Charity Begins with Fairness: More to Explore  

An examination into the fairness of the audit process for registered charities in Canada

When the Minister of National Revenue requested that I open this examination, I recognized the seriousness of the allegations being made by some charities. Registered charities touch the lives of Canadians in several ways. They advance education and religion, relieve poverty, and can benefit the public in many other areas.

From the beginning, my Office and I understood that many were very interested in hearing about our findings. We knew that there were specific concerns expressed by some Muslim-led charities about their treatment by the CRA, so we took the time to listen and deepen our knowledge.

To carry out a fair and impartial examination, we intended to validate all claims with facts. We met with stakeholders, including representatives of charities and the CRA, and we received procedural documents, employee training materials and many other relevant documents from the CRA.

Based on the information we examined related to unconscious bias training at the CRA, we found several areas that could be improved. For example, we found that much of the internal CRA training sessions on unconscious bias did not focus on decision making and that the available training was largely voluntary.

Unfortunately, beyond unconscious bias training, we encountered several challenges that prevented us from accessing information. These challenges resulted from administrative decisions and legislative constraints preventing the CRA from sharing confidential and taxpayer information without the taxpayer's consent.

Because of the incomplete information available to my Office and the lack of authorities provided in the Taxpayers’ Ombudsperson’s Order in Council, our examination was not as comprehensive as hoped. We were able to make some observations but unfortunately could not examine the issues deeply enough to make any assessment of the existence of bias in how the CRA applies its processes.

It is clear that additional powers would have provided us with more access to the information we needed to conduct a comprehensive examination in this case. For example, we could have been given additional powers under section 6 of the Inquiries Act. While these powers may not have eliminated all of the constraints in this particular examination because of some of the limitations related to national security information, I am confident that there are solutions that will allow us to conduct future examinations more comprehensively. As this examination currently stands, although my Office used all available resources to carry out a complete and fair examination into this issue, there remains more to explore.

During the last decade, there have been countless acts of Islamophobia and antisemitism in Canada. On January 29, 2017, a terrorist attack in a Québec City mosque left 6 dead and 19 wounded. On June 6, 2021, another terrorist attack was carried out against a Muslim family in London, Ontario. It left four family members dead and another in serious condition. Following these senseless attacks, a motion was put forth in Parliament to convene a National Action Summit on Islamophobia. It received unanimous consent. In July 2021, the Government of Canada held two National Anti-Racism Summits, one on antisemitism and the other on Islamophobia. They provided Canadians with national platforms to discuss ways to combat racism and discrimination. 

On July 22, 2021, at the National Summit on Islamophobia, the government heard from members of the Muslim community about their experiences, including the sometimes-deadly impact of hate-fuelled violence. The Right Honourable Justin Trudeau, Prime Minister of Canada, also spoke to community members and expressed that institutions of the Government of Canada, from the CRA to national security agencies, should support Canadians, not target them. 

The summit provided Muslim communities with the opportunity to “identify concrete ways to enhance federal efforts to combat Islamophobia.” Members of these communities presented recommendations, including calls for the government to review and amend legislation, provide additional support to victims, and examine some of the activities of national security agencies. Some of those recommendations called for reform at the CRA, specifically at the Review and Analysis Division (RAD). The basis of these recommendations was laid out in two reports published months earlier, one from the International Civil Liberties Monitoring Group and the other from the University of Toronto Institute of Islamic Studies. Both reports allege that the CRA’s audit process is biased against Muslim-led charities. 

The Honourable Diane Lebouthillier, Minister of National Revenue, was one of the speakers at the summit. The Minister of National Revenue is accountable to Parliament for all the CRA’s activities. During her speech, she acknowledged that the CRA could do better and explained that she would ask the Taxpayers’ Ombudsperson to conduct a systemic study addressing the concerns expressed by Muslim-led charities. 

