Ineligible individuals

This guidance explains how the Canada Revenue Agency (CRA) interprets and applies the law as it relates to charities and Canadian amateur athletic associations and ineligible individuals who may pose a risk to the assets and beneficiaries of the charity or association. This guidance was developed in consultation with stakeholders in the charitable sector.

Within this guidance, we use the term registered organization for ease of reading. Registered organization means registered charities (charitable organizations, public foundations and private foundations) and registered Canadian amateur athletic associations.

The CRA appreciates feedback on its guidance. The CRA does a post-implementation review about one year after the publication of guidance and makes amendments as needed. If you have comments or suggestions on this guidance, which you want to send to the CRA, please see Ongoing feedback on existing policies and guidance.

Guidance

Reference number
CG-024

Effective date
August 27, 2014

Background

The ineligible individual provisions in the Income Tax Act came into force on January 1, 2012. These provisions give the CRA the authority to refuse or revoke the registration of a registered organization and to suspend an organization’s receipting privileges when an ineligible individual is a board member or controls or manages the organization.

Previously when organizations were revoked for serious breaches of the Act, including issuing false receipts and participating in abusive tax shelter schemes, those who were in charge when the breaches occurred could apply for re-registration and establish new entities, and the CRA could not refer to this history as part of its decision-making process. Although the new legislative provisions give the CRA the discretion to determine which organizations will be registered, and which will have their registration revoked or suspended the CRA intends to act in a balanced way, recognizing that most organizations comply with the Act’s requirements.

The CRA recognizes that people with similar life experiences may provide important programming insights into the welfare, needs, and issues of certain beneficiary communities. It may, therefore, be appropriate in some cases for an organization to welcome an ineligible individual into its operations. The onus is on the organization to explain the role and contribution of the ineligible individual if the CRA expresses concern about him or her. For example, a registered organization that provides counselling services may explain that many people in its anger-management group have been convicted of assault. As such, a board member who is an ineligible individual because of a conviction of a similar criminal offense may be integral to helping the organization in hiring staff with appropriate skills and to designing effective programs for the group.

It is also important to note that the legislation does not require registered organizations to do searches or to proactively determine whether an ineligible individual is a member of the board or controls and manages the organization. Furthermore, there will always be an opportunity to explain why it is necessary to keep the ineligible individual or to outline what internal measures have been put in place to protect vulnerable beneficiaries and assets of the organization.

When the CRA intends to take action because of an ineligible individual, it will explain how the person is an ineligible individual, the ineligible individual’s position in the organization, and why an ineligible-individual provision is being invoked. The organization will have an opportunity to respond.

The guidance that follows describes in more detail who is an ineligible individual; when an ineligible individual’s position in an organization may threaten the registration or receipting privileges of an organization; and how the CRA will use its discretion.

Generally, an individual is ineligible if he or she:

  • has been convicted of an offence:
    • related to financial dishonesty; or
    • relevant to the operation of the organization; or
       
  • was connected to an organization whose registration was revoked for a serious breach of the requirements for registration. The connection was as
    • a director, trustee, officer, or like official;
    • an individual in a position of management or control; or
    • a promoter of a tax shelter, and participating in that tax shelter caused the revocation of an organization’s registration.

Although the Act defines ineligible individual, it does not prohibit such an individual from being a director or employee. Rather, the Act allows the CRA to consider whether or not to take action in relation to a registered organization or an applicant in such circumstances.

Actions the CRA may take against ineligible individuals
If an ineligible individual: The CRA can:

made the application for the organization

refuse to register

is a director, trustee, officer, or like official of the organization

refuse to register / suspend receipting privileges for one year / revoke registration

controls or manages the organization

refuse to register / suspend receipting privileges for one year / revoke registration

 

Table of contents


A. Overview

Within this guidance, we use the term registered organization for ease of reading.  Registered organization means registered charities (charitable organizations, public foundations and private foundations) and registered Canadian amateur athletic associations.

  1. In administering the ineligible individual provisions, the Canada Revenue Agency (CRA) will ask the following questions:
  • Is this person an ineligible individual?
     
  • If so, is the ineligible individual a director, trustee, officer, or like official of the applicant for registration or the registered organization, or does he or she control or manage it, directly or indirectly, in any way?
     
  • If so, has the applicant for registration or the registered organization taken adequate steps to reduce the risk and protect its beneficiaries and assets?
  1. Since the ineligible individual provisions are in place to protect the beneficiaries and the assets of a registered organization, the CRA is particularly concerned about:
  • promoters of a tax shelter, when participating in that tax shelter led to the revocation of the organization’s registration;
     
  • individuals who were directors, trustees, officers, or like officials of, or who controlled or managed, an organization  whose registration was revoked for a serious breach of the requirements for registration, such as:
    • issuing fraudulent receipts;
    • misappropriating assets;
    • participating in abusive gifting tax shelters.
       
  • individuals convicted of a relevant offence or a relevant criminal offence related to financial dishonesty;
     
  • individuals convicted of a relevant offence or a relevant criminal offence, the nature of which indicates that they could pose a danger to a registered organization’s assets or beneficiaries.

Enforcement approach

  1. Although it does provide the authority to do so, the Income Tax Act does not require the CRA to take any administrative measures when an ineligible individual is on the board of, or controls or manages, a registered organization. The CRA will consider each case separately. When the CRA has concerns about an ineligible individual, it will give the organization an opportunity to respond before any action is taken.
     
  2. The CRA recognizes that certain beneficiary communities have a history of involvement with crime and that in some cases it may be desirable for an organization operating in such communities to welcome past offenders into its operations. These individuals can provide important insights into the welfare of the beneficiary community. For example, such may be the case for organizations involved in prisoner rehabilitation programs, drug and alcohol addiction programs, and the prevention of juvenile delinquency.

What is meant by the term ineligible individual?

  1. In general terms, the Income Tax Act describes an ineligible individual as someone who:
  • has been convicted of a relevant criminal offence or a relevant offence;

  • was connected to an organization that had its registered status revoked for a serious breach; or

  • was a promoter of a tax shelter, and participating in that tax shelter caused the revocation of an organization’s registered status.

