right, and when you are unsure whether a gift qualifies, hold off on the receipt until you have checked. Keep proper books, minutes, and records, because they are what let you show the CRA that you are doing exactly what you said you would do.

Once a year, take an honest look at what your charity actually does and set it beside the purposes you registered. And if a letter ever does arrive from the CRA, do not file it away to deal with later. Early advice very often saves a registration that would otherwise be lost.

If it has already happened: the road back

If your charity has already been revoked, take a breath. For the most common cause, a missed filing, the situation is usually far more recoverable than it first looks.

When a charity is revoked solely for failing to file, it can apply to be re-registered, and the CRA can make that re-registration effective as of the date it was revoked. In practice the registration is treated as continuous, as though the gap had never opened.

That continuity is what protects everyone. Because the charity is treated as registered the whole way through, gifts made during the gap are still covered, and official receipts for them are valid once the re-registration comes through. The revocation tax does not end up applying either, since there was no real break and no winding-up of assets.

A few things have to line up. You must file every outstanding T3010 and the financial statements for the missed years, and there is a re-registration penalty to pay. There is also a four-year window: re-register within four years and you can get this retroactive treatment, but after four years the CRA handles it as a brand-new application, with no bridging of the gap.

One practical note. While the application is pending, the charity still cannot issue receipts in real time. The clean approach is to wait until the re-registration is confirmed, then issue receipts for the gifts made during the gap.

Note that this relief is meant for honest slips: a revocation for cause, such as improper receipting, is far harder to undo. It is a back door, not a filing plan. But for a charity that simply fell behind and caught it in time, the usual ending is a quiet one, with status restored and receipts honoured.

We can help you protect or restore it

I have spent much of my career in charity and non-profit law, and questions about keeping, or recovering, charitable status are ones I have answered many times. In most cases the situation is far more fixable than a worried board fears, especially when we act early.

If your charity has fallen behind on its filings, received a notice from the CRA, or simply wants the reassurance of knowing it is on solid ground, I would be glad to help. You can book a consultation here.

Barry W. Bussey, Ph.D. (Leiden), has practised law for over 30 years. During that time, he served for ten years as Director of Legal Affairs for a national charity-sector association, appeared at every level of the judiciary, including five times before the Supreme Court of Canada, and taught as an adjunct law professor. He practises real estate, wills and estates, charity, and non-profit law in Peterborough with Bussey Ainsworth.

This article is for general information only and does not constitute legal advice. Every charity’s situation is different. Please consult a lawyer about your organisation’s charitable status.