In a letter to the Taxpayer’s Ombudsperson in August 2021, the Minister set clear expectations on what she wanted him to examine. She asked that the Ombudsperson carry out a study of the concerns raised by Muslim-led charities, paying particular attention to:

1. the selection of files for audit by the RAD
2. the quality of services provided to organizations that are audited by the RAD
3. the efforts made by the CRA to make its employees aware of the unconscious biases that they could foster and that would help perpetuate discriminatory behaviour toward charities run by racialized communities

She also asked the Ombudsperson to:

• meet with charities led by racialized communities
• clarify the CRA’s role and responsibilities in relation to the other stakeholders involved in protecting national security, all while ensuring that a fair and impartial service is offered to Canadians

On August 5, 2021, the Ombudsperson opened the examination. Then on December 16, 2021, the Prime Minister reinforced his support in his mandate letter to the Minister. He asked that she support our Office’s study to address the concerns of charitable organizations so that no equity-deserving organization is subject to bias. 

Our Office is guided by four principles, the last two of which will be explored in more detail in the context of this examination.

To help understand the purpose of the audit process for registered charities, we will look at how charities are regulated and the requirements for them to maintain their registration. 

The relationship between tax and charities pre-dates the creation of Canada. Many of the advantages provided to registered charities, and those who donate to them, are what set them apart from businesses and non-profits. 

As “Canada’s tax incentives for charities are among the most generous in the world,” it is understandable why registered charities are regulated by law. 

The CRA carries out many responsibilities for the Government of Canada, including the administration of tax laws and regulations as well as the common law rules relating to charities. It does this through its Charities Directorate. This Directorate, in essence, acts as the gatekeeper, registering only the organizations that qualify, preventing the registration of those that do not, and revoking the registration of the ones that no longer qualify. The Charities Directorate is also responsible for: 

• reviewing applications for registration as a charity, registered Canadian amateur athletic associations, registered national arts service organizations, registered journalism organizations and other qualified donees
• providing information, guidance and advice on maintaining registered status
• ensuring that registered organizations comply with registration requirements through a balanced program of education, service, and responsible enforcement
• developing policy and providing information, communication, and education programs
• engaging with the charitable sector, other government departments, and other levels of government
• supporting the CRA’s role in combatting the financing of terrorism in support of the Charities Registration (Security Information) Act

While there are many requirements for becoming registered as a charity and maintaining registration, it all starts with having exclusively charitable purposes. This means that each purpose of an organization must be connected to one of the following categories:

1. relief of poverty
2. advancement of education
3. advancement of religion
4. other purposes beneficial to the community in a way the law regards as charitable

In addition to having exclusively charitable purposes, a charity must carry out activities to further those purposes. Activities such as those contrary to public policy as well as providing undue benefits to members or conducting illegal activities would prevent them from being registered as a charity.

Once registered as a charity, an organization gains many privileges. These include being exempt from income tax and being able to issue tax-deductible donation receipts.

However, with privileges, come many obligations, including filing an annual information return.

There are also limitations imposed on charities once registered. These include not supporting or opposing a political party or candidate or carrying out activities that are illegal.

In Canada, the CRA is the federal regulator for income tax purposes for registered charities. In many other countries such as the United States, France, and Belgium, regulation of charities is largely undertaken by their tax administrations. However, some countries do not follow this model. For example, in the United Kingdom, Australia, and New Zealand, charities are regulated by dedicated bodies that are independent from the tax administration, with their own administrative and operating considerations and resources. In some countries, legislation specific to charities has been put in place and has provided a legislative environment that may permit more data to be shared with the public. 

The audit process for charities consists of four main stages:

With our Office’s principle of independence in mind, we took the time to listen to all sides, deepen our knowledge, look at the facts, and identify any potential opportunities for the CRA to improve its service to Canadians. To make our examination comprehensive, we: 

We reached out to charities to get a demographically diverse sample of the ones who experienced the audit process. We did so by publishing a news release and sending a questionnaire. After contact, we requested consent from the charities in order to access their CRA files.

For example, we asked the CRA to identify why specific charities, those advancing religion or operating outside Canada, were selected for audit and how they were audited as well as if it could confirm and provide what resources Charities Directorate employees reference in the audit selection process and if it cross-references individuals or organizations associated with registered charities. The CRA indicated that it would not provide this information to us because it would be sensitive information that details:

• how it assesses risk
• its audit techniques

Audit techniques and how the CRA assesses risk are recognized exemptions under the Access to Information Act, as they could provide insight into how to circumvent its compliance activities and in turn undermine and potentially jeopardize the CRA’s compliance efforts. In addition, the CRA indicated that information included in a charity’s risk assessment may include national security information, which the CRA could not disclose without partner permission.