What is a relevant criminal offence?

  1. A relevant criminal offence is:
  • a criminal offence under the laws of Canada; or

  • an offence that would be a criminal offence if it were committed in Canada.

  1. There are several factors that define an offence as criminal. In Canada, only offences under a federal statute can be criminal, since provinces do not have jurisdiction to legislate in criminal matters. However, not all offences under federal statutes are criminal.
  1. A person convicted of a relevant criminal offence remains an ineligible individual unless a pardon has been granted or a record suspension ordered, and the pardon or record suspension has not been revoked or ceased to have effect.

What is a relevant offence?

  1. A relevant offence is:
  • an offence under provincial legislation;

  • an offence under federal legislation that is not a criminal offence; or

  • an offence that would be such an offence if it were committed in Canada.

  1. Types of offences that are relevant offences for the definition of ineligible individual include, but are not limited to, breaches of:
  • charitable fundraising legislation;

  • consumer protection legislation; and

  • securities legislation.

  1. A person convicted of a relevant offence is an ineligible individual for five years starting on the date of the conviction.

What is meant by relevant?

  1. An offence is a relevant criminal offence or a relevant offence if it:
  • relates to financial dishonesty; or

  • is relevant to the operation of the organization.

Offence that relates to financial dishonesty

  1. Generally, offences that relate to financial dishonesty include offences such as:
  • misappropriation of funds;

  • intentional misstatements in financial records;

  • forgery or other alteration of financial documents; and

  • fraud.

Examples: relevant criminal offences that relate to financial dishonesty

Some sections of the Criminal Code include offences that contain elements of financial dishonesty. These may include, but are not limited to, the following:

  • Financing of Terrorism [sections 83.02–83.04]
  • Corruption and Disobedience [sections 119–130]
  • Gaming and Betting [sections 201–209]
  • Offences Resembling Theft [sections 335–342.2]
  • Robbery and Extortion [sections 343–346]
  • False Pretenses [sections 361–365]
  • Forgery and Offences Resembling Forgery [sections 366–378]
  • Falsification of Books and Documents [sections 397–402]
  • Offences Relating to Currency [sections 448–462]

Criminal offences that relate to financial dishonesty are not restricted to the Criminal Code. For example, tax evasion is a criminal offence under the Income Tax Act. Tax evasion is a relevant criminal offence that relates to financial dishonesty.

Example: relevant offence related to financial dishonesty

Ms. O was convicted three years ago for contravention of an unauthorized canvassing provision contained in a provincial fundraising act, because she engaged in door-to-door canvassing for funds, representing that the money raised was for a charitable purpose. In fact, she kept the money for herself. Because the offence relates to financial dishonesty and the conviction occurred less than five years ago, Ms. O is an ineligible individual.

Offence is relevant to the operation of the organization

  1. If a person has been convicted of an offence that does not relate to financial dishonesty, the person may still be an ineligible individual if the offence is relevant to the operation of the organization. This can be determined only by looking at facts and circumstances on a case-by-case basis, such as:
  • What is the nature of the offence?

  • What is the relationship between the nature of the offence and the operation of the organization?

Generally, an offence may be considered relevant to operations when:

  • the victim of the offence has similar attributes to the beneficiaries of the organization;

  • the operation of the organization provides an opportunity for the same or a similar offence to be committed again;

  • the organization’s operations may be at risk if the same or a similar offence were committed.

Example: criminal offence relevant to the operation of the organization

Mr. L was convicted of sexually touching a person younger than 16 years of age (sexual interference) under section 151 of the Criminal Code. As a director, he applies to register an organization that provides literacy training for at-risk youth.

The beneficiary class of the organization is the same as the victim of his crime (person under 16 years of age). The operation of the organization provides opportunity for the same or a similar offence to be committed.

In this case, sexual interference is an offence that is relevant to the operation of the organization. Mr. L is an ineligible individual.

Example: relevant offence that is relevant to the operation of the organization

Mr. P was convicted two years ago under a provincial child protection law. As a family counselor, he failed to report that he had information that a child was or may have been in need of protective intervention. He was found guilty and sentenced to a fine as set out in that law.

Mr. P is a director of an organization that operates a shelter for women and children fleeing domestic violence. Because the people the organization serves include children at high risk of needing protective intervention, the offence Mr. P was convicted of is relevant to the operation of the organization. Mr. P is an ineligible individual.

An important factor in this example is the specific organization Mr. P is connected to. If Mr. P were a director of an organization that did not provide counseling or services to children or youth, the offence of which he was convicted would not be relevant to the operation of the organization, and Mr. P would not be an ineligible individual.

Two people may be convicted of the same offence and, depending on the circumstances, one may be a relevant offence and the other may not.

Example: Is the offence relevant to the operation of the organization or not?

Both Mr. A and Ms. B were convicted of causing unnecessary suffering to an animal, under section 445.1 of the Criminal Code.

Mr. A is a trustee of an organization that operates a food bank. There is no apparent relevance between the offence and the operation of the organization, since food banks do not deal with animals. Mr. A is not an ineligible individual because the offence for which he was convicted is not relevant to the operation of the organization with which he is involved.

Ms. B is a director of an organization that operates an animal rescue shelter. The relevance of the offence to the operation of the organization is clear. The organization cares for animals and the offence has to do with animals. Ms. B is an ineligible individual because the offence for which she was convicted is relevant to the operation of the organization with which she is involved.

Connected to a revoked organization

  1. A person who was connected to a registered organization that had its registration revoked for a serious breach of the Income Tax Act is an ineligible individual. In these cases, such a person is an ineligible individual for five years from the date of revocation.
     
  2. The connection may have been as a:
  • director, trustee, officer, or like official;

  • person who, directly or indirectly, controlled or managed the revoked organization;

  • promoter of a tax shelter, and participating in that tax shelter caused the organization’s registration to be revoked.

