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NPO Audit Project - CRA Stops Issuing "Education Letters" - by Bernice Marien and Grant McDonald 

Canadian Tax Adviser

 

August 14, 2012

 

Bernice Marien
Ottawa, Canadian Corporate Tax

 

Grant McDonald
Ottawa, Office Managing Partner

 

The Revenue Minister has informed the Canadian Chamber of Commerce (Chamber) that the CRA is no longer sending "education letters" to certain non-profit organizations (NPO) that it has audited under its risk identification project. In a letter dated August 2, 2012, the Revenue Minister notes that this action is a result of the Chamber's concerns that these education letters were negatively affecting NPOs. The CRA is also asking NPOs who have already received such letters and are unclear about their purpose to contact the Director of their local tax services office.

Background
The CRA has undertaken a three-year "NPO risk identification project" to audit about 1,500 NPOs. This project is meant to give the CRA and Finance a "better understanding" of the issues faced by NPOs, evaluate compliance by NPOs, and "serve as an educational tool for NPOs". By the end of the project, which is expected to be completed in the fall of 2013, it is expected that the CRA will have reviewed 1,440 NPOs (out of the 39,000 entities claiming tax exemptions under paragraph 149(1)(l)).

 

As part of the project, the CRA sent an education letter to some NPOs that it audited stating that they are in breach of the Act, and urging them to make adjustments in their activities in order to comply with the law. For example, the CRA sent a letter to a golf course stating that it does not consider it to be an NPO.

 

In its letter to the Revenue Minister, which KPMG Canada helped to prepare, the Chamber urged the CRA to stop issuing education letters, as they may have a negative effect on NPOs and could, for example, lead to the resignation of volunteer board members over potential liability concerns. The Chamber also expressed its view that "it is inappropriate for the [CRA] to make these kinds of suggestions in advance of any Parliamentary debate about modernizing the legislation".

 

"Education letters" moratorium
In its response to the Chamber, the Revenue Minister states that the CRA has stopped issuing education letters as of March 23, 2012, and that its auditors will be given new procedures in carrying out the project.

 

The CRA posted a "clarifying" statement on its website advising NPOs that may be unclear about the purpose of an education letter to contact the Director of their local tax services office for further information. The Minister's letter also notes that Jim Gauvreau (Director General, Small and Medium Enterprises Directorate) has volunteered to serve as a contact.

 

For more information, contact your KPMG adviser.

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