The CRA also pointed to the exemptions in the Access to Information Act that allow it to refuse to disclose this information. While the CRA did provide its policies, procedures and templates that inform its audit selection, including its risk indicators for charities and examples of them, it did not demonstrate how it applies them to assess whether or not a charity should be audited. Even when we had received consent from a charity to access their taxpayer information, the CRA redacted information that detailed why this charity was screened for audit and how it planned to carry out the audit.

Without access to specific charity risk assessments, our Office was unable to see examples of how these considerations would have applied to a real file or examples of information that would have informed the selection of an audit in particular.

The CRA elaborated that it considered our Office to be independent, providing us with the same access that a director of a charity would have.

The CRA also advised that, even with consent, it would be inappropriate to review files where an active appeal was underway because of the risk of influencing the recourse decision. 

While there were many challenges that prevented us from carrying out a complete examination, there were areas that we could assess, draw conclusions from, and ultimately make recommendations about. Our access included:

• CRA policies, procedures, and risk indicators
• redacted copies of notices of intention to revoke, sanction, or penalty
• charity records available to the public
• some charity records when we had permission from the charity
• the CRA’s intranet site
• CRA employees
• CRA presentations and briefings 

We met with the CRA to express the need to access a random selection of charity files. Specifically, we explained that we needed this access not only to validate the application of the policies and procedures but also to reach sound, fact-based conclusions. However, no solutions were found that would both protect taxpayer privacy per all applicable Canadian laws and support the integrity of the examination process by providing the information we needed.

However, the CRA made efforts to assist us with our examination. In addition to the access that we had, the CRA provided a substantial amount of documents and resources:

• over 2000 documents totalling 2.5GB
• 12 presentations on its processes and training
• employee interviews
• access to senior executives and subject-matter experts
• opportunities for open dialogue

With more than 86,000 registered charities, Canada’s charitable and non-profit sector is substantial. According to Statistics Canada, in 2021 the sector represented 8.7% of Canada’s Gross Domestic Product in 2019 and the first quarter to fourth quarter 2020. 

Charities represent the backbone of Canadian society. Canadians have been relying on the charitable sector to address the needs of its diverse population. The contribution of charities to the social well-being of Canadians is undeniable. Canadians from all backgrounds rely on services such as:

Canadians recognize the value charities provide. This is likely the reason that Canadians are among the most charitable people in the world, helping strangers, donating money, and volunteering their time. Canadians give more than $14 billion annually. 

The CRA details on its audit process for charities web page that a charity can be selected for audit for various reasons, some of which include:

• random selection
• referral from another area of the CRA
• complaints from the public
• articles in the media or other publicly available sources
• review of specific legal obligations under the Income Tax Act
• information from their Form T3010, Registered Charity Information Return
• follow-up on a previous compliance agreement

The CRA informed us that the information on its web page is outdated and inaccurate. For example, the CRA no longer selects charities for audit based on random selection. However, it also indicated that it is working to publish new content

In addition, the current web page does not identify that it is high‑risk non‑compliance that could result in selection for an audit. This may be why some charities expressed reluctance to expand their activities because of the increased exposure; the CRA’s web page indicates that they can be selected for audit based on “articles in the media or other publicly available sources.”

The CRA has assured us that charities should not be apprehensive about being in the media. Although reassuring our Office is reasonable, the CRA should do the same for Canadians when it updates its web page. Further, there might be some value in implementing educational initiatives to advise charities that expanding their operations, including outside Canada, or being featured in the media will not make them subject to an audit when concerns are not present.

An assessment to see whether a charity should be audited can start when the CRA receives or finds information of concern. This is referred to as a lead. There are three ways the CRA’s Charities Directorate receives leads:

• internally, from another area of the CRA
• from the public, through the Leads Program
• from law enforcement and partner agencies

The CRA indicates that all leads come through the CRA’s Leads Program, which is separate from the Charities Directorate, with the exception of the RAD, which maintains some leads outside of the Leads Program. Therefore, we determined that it would be prudent to examine if there were any steps within this process that could impact the fairness of the audit process.