Serious breach

  1. The CRA generally takes a graduated approach to compliance enforcement, revoking registration only when a registered organization cannot or will not comply with the requirements of the Act. For more information about the CRA's approach to compliance enforcement, go to Guidelines for applying sanctions.
     
  2. A revocation of registration is always based on a breach of the requirements for registration in the Income Tax Act. To determine whether someone is or is not an ineligible individual, the breach that resulted in revocation must be serious.
     
  3. The CRA considers any revocation resulting from an audit to be a serious breach. Some examples include revocation for issuing fraudulent receipts, misappropriating assets, or participating in abusive gifting tax shelters.  
     
  4. Revocation for failure to file an annual information return, or revocation due to a lapse in governing documents, would not normally be considered serious breaches for purposes of the ineligible individual provisions. So a director, trustee, officer, or like official, or a person who controlled or managed a registered organization whose registration was revoked on those grounds will generally not be considered an ineligible individual.
     
  5. Nonetheless, the CRA may consider repeated infractions as aggravating factors in determining whether the breach that resulted in revocation is serious.

A director, trustee, officer, or like official

  1. Usually, governing documents indicate who is responsible for making decisions for an organization. These positions may be elected or appointed. Organizations may use different titles for these controlling roles, such as director, trustee, or officer.
     
  2. A like official is a person who has governing responsibilities or authority, whether or not this is stated in the governing document. For example, a member of the clergy may have significant influence or a veto over the decisions of the board of directors of a religious organization, even if the clergy member is not a director of the organization; if that is the case, the clergy member is a like official.
     
  3. A director, trustee, officer, or like official of a registered organization during the period that the organization engaged in conduct that constituted a serious breach that resulted in revocation is an ineligible individual for five years from the date of revocation.

Example

In 2009, the CRA audited Organization X for the years 2007 and 2008. The CRA discovered:

  • Mr. A, Mr. B, and Ms. C were directors of Organization X from 2005 to 2009. All of these directors resigned their positions when they were notified of the CRA audit, and Organization X elected new directors.
  • During the years under audit, Organization X issued official receipts for income tax purposes when no gift was made.
  • Organization X operated for purposes that were not acceptable for registration.

In 2010, the CRA issued a letter to Organization X, explaining the findings of the audit and indicating that the serious breaches of the Income Tax Act could result in revocation of Organization X’s registered status.

Since Organization X did not respond to the CRA's letter, the CRA revoked the registration of Organization X on March 3, 2010.

Who is now an ineligible individual?

Even though they resigned as directors before Organization X’s registration was revoked, Mr. A, Mr. B, and Ms. C are ineligible individuals. They were Organization X directors when the serious breaches that led to revocation occurred. The directors when Organization X's registration was revoked in 2010 are not ineligible individuals.

Mr. A, Mr. B, and Ms. C will be ineligible individuals until March 3, 2015, five years from the date of Organization X’s revocation.

A person who controls or manages

  1. When a person is in a position of control or management within a registered organization that person knows, or ought to know, how the organization is operating. When the operation includes a serious breach of the Income Tax Act, the people who control or manage the registered organization are accountable, whether or not they directly participated in the non-compliant conduct.
     
  2. A person who controlled or managed a registered organization when a serious breach of the Act that resulted in revocation occurred is an ineligible individual for five years from the date of revocation.

Control

  1. Registered organizations are controlled by their directors, trustees, officers, and like officials. Other individuals not holding these offices may also control the organization if they have power or influence over its affairs, directly or indirectly. For example, individuals who have influence or the power to do one or more of the following would be considered to have control:
  • change the board of directors or reverse its decisions;

  • make alternative decisions concerning the actions of the organization;

  • directly or indirectly end the organization; or

  • appropriate the organization’s assets.

Manage

  1. Individuals who manage a registered organization, directly or indirectly, include anyone who does one or more of the following:
  • performs managerial (rather than only operational) duties;

  • hires, disciplines, and dismisses employees;

  • prepares budgets within the organization; or

  • varies staff assignments.

Example

Organization L’s board of directors hired Ms. J. as a fund-development officer. Over time, Ms. J. assumed increased responsibilities, including preparing budgets, creating staffing plans, dismissing employees, and reallocating resources, including cutting some of the services Organization L provided in support of its purposes. Regardless of her title, Ms. J. manages Organization L.

The CRA revoked Organization L’s registration because of serious breaches of the Income Tax Act that occurred while Ms. J was managing the organization.

Ms. J. managed the organization while it engaged in a serious breach that resulted in revocation. Ms. J. is an ineligible individual for five years from the date of Organization L’s revocation.

A promoter of a tax shelter

  1. When an organization’s registration is revoked because of participation in a tax shelter, the promoter of the tax shelter is an ineligible individual for five years from the date of the revocation.
     
  2. In general terms, a tax shelter includes either a gifting arrangement or the acquisition of property, where it is represented to the buyer or donor that the tax benefits and deductions arising from the arrangement or acquisition will equal or exceed the net costs of entering into the arrangement or acquiring the property. Also, a gifting arrangement where the donor incurs a limited recourse debt related to the gift will be a tax shelter. Generally a limited recourse debt is one where the borrower is not at risk for the repayment.
     
  3. A promoter of a tax shelter includes a person who:
  • sells or issues participating shares in the tax shelter;

  • promotes the sale, issuance, or acquisition of participating shares in the tax shelter;

  • acts as an agent or adviser for the sale or issuance of participating shares in the tax shelter;

  • acts as an agent or adviser to promote, sell, or acquire a participating interest in the tax shelter; or

  • accepts consideration for his or her role in the tax shelter.

Example

The CRA revoked the registration of Organization Z because, among other things, it promoted and provided private benefit to a tax shelter called TS Group.

Mr. M. is head of sales for TS Group.

Because Mr. M. is a salesperson for TS Group he is a promoter of the tax shelter. Because an organization was revoked for reasons related to its participation in the TS Group’s tax shelter, Mr. M. is an ineligible individual for five years from the date Organization Z’s registration was revoked.

