New spending rules for charities and flexible enforcement powers for CRA.

OTTAWA -- Newer and clearer spending rules are being applied to registered charities under the amendments to the Income Tax Act. At the same time the Canada Revenue Agency's Charities Directorate has acquired stronger and more flexible means to enforce the laws affecting operations of registered charities.

All registered charities (both charitable organizations or foundations) must now meet the same distribution rules. They must spend at least 80% of the funds, for which they issue donor receipts on charitable activities or on gifts to other charitable organizations. Previously, this requirement only applied to foundations and now applies (with some exceptions) to charitable organizations.

Charities registered since March 22, 2004 must now spend 3.5% of the value of property not being used on charitable activities or administration on charitable activities or as gifts to other qualified charities. Charities can apply capital gains from endowments to meet the 3.5% rule. Only property with a value of more that $25,000 will be covered by this rule.

This same rule will apply to all charities in the taxation years that begin after 2008.

A Registered charity is now required to file an annual return with the Canada Revenue Agency, no later than six months after the organization's year-end. Failure to file will subject the charity to a $500 fine and revocation of registration.

Previous to the amendments CRA had only one drastic sanction to enforce the law--revocation of registration. Now the Agency can apply other intermediate sanctions such as fines or suspension of the ability to issue official donation receipts to promote compliance.

Sanctions may be imposed for:

* failing to file a return;

* issuing receipts with incomplete or misleading information;

* failing to keep proper books and records;

* carrying on unauthorized business;

* providing undue benefits; and

* inappropriately transferring funds.

CRA'S Appeals Branch will review decisions made by the agency's Charities Directorate on matters such as denials, revocations and annulments of charitable registration; and sanctions. Beyond that CRA rulings can be appealed to the Tax Court of Canada and the Federal Court of Appeal.

Official donation receipts must now have the name Canada Revenue Agency and the agency's website address www.cra.gc.ca/charities imprinted on them.