The Leads intake officers explained that they primarily check whether organizations are registered as a charity and, if so, generally send the lead to the Charities Directorate. However, the Charities Directorate also provides officers with a procedural document that outlines guidelines about what types of allegations can be received by the Charities Directorate. This procedure features a list of standard probing questions to guide the officers to gather relevant information from the member of the public who is calling to report suspected non-compliance by registered charities.

The lead information gathered by the officer is captured and forwarded to the Charities Directorate, where a screener assesses whether a non-charitable activity has occurred against the charity requirements for registration and the provisions of the Income Tax Act.

We found the information was not detailed enough to assist Leads intake officers with gathering detailed information on the alleged non-compliance activity being reported by the public. The information includes examples of what would be considered a lead, such as “undertaking non-charitable activities.” However, the information provided to Leads intake officers does not include what is and what is not a charitable activity. In addition, although Leads intake officers told us that they generally only check whether a charity is registered before forwarding the lead to the Charities Directorate, there appears to be some discretion provided to them, as we were informed that any lead that is not forwarded to a specific division is placed in a searchable inventory^{Footnote 2} .

In addition, we found the information provided by the Charities Directorate to the Leads Program was challenging because it identifies “activities outside Canada” as an example of a lead. This could potentially mislead the Leads intake officer. Further, many charities carry out activities outside Canada to provide vital humanitarian aid to people around the world. Identifying this as an example of a lead is concerning because engaging in activities outside Canada does not necessarily indicate non-compliance. The CRA should take this observation as an opportunity for it to review and update the information it provides to Leads intake officers as guidance to make it accurate and informative.

The Charities Directorate indicates that if a lead contains information that shows that non-compliance may have occurred, it will further risk-assess the case to determine the risk level and the required compliance treatment. A case that is determined to be high risk will advance to the next level, which is audit. The decision to audit is made by the Charities Directorate as a result of an analysis of available documents and information. This decision is recorded in the screening sheet that is used to inform the auditor of the concerns and indicators leading to the selection of the case or file for audit. Although this process is useful for effectively managing resources, there is the possibility that bias could be formed. Because the officer identifies potential non‑compliance on the screening sheet, the auditor could be biased from the onset. However, it may not impact how an audit is carried out because the CRA indicates that there are many reviews that would mitigate potential bias. In addition, auditors we interviewed indicated that, while they need to address the concerns on the screening sheet, they must always perform a thorough audit. Therefore, the process may not impact how an audit is carried out. Without access to the full picture, we were unable to assess the impact the screening sheet had on an audit.

Outside of the information about the CRA’s risk assessments on the leads it receives, we were provided with very little information on how the CRA determines which charities should undergo a risk assessment when a lead is not involved. However, we were advised that there are some routine activities that could lead to a charity undergoing a risk assessment, such as a follow-up on a compliance agreement; a review of Form T3010, Registered Charity Information Return; or a post-registration review when concerns were identified at registration. 

Following an audit, there are many possible outcomes:

1. Clean letter: The CRA sends this when an audit finds a charity to be compliant.
2. Education letter: The CRA sends this when an audit finds a charity is mostly compliant, but there are areas of concern that the CRA could educate the charity on to be compliant.
3. Compliance agreement: The CRA sends this when it finds non-compliance, but the charity is willing to take specific actions to remain compliant.
4. Sanctions (financial penalties, the temporary suspension of the charity’s tax-receipting privileges, or both): The CRA can take this action when it finds there is serious or repeat non-compliance.
5. Revocation of charitable registration: The CRA can take this action when it finds there is serious non-compliance.
6. Annulment or voluntary revocation of the charity’s registered status: The CRA may close an audit with this action in rare cases.

Generally, we heard from charities that the CRA’s audit findings were sound. However, some charities expressed that there was a double standard, where certain charities may have their status revoked while others may just enter a compliance agreement. CRA officers must use judgment when making decisions because no two cases are alike and there are different types and levels of non-compliance; therefore, without access to files, it is difficult to assess if these claims have a basis in fact. While we did have access to compliance action approach letters for charities who were penalized, suspended, or had their registration revoked, they were redacted, and we did not have access to the supporting documents that informed the decisions in the letters. We were limited to the same access that any member of the public would have. 