  1. More than one person may be a tax shelter promoter for one tax shelter.

B. What actions does the Income Tax Act permit the CRA to take when it discovers an ineligible individual?

Actions the CRA may take against ineligible individuals
If an ineligible individual: The Act allows the CRA to:

made the application for the organization

refuse to register

is a director, trustee, officer, or like official of the organization

refuse to register / suspend receipting privileges for one year / revoke registration

controls or manages the organization

refuse to register / suspend receipting privileges for one year / revoke registration

  1. What the CRA could do:
  • refuse to register the organization

  • suspend the organization’s receipting privileges

  • revoke the organization’s registration

  1. Before the CRA finalizes its decision, its concerns are set out in writing, and the organization is given an opportunity to respond. If the registered organization’s contact person is the ineligible individual, the CRA may also communicate its concerns with another official of the organization.
     
  2. After the CRA has made its decision, the organization has the right to object if it believes the CRA has misinterpreted the facts or not correctly applied the law.
     
  3. The CRA may determine that beneficiaries and assets have been adequately and appropriately protected. In that case, registration and receipting privileges will not be affected, even if the organization has an ineligible individual on its board or in a position to control or manage the organization.

Refuse registration

  1. There are many factors that may prevent an organization from being registered. Registration may be refused if an ineligible individual:
  • made the application;

  • is a director, trustee, officer, or like official; or

  • controls or manages the organization, directly or indirectly, in any way.

  1. Anyone who signs a completed Form T2050, Application to Register a Charity under the Income Tax Act, or a completed Form T1189, Application to Register a Canadian amateur athletic association Under the Income Tax Act, is considered to have made the application.
     
  2. Aside from a signature on an application form, an application for registration is not complete until the CRA has all the information it needs to determine the applicant’s eligibility for registration. Therefore, anyone who provides information to the CRA about the applicant organization—its authorized representative or the contact person authorized to answer the CRA’s questions—will also be considered to have made the application.

Suspend receipting privileges

  1. A registered organization’s authority to issue an official receipt may be suspended for one year if an ineligible individual:
  • is a director, trustee, officer, or like official; or

  • controls or manages the organization, directly or indirectly, in any way.

  1. According to the ineligible individual provision, a suspension will last one year, even if the ineligible individual leaves the organization.

Revoke registration

  1. A registered organization’s registration may be revoked if an ineligible individual:
  • is a director, trustee, officer, or like official; or

  • controls or manages the organization, directly or indirectly, in any way.

C. How will the CRA administer the ineligible individual provisions?

  1. The CRA assesses each case on its own merit. Generally, the CRA is particularly concerned with deliberate abuse of the registration system. The CRA intends to administer the ineligible individual provisions with a view to limiting threats to beneficiaries and assets.
     
  2. The definition of ineligible individual in the Act identifies past conduct that suggests a potential threat to beneficiaries or assets. In administering the ineligible individual provisions, the CRA will focus on registered organizations and applicants that are controlled or managed by an ineligible individual who:
  • has been convicted of an offence related to financial dishonesty;
     
  • has been convicted of an offence that is relevant to the operation of an organization, particularly if the beneficiaries of the organization may be at risk; or
     
  • was a director, trustee, officer, or like official of the registered organization, or controlled or managed an organization whose registration was revoked, for example, for
    • issuing improper receipts;
    • participating in a tax shelter; or
       
  • was a promoter of a tax shelter, and participating in that tax shelter caused the revocation of an organization’s registration.
  1. The CRA has perceived patterns of abuse of the registration system, and it targets them. For example, if an ineligible individual is involved in improper receipting or a tax shelter, it may be difficult for the organization to address the CRA’s concerns without removing the ineligible individual.

What does the CRA consider when making a decision?

  1. When an ineligible individual is a director, trustee, officer, or like official, or controls or manages a registered organization or applicant, the CRA may take the following into consideration in deciding the most appropriate course of action:
  • What made the person an ineligible individual?
    • What impact did the conduct have (for example, victim impact, dollar value)?
    • Did the ineligible individual engage in the conduct more than once?
       
  • What roles and responsibilities does the ineligible individual have in the organization?
    • Is there an opportunity for the ineligible individual to repeat the conduct?
    • If repeated, what impact would that conduct have (on beneficiaries and assets)?
       
  • How has the organization lessened whatever risk the ineligible individual may pose?
    • Is the organization aware of the person’s past conduct and that the person is an ineligible individual?
    • Has the ineligible individual’s roles and responsibilities been appropriately restricted?
    • Are there appropriate financial controls in place to safeguard assets?
    • How is the safety of beneficiaries ensured?

If the CRA does not act, does that mean the ineligible individual poses no risk?

  1. No. The CRA will advise a registered organization in writing when it has concerns about an ineligible individual, and it will have an opportunity to address those concerns. However, if the CRA takes no action, this cannot in any way be construed as an endorsement of any individual or a statement that the registered organization has met its obligations outside the context of the Income Tax Act. You may want to consult a legal advisor, your insurer, a charitable sector advisory group, or provincial or territorial officials on any related governance or administrative concerns.
     
  2. The CRA will provide a fair opportunity for registered organizations to respond to its ineligible individual concerns before it makes a final decision. A registered organization or applicant for such registration has the right to object if it thinks we have misinterpreted the facts or not applied the law correctly.

D. How to respond to the CRA’s concerns

  1. If an organization receives a letter from the CRA outlining concerns about an ineligible individual and indicating that the CRA may refuse or revoke registration, or suspend receipting privileges, the organization will be given an opportunity to respond. If the organization does not respond, or does not respond adequately, the CRA may proceed to take the action indicated in its letter. An organization has the right to object to a decision if it thinks that the facts have been misinterpreted or the law has not been applied correctly.

How can an organization satisfy the CRA’s concerns about an ineligible individual?

  1. In responding to a CRA letter, an organization can provide information to prove that the person in question is not an ineligible individual.
  1. The CRA's letter will indicate what role the ineligible individual plays in the organization. In response, the organization can provide evidence that the ineligible individual:
  • did not make the application;

  • is not (or is no longer) a director, trustee, officer, or like official; or

  • does not directly or indirectly, in any way control or manage the organization (or no longer controls or manages it).

