Tax filing traps for not-for-profits

Many not-for-profit organizations (NPO) overlook their tax reporting obligations — and face steep penalties as a result. Tell us about tax issues you’ve seen that NPOs should know about.

While most Canadian NPOs pay no taxes, they still need to make tax filings if they meet the tax law’s criteria. But with their tight resources and reliance on volunteers’ time, many overlook their obligations. Instead, they end up using funds to pay late-filing penalties that could be put toward their organization’s goals.

Form T1044 NPO Information Return filings are frequently missed, for example. Registered charities don’t have to file the form, and many people dealing with NPOs’ affairs don’t realize that the form is due for NPOs having either more than $10,000 in revenue from certain investment income or more than $200,000 in assets at the end of the previous year. These thresholds mean only the smallest NPOs are exempt. Even if the NPO doesn’t meet them in the year, T1044 forms are still due each year if the NPO has ever filed the form in the past.

The penalties for not filing the form by the filing deadline (six months after the NPO’s fiscal year-end) can be up to $25 per day and run from at least $100 and up to $2,500 per late filing. Lately, tax practitioners tell me that the CRA has increased its enforcement of these penalties.

Also commonly missed are Form T2 Corporate Income Tax Return filings, which are due each year from incorporated NPOs just like any other corporation. NPOs that have deemed themselves to be non-taxable under the income tax rules are still required to file T2s as tax-exempt entities. I hear the CRA has been asking some NPOs to catch up with their missed filings for a number of years.

While reminders from the CRA would be helpful, the CRA currently does not have a process to track the data to know which NPOs are behind in their filings or which NPO’s have never filed (as they do with charities where the CRA has granted their status and can follow up with late filers). As CPAs volunteering for or advising NPOs on tax matters, we can play a big educational role to help NPOs steer clear of penalties and stay onside with their T1044 and T2 reporting.

LEAVE ME A COMMENT

I want to hear from you. Have you had experience with filing errors and penalties? Do you have suggestions for the CRA on how to improve compliance for this sector? What other wrinkles in the tax system for NPOs should volunteers and advisers watch out for? You can keep the conversation going by posting a comment below.

NOTE: The $10,000 revenue threshold for filing Form T1044 applies to revenue from passive income only. Incorrect information appeared in an earlier post due to a technical error.

Chartered Professional Accountants of Canada (CPA Canada)’s Tax Blog is designed to create an exchange of ideas on tax policy and practice issues, and their impact on those who practise tax. Your comments can provide helpful input into the public interest advocacy positions developed by CPA Canada.


About the Author

Gabe Hayos, FCPA, FCA, ICD.D

Vice-president, Taxation, CPA Canada

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