During our examination, we heard from charities that, once an audit was started, it could take years to conclude. This was confirmed after reviewing compliance action letters for charities that had their registration revoked in the period we examined. However, to more fully understand this we needed to review the files individually.

In Canada, there is no statutory time limit for when an audit must conclude after it is started. Audits can last several years. The length can be problematic when the organization’s activities are fundamentally illegal and contrary to Canadian public policy or when the public wants the CRA to take action immediately. In addition, if an audit takes years to conclude, it can interfere with the charity and can divert its attention from its charitable activities.

We are mindful that the CRA makes significant efforts to collect data and report on it for many of its programs. However, it appears that with registered charities, the CRA has certain information but does not make full use of it. For example, at initial registration, the CRA analyses the applicant’s purposes and activities, among other information, and assigns a category code and sub-category code. The codes reflect the most prevalent category of charitable purposes that the charity is furthering, but it also goes one step further. For example, for a charity that is advancing religion, the CRA may identify the religion that is being advanced, and for a charity that is advancing education, it can identify the method, such as research or teaching. If a charity changes its purposes or activities over time, its category code is not automatically updated; the CRA will only change the category code at the request of the organization or when an error occurs.

That said, this presents challenges because the two codes may not reflect all of a charity’s activities. For example, a charity may predominately relieve poverty by providing food to people in need, but it may also advance religion by teaching religious tenets. In this example, the CRA would only categorize the charity based on the most prevalent activity; it would assign the category code for organizations relieving poverty.

The CRA indicates that the category codes are not used in the analysis of the file but may be useful for donors and other stakeholders because category codes allow the public to search for an organization to donate to by category.

Because an audit’s outcome can have severe consequences, audits are not something many would want to be subjected to. This is especially true for charities, whose ability to carry out many of their activities is heavily tied to the tax privileges that registered charitable status provides. Stakeholders we interviewed repeatedly expressed the anxiety, stress and sometimes frustration they experienced during the audit process, even when they perceived themselves to be compliant. Some were obviously exasperated and others displayed strong emotions in the course of the interviews. 

On one side, the Canadian charitable sector provides essential services to the many equity-deserving groups. On the other, the CRA in its role as the regulator works to protect the integrity of the sector by ensuring charities are not abusing the system. That said, a charity’s non-compliance can lead to serious consequences for the charity, such as financial penalties, suspensions and, most severe of all, revocation. These consequences can put the affected charity in a precarious financial position and prevent it from being able to operate properly to support its beneficiaries. Some organizations we interviewed expressed how seriously their charity’s operations were affected after their registration status was revoked as a result of an audit.

For example, a charity can be suspended or subject to penalties for the following non-compliance: 

• It does not keep proper books or provide them when requested by the CRA. This infraction can lead to a suspension of its tax-receipting privileges.
• It issues receipts when there is no gift or when the receipt contains false information (when the total penalties exceed $25,000). This is punishable with a 125% penalty on the eligible amount stated on the receipt and a suspension of tax-receipting privileges. 

As the most serious consequence for non-compliance, the revocation of a charity’s registered status has a drastic impact on the charity’s operation, as it will no longer qualify for exemption from income tax and will not be able to issue official donation receipts. In addition, the charity name as well as the reason for revocation will be published in the Canada Gazette and in the list of charities publicly available on Ca-ciconline.com, it will no longer be a charity for GST/HST purposes, and it will have to pay a revocation tax. The tax is equal to 100% of the value of all assets remaining after the charity has paid all its debts. Charities can reduce the amount of the revocation tax if their assets are used for charitable activities or paying debts, or if they transfer them to an eligible donee during the revocation period. The revocation period starts the day after the CRA issues Form T2051A, Notice of Intention to Revoke a Charity’s Registration, and ends one year later. 

Revocation also results in the charity losing provincial tax benefits. For example, in Ontario registered charities can get a tax rebate of 40% of the provincial and territorial land tax and education tax payable on an eligible property they occupy in one of the commercial or industrial classes. A revoked charity in Ontario will not be able to benefit from that tax rebate. One organization we interviewed shared how their organization was affected when they lost the tax rebate following their revocation and how they continue to struggle to survive and meet the needs of the people who rely on them.