  1. In these cases, the ineligible individual provisions in the Act will not apply.
  1. In responding to the CRA's letter, the organization can explain why the CRA should not exercise its discretion to refuse or revoke registration or to suspend receipting privileges even though an ineligible individual is involved with the organization. This may include, for example, showing that the organization:
  • has restricted the ineligible individual’s roles and responsibilities. For example, if the ineligible individual was convicted of an offence related to financial dishonesty, the organization can provide evidence that the ineligible individual is not involved in financial decisions and does not have access to its assets;
     
  • has appropriate and adequate control measures in place. For example, if the ineligible individual was convicted of an offence that is relevant to the operation of the organization, it can provide evidence that no one, including the ineligible individual, has unsupervised access to the beneficiaries; or
     
  • benefits from the ineligible individual’s contribution. For example, an organization that provides services to people in conflict with the law may benefit from directors and staff who themselves have had that experience. The organization could explain this and show how it has protected its beneficiaries and assets.
  1. If an applicant for registration does not respond to the CRA's letter, the CRA will consider the application abandoned and the file will be closed without further notice. If an applicant abandons its application, it does not have the right to object.
     
  2. If a registered organization does not respond, the CRA will base its decision on the information provided in the letter. Usually this means the CRA will take the action outlined in its letter.

What kind of information should an organization provide?

  1. In most cases, the CRA's ineligible individual concerns will be satisfied only with adequate documentary evidence in support of the organization’s response.
     
  2. For example, merely saying, “This person is not an ineligible individual,” is not enough. If an organization does not provide information that clearly shows that the CRA based its conclusions on incorrect information or misinterpreted the facts, the CRA will rely on the information described in its letter.
     
  3. The organization should provide the CRA with adequate information to make an informed decision. For example, it would not be enough to say, “The ineligible individual does not have access to the organization’s assets.” To support this statement in its response, an organization might include documentation, such as:
  • minutes of board meetings in which signing authorities for the organization’s bank accounts were decided;

  • policies indicating the organization’s financial controls and how the organization enforces them;

  • copies of ledgers, cheques, or financial reports indicating who has access to the organization’s assets (and that it is not the ineligible individual).

Appendix A – Self-assessment questionnaire – Am I an ineligible individual?

In this appendix, we use the term registered organization for ease of reading. Registered organization means registered charities (charitable organizations, public foundations and private foundations) and registered Canadian amateur athletic associations.

This questionnaire is provided only for information. The questions are personal and are for an individual’s use to help determine whether or not they meet the definition of an ineligible individual. There are some questions that will depend on your circumstances, so you may not come up with a definitive answer, but you can get a better idea of whether or not you may be an ineligible individual.

Note: If there is more than one offence, consider each one separately.

  1. Have you been convicted of an offence?
  • No → go to 10
  • Yes → go to 2
  1. Was the offence criminal?
  • No → go to 7
  • Yes → go to 3
  1. Has a pardon been granted or a record suspension been ordered for this conviction?
  • No → go to 5
  • Yes → go to 4
  1. Has the pardon or record suspension been revoked or is it no longer in effect?
  • No → you are not an ineligible individual under paragraph (a); go to 10
  • Yes → go to 5
  1. Was the criminal offence related to financial dishonesty?
  • No → go to 6
  • Yes → you are an ineligible individual under paragraph (a) of the definition

    A person convicted of a relevant criminal offence related to financial dishonesty is an ineligible individual, unless and until such time as a pardon has been granted or a record suspension has been ordered. If you do not receive a pardon or record suspension, you will always be an ineligible individual. If you are a director, trustee, officer, or like official, or if you control or manage an organization, registration may be refused or revoked, and receipting privileges may be suspended.

    If you apply for registration for an organization, registration may be refused.
  1. Is the offence relevant to the operation of the organization you are involved with?
  • No → you are not an ineligible individual under paragraph (a) of the definition; go to 10
     
  • Yes → you are an ineligible individual under paragraph (a) of the definition

    Unless and until you receive a pardon or a record suspension, you will be an ineligible individual if the criminal offence for which you were convicted is relevant to the operation of an organization where you:
    • apply for registration;
    • are a director, trustee, officer, or like official; or
    • control or manage the organization, directly or indirectly, in any way.
  1. Is it less than five years since the date of your conviction?
  • No → you are not an ineligible individual under paragraph (b) of the definition; go to 10
  • Yes → go to 8
  1. Was the offence related to financial dishonesty?
  • No → go to 9
  • Yes → you are an ineligible individual under paragraph (b) of the definition

    Since you have been convicted of a relevant offence related to financial dishonesty, you are an ineligible individual for five years from the date of conviction.

    If you are a director, trustee, officer, or like official, or if you control or manage an organization while you are an ineligible individual, the organization’s application for registration may be refused or, if it is registered, its receipting privileges may be suspended or its registration may be revoked.

    If you apply for registration for an organization, registration may be refused.
  1. Was the offence relevant to the operation of the organization you are involved with?
  • No → you are not an ineligible individual under paragraph (b) of the definition; go to 10

    You may be an ineligible individual if you are involved in another organization where the offence of which you were convicted is relevant to the organization’s operation.
     
  • Yes → you are an ineligible individual under paragraph (b) of the definition

    You will be an ineligible individual for five years from the date of conviction, if the offence for which you were convicted is relevant to the organization’s operation where you:
     
  • apply for registration for the organization;
  • are a director, trustee, officer, or like official of an organization; or
  • control or manage an organization, directly or indirectly, in any way.
  1. Were you connected to an organization that had its registration revoked?

Connected includes any of the following:

  • You were a director, trustee, officer, or like official;
  • You controlled or managed the organization, directly or indirectly, in any way; or
  • You were a promoter of a tax shelter.
     
