New Consultations: Modernizing Tax Rules for Charities

Evelyn Jacks

As the last remnants of a scrumptious Thanksgiving weekend subside, it is appropriate to take a look at the health and issues surrounding the charitable sector in Canada.  Serendipitously, the federal government is seeking your views on how the tax rules for registered charities and the Canada Revenue Agency’s (CRA) administration of these rules could be modernized.  A new consultation was launched on October 8 and here’s what the government wants to know, by December 3, 2026:

The Backdrop. Canada’s charitable and non-profit sector contributes about $244 billion to GDP, according to Statistics Canada, representing about 8.4 per cent of Canada’s total GDP, and is a significant source of employment.  In fact, it supports more than 2.5 million jobs in our country.

The Income Tax Act provides for a number of lucrative tax benefits including the Charitable Donation Tax Credit for individuals and for corporations, a charitable donation deduction. Canada’s tax incentives for charitable donations, in fact, are amongst the most generous in the world.  Understandably, the government is concerned about safeguarding the tax system by ensuring the donated funds are actually used for charitable purposes.

The Registration Process for Charities.   The statistics about the size of the charitable sector are interesting.  In the 2025-26 fiscal year, the CRA received 3,077 applications for registration as a charity, and 79% of them were approved in this period. Less than 1% of applications were denied; about 8% were abandoned, about 4% were withdrawn and incomplete applications amounted to just over 8%.  

Amongst the questions posed in the consultation: is CRA’s guidance on qualifications and registrations understandable, and how can this be improved?  Is the online registration process easy and if not, what are the key problems? Are letters explaining the CRA's decisions clearly explained and understandable to charities and should reasons for decisions be more transparent? How can incomplete applications be better facilitated?

Digitization Efforts.  Despite the availability of digital services, in 2025-26, just under 31% of T3010 Registered Charity Information Returns were submitted electronically.  The government wants to know your views on why. 

Specifically, is the My Business Account is simple and user-friendly? What are the barriers to digital uptake and what support, training, guidance or other services from the CRA would help? How can charities and the CRA work together to ensure that charities' contact information remains accurate and up to date and how can CRA expand the reach of its communications, including the charities newsletter, to ensure charities and their directors stay informed about regulatory, policy, and legislative changes?

The T3010, Registered Charity Information Return.  The government wants to know how it can better support online filing of returns by charities.  It wants to better understand the challenges charities face  in completing the return accurately and completely. And in particular, what challenges are contributing to late or missed filings, and how can the CRA help?  Are there elements of reporting frameworks internationally that Canada should consider adopting?

Audit Activity.  In 2025-26, the CRA completed 227 audits of registered charities and in most cases, an education letter was issued to the registered charity to correct errors or omissions. There were only 52 revocations of charitable status as a result of an audit. Nonetheless the government wants to know what additional steps the CRA could take to strengthen voluntary compliance, improve confidence in procedural  fairness and consistency and help charities better understand and meet their obligations?  Are there opportunities for collaboration?

As important, is the CRA's current level of oversight of registered charities sufficient to support public confidence in the charitable sector?  To that end, should CRA be more proactive in publicizing the results of charity audits where it identifies serious non-compliance? What additional information should be available and at what stage of the audit process to increase transparency?

Objections Process.  Statistics gathered over the past five fiscal years (2021-22 to 2025-26) illustrate how important the opportunity for appeal of a negative audit outcome has been.  After an objection, the original decision was upheld about 21% of the time.  The decision was overturned 22% of the time.  But most telling:  over 50% of objections were determined to be invalid.

This bears further scrutiny.  The government cites this example:  if an organization filed an objection after having its charitable status revoked for failure to file their annual return, and subsequently re-applied for registration, the CRA would consider an objection invalid if the charity was successfully re-registered after filing.

The end result?  The government feels that the objections process provides charities with a meaningful opportunity to have decisions reconsidered, while also ensuring that only valid objections proceed through the formal review process.

However, from resource point of view, is this process necessary or too expensive, considering how few valid objections are actually received?  Can problems be solved at a different level or by tweaking processes to better engage and help charities file their returns on time, for example?

Penalties & Revocation.  The consultation paper notes that a charity whose registration is revoked not only loses its tax-exempt status and its ability to issue charitable donations receipts, but must also disburse its remaining assets on its own charitable activities or as gifts to arm's length registered charities, generally within one year, or face a 100% tax on any assets remaining.

In 2025-26, 1,219 organizations had their registration revoked for failure to file their information return.  Yet in the same period approximately 30% re-applied for registration. The questions:

• Should the revocation tax continue to be able to be reduced by disbursements to other charities?
• If yes, should the rules be tightened to prevent disbursements to closely related or newly established entities?
• Should the CRA continue to revoke organizations for failing to file their information return or should it instead use monetary penalties or have the ability to suspend an organization's registration to encourage organizations to file?
• Should re-applying for registration be more limited?

Bottom Line. If you’d like to weigh in on the consultation, do so by December 3, 2026.  Also check out the MFA-P™ designation program in strategic philanthropy.  This important program can be a critical credential in serving the economic powerhouse the charitable sector is.