TAXTRAPS&TIPS The increase of the ...

TAXTRAPS&TIPS

The increase of the third sector in Canadian society has brought increasing complexity to the financial management of not-for-profit organizations. With the two regulatory bodies and the public demanding more accountability, the reputations and operations of these organizations must be beyond reproach. If you're a CA involved with non-profits-whether as an advisor or as an employee-the following areas are worthy of review:

GST

Dealing with the dutifuls & Services Tax as it relates to not-for-profits is single in kind of the most misunderstood and confusing issues for the philanthropic sector. It's also a true risky area, as directors can be held personally liable for unremitted GST Make trustworthy GST is being filed fitly and on time. Canada Customs and income Agency (CCRA) issues a number of administrative materials in this area including a GST Guide RC4081 for Non-Profit Organizations.

It frequently happens that a not-for-profit organization has difficulty determining whether an audit is necessary or whether a non-audit original of engagement is more suitable (and perhaps les costly) If this issue isn't addressed in the bylaws or articles subordinate to which the organization is constituted, you may have to investigate further.

The organizations board and management must weigh the ne to provide information against the costliness of providing a certain breadth and stillest part of information. Historically, most not-for-profits had audits performed if a number of stakeholders were involved. More not long ago however, in response to a decrease in donations, many not-for-profits have become more mindful of the bottom line and have sought ways to make less expenses. Shifting from an audit engagement to a review engagement is common way to cut costs, on the other hand you'd be well advised to discuss the issue with the organizations legal interchange of opinion before doing so-the bylaws and membership may not allow for it.

Many not-for-profits have had of the rarest kind difficulty in the area of income tax reporting, because of a vast array of reporting requirements. a certain quantity of organizations may not have to report at all, more [i]or[/i] less may need corporate tax answers (if they're exempt organizations), others may ne registered charity responds and still others may ne non-profit information reporting reverts And, just to make things a little more complicated, more [i]or[/i] less organizations may be required to use more than common of these types of get backs Be sure to thoroughly research what signs of income tax reporting requirements apply to the not-for-profit for which you're providing services.

Registered charities and foundations repeatedly run into problems with disbursement quotas. CCRA establishes these quotas to make secure that charitable organizations disburse a portion of their incomes each year. one charities find it difficult to befitting these quotas, either because they've tried to stake aside funds for certain large capital expenditures or because they've discovered they're spending too a great quantity [i]or[/i] amount of money on non-qualifying activities. It's important that you take the time to work with your client or board to make fast they adhere to the disbursement methods With proper planning, problems can be avoided.

Publicly traded securities and capital gains

You may move into this situation either with' a client you're advising or with donors to a not-for-profit. Giving a gift of certain publicly traded securities can provide tax benefits to Canadian taxpayers that halve the normal amount of the capital gain inclusion. This may influence more [i]or[/i] less taxpayers-who would otherwise make cash donations-to opt to donate publicly traded securities for the built-in capital gain.

Donation variations

We're frequently asked about the donation receipts issued for services performed for a charity, for the contribution of used items, or for tickets to an result sponsored by a not-for-profit organization. The answers to these donation-related questions are shielded in a variety of CCRA publications. You can also visit the CCRA website at www.ccta-adrc.gc.ca for more information.

Financial statements

The financial statement reporting for not-for-profit organizations has changed dramatically athwart the past few years. greatest in number organizations indicate that once they understand the recent format completely, they find it far more useful than the previous single But bear in mind that until they do understand the fresh format, directors and members will ne more detailed explanations in the reporting.

A final note

Despite about of the potential tax traps of working with third sector organizations, our firm has really be delighted withed working with many not-for-profit organizations athwart the years.

Working with these kinds of organizations inflicts you in touch with many worthy causes and gives you the opportunity to suitable enthusiastic and committed community leaders.

Rob Watts, CA, is the Managing Partner of character Benson, Chartered Accountants in Vancouver.

Copyright Institute of Chartered Accountants of British Columbia Jun/Jul 2002

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