  • No → you are not an ineligible individual
  • Yes → go to 11
  1. Did the revocation occur less than five years ago?
  • No → you are not an ineligible individual
  • Yes → go to 12
  1. Was the registration revoked for a serious breach of the requirements of the Income Tax Act?
  • No → you are not an ineligible individual
  • Yes → go to 13
  1. Were you a director, trustee, officer, or like official of the revoked organization?
  • No → go to 15
  • Yes → go to 14
  1. Were you a director, trustee, officer or like official of the revoked organization when the serious breach that led to revocation occurred?
  • No → you are not an ineligible individual under paragraph (c) of the definition; go to 15
  • Yes → you are an ineligible individual under paragraph (c) of the definition

    Since you were a director, trustee, officer, or like official of a registered organization when the serious breach that resulted in revocation occurred, you are an ineligible individual for five years from the date of the revocation (not from the date the breach occurred).

    You can still be involved with an organization. However, if you are, or become, a director, trustee, officer, or like official, or if you control or manage an organization while you are an ineligible individual, its registration may be refused or revoked or its receipting privileges may be suspended. The Income Tax Act does not require you to advise the organization that you are an ineligible individual; however, the organization’s bylaws or governing statute may require you to do so.

    If you apply for registration for an organization while you are an ineligible individual, registration may be refused.
  1. Did you control or manage directly or indirectly, in any way, the revoked organization?
  • No → go to 17
  • Yes → go to 16
  1. Did you control or manage the revoked organization, directly or indirectly, in any way when the serious breach that led to revocation occurred?
  • No → you are not an ineligible individual under paragraph (d) of the definition
  • Yes → you are an ineligible individual under paragraph (d) of the definition

    Since you controlled or managed a registered organization when the serious breach that resulted in revocation occurred, you are an ineligible individual for five years from the date of the revocation (not from the date the serious breach occurred).

    You can still be involved with an organization. However, if you are, or become, a director, trustee, officer, or like official, or if you control or manage an organization while you are an ineligible individual, the organization’s registration may be refused or revoked or its receipting privileges may be suspended.

    If you apply for registration for an organization, registration may be refused.
  1. Were you or are you a promoter of a tax shelter?
  • No → you are not an ineligible individual
  • Yes → go to 18
  1. Was the revocation related to participation in the tax shelter you promote or promoted?
  • No → you are not an ineligible individual
  • Yes → you are an ineligible individual under paragraph (e) of the definition

    Since an organization’s registration was revoked because of participation in a tax shelter that you promote or promoted, you are an ineligible individual for five years from the date of the revocation.

    You can still be involved with an organization. However, if you are, or become, a director, trustee, officer, or like official, or if you control or manage an organization while you are an ineligible individual, the organization’s registration may be refused or revoked or its receipting privileges may be suspended.

    If you apply for registration for an organization, registration may be refused.

Appendix B – How can a registered organization protect its beneficiaries and assets?

In this appendix, we use the term registered organization for ease of reading. Registered organization means registered charities (charitable organizations, public foundations and private foundations) and registered Canadian amateur athletic associations.

  1. Although the Income Tax Act does not require a registered organization to follow particular practices, good governance can help to protect beneficiaries and assets.
     
  2. The following best practices are meant to help registered organization’s focus on areas that might expose their beneficiaries or assets to risk.

Due diligence

  1. By exercising due diligence, organizations can identify potential problems in their early stages. Although no one can guarantee that due diligence will identify all possible risks, it can help to minimize an organization’s exposure by eliminating the most obvious risks.
     
  2. Due diligence can be demonstrated by showing that directors, trustees, officers, or like officials:
  • exercise continued vigilance over the organization’s affairs;

  • are familiar with all activities;

  • are aware of possible risk areas in the day-to-day work and programs of the organization and its donors, agents, and affiliated organizations;

  • develop and implement practices and policies to protect the organization’s interests; and

  • supervise staff to make sure that they meet the organization’s policy requirements.

Risk assessment

  1. Any organization can be exposed to risk. In some cases, the particular attributes of the organization’s beneficiaries may make them vulnerable to abuse. In other cases, a lack of financial controls and accountability may provide opportunity for someone to misappropriate funds.
  1. Assessing risk involves looking at both the likelihood and the impact of events that have the potential to influence the achievement of an organization’s objectives. Some events may be unlikely to occur, but would have an enormously negative impact if they did. Some events may be more likely to occur, but would have a minimal impact. Both likelihood and impact are factors to consider in deciding how tolerable a risk is and what to do about risks that an organization finds to be intolerable.
     
  2. Consider the unique situation of your organization, identify challenges and threats, and take steps to prevent problems.

Fraud prevention

  1. Adopt practices that make fraud less likely to occur. Ordinary people may commit fraud when there is:
  • Motivation or pressure. This may include:
    • financial problems
    • pressure to show good performance or results
       
  • Rationalization. This is when someone may think their actions are justified. Common rationalizations include:
    • “I’m underpaid.”
    • “I need it now, and I’ll pay it back before anyone notices.”
       
  • Opportunity. Individuals may think they won't get caught when there are weak controls (nobody is looking or performing reconciliations and reviews).
  1. An organization that has had the misfortune of being the victim of fraud or theft may suffer more than the loss of money. Often the person who committed the crime was a trusted member of the community, an employee, or a member of the board. This can have a serious and demoralizing effect on staff, volunteers, clients, and donors.

Financial controls

  1. Financial controls minimize the opportunity for wrongdoing. Segregate duties so that no one person has complete control of a financial transaction. Generally, this involves having one person’s work serve as a complementary check on another’s to minimize the opportunity for wrongdoing.
     
  2. Financial transactions include the following duties:

    Asset handling and disposition – This includes physical access to assets, as well as the authority to direct assets. It involves receiving donations or payments, handling cash, ordering purchases, and such actions as making deposits or withdrawals.

    Bookkeeping or recording transactions – This includes actions such as making ledger entries, writing receipts, and approving payments.

    Comparison or review of transactions and balances – This includes making sure all financial records balance and are reasonable.
  1. Any person authorized in any of the above functions should perform duties only in that function. For example, the person who handles the cash should not be the same person who records transactions. The person who records the transactions should not be the same person who reviews them. Having different people perform different functions reduces the opportunity for wrongdoing.
     