The Minister’s request for us to open this examination included direction to look at the CRA’s efforts to make its employees aware of the unconscious biases that they could foster and that could perpetuate discriminatory behaviour toward charities run by racialized communities. Such behaviour could affect registered charities and diminish the public’s confidence in charity-related compliance activities.

In this section we will look at what we heard from stakeholders and the efforts of the CRA, and specifically the Charities Directorate, to make its employees aware of their unconscious biases.

In our interviews with charities, legal representatives, and other stakeholders, we were told unconscious biases may influence some of the actions taken by CRA employees. We were also told that when the CRA identifies its concerns in administrative fairness letters, these letters appear to be drafted carefully to avoid overtly biased statements, but charities and authorized representatives allege bias regardless. It was also expressed that there should be no discriminatory behaviour from the CRA towards any racialized community.

The Canada School of Public Service offers courses on unconscious bias that are available to all CRA employees. Starting in July 2021, the CRA began offering an unconscious bias workshop. The workshop builds awareness and supports the creation of a safer space for employees to have conversations about racism and discrimination. This includes supporting employees in learning more about their own unconscious biases and challenging their own assumptions.

In the Minister’s request to open this examination, she asked us to clarify the CRA’s role and responsibilities in relation to the other stakeholders involved in protecting national security, all while ensuring that a fair and impartial service is offered to Canadians.

In this section, we will discuss what we heard from stakeholders and look at the pivotal events that led to the CRA’s involvement with national security, how it fulfils this role and the importance of these factors. We did not reach out to many government organizations responsible for protecting national security beyond the CRA for information, so this section only provides an overview and relies primarily on publicly available information.

As part of our examination, we spoke with charities, legal representatives, and other stakeholders. One organization indicated that it is not always clear when the CRA may be relying on intelligence from the national security community. Others also told us that, because of the CRA’s involvement with national security, charities may fear an audit is part of a larger national security or law enforcement investigation. 

On May 25, 2015, a former Director General of the Charities Directorate, told the Standing Senate Committee on National Security and Defence that “the risk of terrorist exploitation in the non-profit and charitable sector has been recognized by the international community since the late 1990s.” However, the CRA has not always been a part of Canada’s national security framework, even though, according to Air India Flight 182, A Canadian Tragedy, Volume Five, Terrorist Financing, “some charitable organizations in Canada and elsewhere have long been suspected of helping terrorists by raising and helping to move funds.”

It was certain events that shook Canadian communities, and those of our allies, that lead to the evolution of our security and intelligence systems.

Two days later, member countries of the G7 rededicated themselves and sought the support of the international community “to thwart the activities of terrorists and their supporters, including fund-raising, the planning of terrorist acts, procurement of weapons, calling for violence, and incitements to commit terrorist acts.” This led to a pilot program within the Charities Directorate looking at terrorism financing.

After the events of September 11, 2001, the United Nations Security Council quickly approved a resolution on September 28, 2001, to suppress and prevent terrorist acts and their financing. Subsequently, the Government of Canada introduced Bill C-36, also known as the Anti-terrorism Act, which led to amendments to the Criminal Code, the Canada Evidence Act, and the Proceeds of Crime (Money Laundering) Act, among other acts. This bill received royal assent on December 18, 2001. Part 6 of the Anti-terrorism Act led to the enactment of the Charities Registration (Security Information) Act, which came into force on December 24, 2001. Through the Anti-terrorism Act, the CRA became a partner “in the government’s Anti-Money Laundering and Anti-Terrorist Financing Regime.”

This led to the creation of a dedicated team within the Charities Directorate that was conducting intensive screening and reviews of applications for charitable registration and providing information disclosures to the Canadian Security Intelligence Service (CSIS) and the Royal Canadian Mounted Police (RCMP).

The RAD assists and receives information from national security partners, mainly the RCMP and CSIS. It contributes through working groups to the Government of Canada’s national security and intelligence policies and also provides technical support to international bodies that combat terrorism financing, such as the United Nations and the Financial Action Task Force.

