Non-profit organizations like clubs must file an annual information return with the Canada Revenue Agency, even though they are tax-exempt.Sarah Palmer/The Globe and Mail
Allan Lanthier is a retired partner of an international accounting firm and has been an adviser to both the Department of Finance and the Canada Revenue Agency.
My friend Beverly belongs to a knitting club in Vancouver. Once a month, her group gets together at a pub to knit, share techniques and socialize.
Imagine Beverly’s surprise when I told her that, starting next year, her club must file an annual information return with the Canada Revenue Agency, describing the club’s activities and providing other information such as the name and address of each of its directors and officers (it has none) and its financial results for the year (it doesn’t have those, either). No, this is not a joke: It is just another example of how out of touch the tax experts in Ottawa have become.
Under our tax code, a non-profit organization is exempt from income tax even if it is not a registered charity. An NPO is a club, society or association that is operated for any purpose other than profit, such as pleasure or recreation. For example, private golf clubs are NPOs and tax-exempt. So too, says the CRA, are groups such as bridge clubs, bingo halls, knitting groups, sports organizations (an old-timers’ hockey league would be one example) and festivals such as a Santa Claus parade. But even though an NPO is tax-exempt, it may have a filing requirement.
An NPO must file an annual information return if it has more than $10,000 of investment income or $200,000 of assets. The government now says it will extend this requirement to NPOs that have no income or assets at all. Why? To increase transparency, it says. The government apparently wants to have a complete picture of all NPOs in Canada, including Beverly’s knitting club.
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This type of reckless intrusion into our personal lives is nothing new: It comes on the heels of another fiasco involving information returns – that one for so-called “bare trusts.”
A bare trust means a person has legal title to a property but holds it for the benefit of the “true owner” – someone who controls it and is entitled to all its earnings. In 2023, Ottawa decided to add a reporting requirement for bare trusts to help combat tax evasion and money laundering. Did it really believe that criminals who evade tax would report that fact on an information return?
In its exuberance, Ottawa lost sight of the real world. Parents may add their name to the legal title of an adult child’s new home to help secure a mortgage. Or a child may have their name on the banking and financial accounts of an elderly parent. In both cases, there is a bare trust and a reporting requirement, even if there isn’t a penny of tax owing. And these are just two examples of many.
At the 11th hour – just days before the filing deadline, and after tens of thousands of Canadians had paid professional fees and filed the trust returns – Ottawa said the requirement to file would be waived as it tried to fix the rules. In August, Ottawa released some modifications to the rules. While many problems remain, the CRA says it is now full steam ahead.
How did we get to this sorry state? Canada has a self-assessment tax regime: People are required to report the amount of tax they owe and can be in serious trouble if they don’t. Increasingly, however, taxpayers must also report their arrangements even if there is no tax owing at all, with penalties for simply failing to file a government form.
What the CRA will do with all this information is anyone’s guess. It already has difficulty answering taxpayer calls: The union representing CRA employees says that fewer than 5 per cent of taxpayer calls to call centres are answered and, earlier this month, Finance Minister François-Philippe Champagne gave the CRA 100 days to clean up its act.
But the problems at the CRA run deep. The agency has grown from 40,000 employees in 2015 to a bloated 52,000 today. In budget after budget, the government allocates more taxpayer dollars to the CRA with a view to assessing and collecting tax revenue. It has become clear to tax practitioners that, while the new CRA hires may harass ordinary taxpayers like you and me for charitable donation receipts or proof of child-care expenses, they often lack the expertise, training and oversight to take on sophisticated tax-avoidance schemes. And that’s where the money is.
It is time to bring some sanity to bear. From information returns to call centres to tax audits, we need some discipline and leadership. Over to you, Prime Minister.