  2. Financial controls reduce the potential for fraud and theft. Strong financial controls also help detect honest mistakes in accounting and reporting so they can quickly be corrected.

Protecting beneficiaries

  1. Organizations can put policies and procedures in place to protect the interests and rights of vulnerable beneficiaries. It is important to include measures for the regular monitoring of staff and volunteers. These procedures protect beneficiaries, the interests of staff and volunteers, and the good name of the organization.
     
  2. It is important that beneficiaries, staff, and volunteers know where to direct complaints or concerns. They should feel confident that their concerns will be taken seriously and that appropriate steps will be taken to address problems.

Resources

Appendix C – Questions and Answers

In this appendix, we use the term registered organization for ease of reading. Registered organization means registered charities (charitable organizations, public foundations and private foundations) and registered Canadian amateur athletic associations.

  1. How do I know if I’m an ineligible individual?

    You can read and answer the questions contained in the self-assessment questionnaire: Am I an ineligible individual?
     
  2. Will the  CRA clear me to serve on a board or work at a registered organization?

    If the CRA raises a concern regarding an ineligible individual, the organization will have an opportunity to respond. If the CRA receives a response in support of an ineligible individual, it will review the representation and provide written confirmation of its decision to the organization.

    However, since there is nothing in the Income Tax Act that prevents an ineligible individual from serving on a board or working at a registered organization, the CRA will not provide pre-approval or clearance authorization at the request of an ineligible individual or any organization.

    If the CRA takes no action against an organization with an ineligible individual, this cannot in any way be construed as an endorsement of any individual or statement that the organization has met its obligations outside the context of the Income Tax Act.

    You may want to consult a legal advisor, your insurer, a charitable sector advisory group, or provincial or territorial officials on any related governance or administrative concerns.
     
  3. Can an ineligible individual serve on a board, work, or volunteer for a registered organization?

    Yes. The Income Tax Act does not prevent ineligible individuals from working or volunteering for, or serving on the board of, a registered organization. Nonetheless, in some cases the CRA may contact a registered organization to raise concerns about an ineligible individual. If the concerns are not adequately addressed and the ineligible individual stays in the organization, it is possible that the organization’s registered status or its receipting privileges may be affected.

    You may want to consult a legal advisor, your insurer, a charitable sector advisory group, or provincial or territorial officials on any related governance or administrative concerns.
     
  4. What should I do to protect my organization’s receipting privileges and registration?

    If you are a board member, work for, or volunteer with a registered organization, you may want to consider telling the board of directors that you are an ineligible individual. Then, if the CRA contacts the organization to express concerns, the organization will be able to explain what it has done to protect its beneficiaries and assets. Your registered organization may already have policies in place to deal with such a situation.

    The people in charge of registered organizations are responsible for doing what is best for the organization and the people it serves. What is best for the organization depends on many factors, including:
  • the circumstances that resulted in your being an ineligible individual;

  • your role and responsibilities; and

  • what your organization’s purposes are and how it operates.

    The CRA recognizes that certain beneficiary communities have a history of involvement with crime and that in some cases an organization operating in such communities may want to welcome past offenders into its operations. These individuals can provide important insights into the welfare of the beneficiary community. For example, such may be the case for organizations involved in prisoner rehabilitation programs, drug and alcohol addiction programs, and the prevention of juvenile delinquency.

    In some cases, an ineligible individual may be able to continue working or volunteering in a registered organization, but in a different capacity.

    An organization’s bylaws or governing document may outline how it will deal with an ineligible individual.

    If the CRA determines that you are an ineligible individual, it may decide to take action against the registered organization. In making its decision, the CRA will consider the circumstances that resulted in you becoming an ineligible individual, whether you may pose a risk to beneficiaries or assets, and what steps the organization has taken or will take to decrease the risk.

  1. What if I think I am being treated unfairly?

    The CRA’s authority under the ineligible individual provisions of the Income Tax Act relates to determinations involving the registration and ongoing registered status of organizations—the CRA has no authority to sanction individuals. The Income Tax Act lets the CRA refuse or revoke registration and suspend receipting privileges. After the CRA has made a decision, if an organization thinks that the facts have been misinterpreted or the law has not been correctly applied, the organization has the right to object.

    If you have concerns about how a CRA decision in relation to an organization affects you, please discuss this with the organization.
     
  2. Can an ineligible individual be an employee or board member of a registered organization?

    Yes. The Income Tax Act does not say that an ineligible individual cannot work or serve on the board of a registered organization. If the CRA is concerned about an ineligible individual who is a director, trustee, officer, or like official, or who controls or manages a registered organization, the CRA describes its concerns in a letter to the organization. The letter does not mean the CRA has taken action. The organization will have an opportunity to respond.

    The CRA does not have the authority to tell a registered organization whom to employ or to have on its board. Being an ineligible individual under the Income Tax Act does not change a person’s responsibilities or authority as a board member or employee. If an ineligible individual is on a board of directors, that individual can still attend meetings and vote as usual (unless the organization’s policies indicate otherwise). Any action by the CRA affects only the organization’s registered status or receipting privileges, not the validity of actions taken by their boards.
     
  3. Should a registered organization refuse to accept an ineligible individual as an employee or director?

    That is a decision only the organization can make. The Income Tax Act does not say that an ineligible individual cannot work in, or serve on the board of, a registered organization. However, registered organizations are responsible for protecting their beneficiaries and assets.

    In addition to the requirements for registration under the Income Tax Act, registered organizations should also be aware of other related provincial and federal laws that affect them. These may include laws about:
  1. Must a registered organization notify the CRA if it knows of an ineligible individual?

    No. A registered organization does not have to notify the CRA if it has an ineligible individual as a director, trustee, officer, or like official, or if it has an ineligible individual controlling or managing it. However, the registered organization should put appropriate safeguards in place to protect its beneficiaries and assets.
     