That said, the CRA does not work alone. It is part of Canada’s anti-money laundering and anti-terrorist financing regime, which includes 13 federal departments and agencies:

The CRA indicates that the anti-money laundering and anti-terrorist financing regime is administratively managed by the Department of Finance Canada, but its policy and legislative framework, including its committee structure, is co-led with Public Safety Canada, which is the legislative lead for national security policy and specifically terrorism. As part of the regime, the CRA may receive information from CSIS, the Financial Transactions and Reports Analysis Centre, the RCMP, and other national security partners. If potential terrorism financing risk could affect a registered charity, or if there are concerns with an application to become registered as a charity, then the RAD becomes involved. The RAD then independently assesses this information to inform decisions about whether additional actions need to be taken.

If the RAD becomes involved, a risk assessment is performed to determine what action will be taken. If there is significant evidence of a terrorism financing risk, the RAD will conduct an audit. If the RAD’s audit uncovers an issue, it may take compliance action against the implicated charity. The CRA indicates that the severity of the compliance action is directly related to the degree of non-compliance by the charity with respect to Canada’s laws and regulations. Compliance actions carried out by the CRA stop charities from being used to funnel funds to terrorist entities domestically or abroad.

While the RAD does not perform criminal investigations when administering the Income Tax Act to protect the charitable sector from abuse, it can share information with law enforcement and national security partners to prevent threats to national security beyond its charity-focused mandate. 

How the CRA identifies and evaluates terrorism financing risks is related to international accords, such as those outlined by the Financial Action Task Force (FATF). 

One of the assessment’s identified risks was the high risk of abuse for registered charities operating in proximity to terrorist threats. This also extended to registered charities operating abroad and in Canada “within a population that is actively targeted by a terrorist movement for support.”

The report explains how funds from a registered charity intended for legitimate purposes could be abused. For example, a charity could raise funds for a legitimate charitable purpose, such as humanitarian relief. These funds could then be redirected away from the intended purpose toward terrorist entities.

In the report, the “T[errorism] F[inancing] threat was assessed for the groups and actors that are of greatest concern to Canada,” and “actors associated with 10 terrorist groups and foreign fighters” were identified. Opinions in the public domain express that this leads to audits of specific racialized charities more than others, in particular Muslim-led ones. While the CRA has not confirmed that Muslim-led charities are audited more frequently, it did indicate during an appearance before the Standing Senate Committee on Human Rights on November 28, 2022, that “you could reach the conclusion that many of the organizations that are listed in the National Inherent Risk Assessment do come from racialized communities.” The CRA further indicated during this appearance that “in [the CRA’s] specialized program in [the] RAD, we are driving off of the National Inherent Risk Assessment” and that “if we see a charity that is linked to a threat actor, as outlined in the National Inherent Risk Assessment, that will be a flag for us and something we will look into further.” That said, the CRA indicated to us that it looks into all threat actors as they arise, rather than exclusively choosing those outlined in the National Inherent Risk Assessment, as threat evaluations change as needed.

We have been advised that due diligence is done to ensure that the CRA is addressing the current threats. However, we also understand the impact its actions can have on charities from racialized communities, as they could be more vulnerable to being abused. 

Canadians, including racialized communities, as well as the CRA and charities share a common goal: to keep Canadians and communities around the world safe. The CRA does this by ensuring compliance in Canada’s charitable sector so that Canadians’ funds are not being used to finance terrorism. National security is an important mandate of the CRA; therefore, it must ensure compliance to maintain trust in the tax system. By carrying out appropriate compliance actions, the CRA can make sure not only that Canadians pay their fair share of taxes but also that charities are using their resources to carry out charitable purposes, while at the same time preventing charitable resources from being used for malicious actions. 

For us to have comprehensively examined all the areas identified by the Minister, we would have needed authorities not specified in the Order in Council. For example, one option for a more in-depth examination could have been to temporarily appoint the Taxpayers’ Ombudsperson as a Commissioner under section 6 of the Inquiries Act. With this appointment, our Office could have expanded authority, which may increase our access to information. While this option would take time to implement, it could assist us in navigating around many of the constraints, both legislative and administrative, that are in place.

However, parts of this examination were linked to national security, which our Office generally does not touch on. Therefore, for this examination, additional authorities may not have eliminated all of the constraints. Nevertheless, for future examinations into issues related to our Office’s mandate, it would be beneficial if we had increased access to CRA information, including taxpayer information, when warranted.