  2. Is it necessary to do screening and background checks?

    No. The ineligible individual provisions of the Income Tax Act do not require registered organizations to do criminal record or other background checks for employees or board members. However, these organizations may be required by their province, their insurer, or another authority to do certain types of screening. For example, organizations that work with vulnerable populations may have to do background checks to make sure that beneficiaries are safe.

    Good governance can help to protect beneficiaries and assets, even if the Income Tax Act does not require particular governance practices.
     
  3. Are there other restrictions on directors, trustees, officers and like officials?

    Registered organizations are subject to federal, provincial, and territorial legislation. For example, the legislation under which an organization is incorporated may place restrictions on who can serve on the board. Some corporate statutes disqualify a person under 18 years of age, a person who has the status of bankrupt, or a person with certain types of convictions from serving on the board of a corporation.

    An organization’s governing document may also state limits about who can be a director, trustee, officer, or like official.

Appendix D – Checklist for registered organizations regarding ineligible individuals

In this appendix, we use the term registered organization for ease of reading. Registered organization means registered charities (charitable organizations, public foundations and private foundations) and registered Canadian amateur athletic associations.

The following checklist is meant to help registered organizations focus on areas that might expose their beneficiaries or assets to risk.

Note

Not all items on this checklist represent requirements for registration under the Income Tax Act.

  • You have a good understanding of the background and affiliations of board members, employees, fundraisers, and volunteers.
     
  • Policies and procedures are in place to protect vulnerable people such as children, the elderly, and persons with disabilities.
     
  • There are appropriate, sound, internal financial and other oversight and verification controls (for example, appropriate delegations and separations of authority over the collection, handling, and depositing of cash and the issuing of receipts).
     
  • Board members, staff, and volunteers know when, how, and to whom to report wrongdoing—policies and procedures are in place to address wrongdoing.
     
  • Money is transferred using normal banking mechanisms, wherever possible. When this is not possible, reputable alternative systems are used. There are strong additional controls and audit trails to protect resources and to show how and when the controls and trails were used.
     
  • There are clear written agreements with agents/contractors/other partners, in Canada and abroad, covering the activities that will be undertaken and how they will be monitored and accounted for. The organization checks that the agreements are being followed.
     
  • There is clear knowledge of who has ultimate control over the projects that the organization’s money and resources are benefiting. There are accurate books and records for all activities.

There are many other sources of information to help you protect beneficiaries and assets. If you are concerned about a registered organization, or an applicant for registration, you can email the Compliance Division of the CRA Charities Directorate. Your identity will be kept confidential.

Appendix E – Definitions – Income Tax Act – 149.1(1)

Ineligible individual, at any time, means an individual who has been

(a)  convicted of a relevant criminal offence unless it is a conviction for which

(i)  a pardon has been granted and the pardon has not been revoked or ceased to have effect, or

(ii) a record suspension has been ordered under the Criminal Records Act and the record suspension has not been revoked or ceased to have effect,

(b) convicted of a relevant offence in the five-year period preceding that time,

(c)  a director, trustee, officer or like official of a registered charity or a registered Canadian amateur athletic association during a period in which the charity or association engaged in conduct that can reasonably be considered to have constituted a serious breach of the requirements for registration under this Act and for which the registration of the charity or association was revoked in the five-year period preceding that time,

(d)  an individual who controlled or managed, directly or indirectly, in any manner whatever, a registered charity or a registered Canadian amateur athletic association during a period in which the charity or association engaged in conduct that can reasonably be considered to have constituted a serious breach of the requirements for registration under this Act and for which its registration was revoked in the five-year period preceding that time, or

(e)  a promoter in respect of a tax shelter that involved a registered charity or a registered Canadian amateur athletic association, the registration of which was revoked in the five-year period preceding that time for reasons that included or were related to participation in the tax shelter.

Relevant criminal offence means a criminal offence under the laws of Canada, and an offence that would be a criminal offence if it were committed in Canada, that

(a) relates to financial dishonesty, including tax evasion, theft and fraud, or

(b) in respect of a charity or Canadian amateur athletic association, is relevant to the operation of the charity or association.

Relevant offence means an offence, other than a relevant criminal offence, under the laws of Canada or a province, and an offence that would be such an offence if it took place in Canada, that

(a) relates to financial dishonesty, including an offence under charitable fundraising legislation, consumer protection legislation, and securities legislation, or

(b) in respect of a charity or Canadian amateur athletic association, is relevant to the operation of the charity or association.

Appendix F – Authorities – Income Tax Act

Refusal to register – 149.1(25)

The Minister of National Revenue may refuse to register a charity or Canadian amateur athletic association that has applied for registration as a registered charity or registered Canadian amateur athletic association if

(a) the application for registration is made on its behalf by an ineligible individual; or

(b) an ineligible individual is a director, trustee, officer or like official of the charity or association, or controls or manages the charity or association, directly or indirectly, in any manner whatever.

Notice of suspension 188.2(2)(d)

The Minister of National Revenue may give notice by registered mail to a person referred to in any of paragraphs (a) to (c) of the definition of “qualified donee” in subsection 149.1(1) that the authority of the person to issue an official receipt referred to in Part XXXV of the Income Tax Regulations is suspended for one year from the day that is seven days after the day on which the notice is mailed...in the case of a person that is a registered charity or registered Canadian amateur athletic association, if an ineligible individual is a director, trustee, officer or like official of the person, or controls or manages the person, directly or indirectly, in any manner whatever.

Revocation of registration – registered charity 149.1(4.1)(e)

The Minister of National Revenue may, in the manner described in section 168, revoke the registration...of a registered charity, if an ineligible individual is a director, trustee, officer or like official of the charity, or controls or manages the charity, directly or indirectly, in any manner whatever.

Revocation of registration – registered Canadian amateur athletic association 149.1(4.2)(c)

The Minister of National Revenue may, in the manner described in section 168, revoke the registration of a registered Canadian amateur athletic association…if an ineligible individual is a director, trustee, officer or like official of the association, or controls or manages the association, directly or indirectly, in any manner whatever.

Date modified: