CRA Charities Audit — Montreal CPA Firm Near You: Keep Registration Secure

Charities in Quebec and across Canada enjoy valuable tax privileges, but with those come serious responsibilities. A compliance audit by the Canada Revenue Agency (CRA) can put a charity’s very existence at stake. If auditors find major violations, a charity could lose its registered status – meaning no more donation tax receipts and a potential one-time revocation tax of 100% on remaining assetscanada.ca. In other words, a failed audit can be catastrophic, forcing the charity to shut down or merge its assets into other charities. Beyond revocation, the CRA can also levy hefty penalties for non-compliance, leaving board members and executives scrambling to clean up the damage. For Montreal nonprofit leaders, understanding these risks is not optional – it’s essential to “keep your registration secure.” This guide, styled in the practical compliance tone of Mackisen CPA, will arm you with knowledge about CRA charity audits and how to survive them. We’ll cover the legal framework, common audit triggers, case law precedents, and proactive strategies to safeguard your organization. With the right preparation (and the right advisors), your charity can weather an audit and continue focusing on its mission without interruption.

Legal and Regulatory Framework

To maintain registered status, a charity must follow a strict legal and regulatory framework set out in the Income Tax Act (especially s.149.1) and enforced by the CRA’s Charities Directorate. In plain terms, your organization has to operate exclusively for charitable purposes and comply with all CRA guidelines. Key obligations includecanada.ca:

• Exclusive Charitable Purpose and Public Benefit: All of your charity’s activities and resources must further its charitable purposes (e.g. relief of poverty, advancement of education, religion, or other community benefit) and deliver a public benefit. Private benefits to directors or members must be avoided – any benefit conferred must be necessary, reasonable, and incidental to your workcanada.ca. Canadian law explicitly forbids charities from distributing profits or undue gains to insiderscanada.ca. In practical terms, this means board members generally serve as volunteers, and the charity’s funds cannot be used for personal gain.

• Permitted Activities (and Restrictions): Charities cannot engage in activities that are illegal or contrary to public policy, and they face limits on political involvement. Under the Income Tax Act, a charity must not support or oppose any political party or candidatecanada.ca. However, advocacy is allowed in furtherance of charitable purposes: due to 2018 law changes, charities may devote up to 100% of their resources to public policy dialogue and development activities (PPDDAs) that support their charitable goalscanada.ca. In other words, you can advocate for policy changes related to your mission (for example, environmental regulations or social services funding) without a strict spending cap, as long as you remain non-partisan. The crucial line is that partisan activity is prohibited – you cannot endorse or fundraise for a political party or candidatecanada.ca. All charitable advocacy must tie back to your stated purpose.

• Issuing Proper Donation Receipts: One of a charity’s biggest privileges is the ability to issue official donation receipts for income tax creditscanada.ca. With that privilege comes the duty to issue complete and accurate receipts for all eligible donations. The CRA requires specific information on each receipt (date, amount, charity’s name and registration number, donor name, authorized signature, etc.), and errors or omissions can have serious consequences. If a charity issues a receipt with incorrect information, the CRA can impose penalties of 5% of the receipt amount (or 10% for repeat offenses)canada.ca. Deliberately false receipts carry even steeper fines (125% of the amount) and can trigger a one-year suspension of receipting privilegescanada.ca. Habitual or grossly improper receipting is grounds for revocation of statuscanada.ca. In short, accurate receipting is non-negotiable – charities must follow CRA receipting guidelines to the letter.

• Annual Filing and Disbursement Quota: Every registered charity must file an annual T3010 information return within 6 months of its fiscal year-endcanada.ca. This return details your finances, activities, salaries, and more, allowing CRA to monitor compliance. A key element is the disbursement quota (DQ) – the minimum amount you must spend on charitable programs or gifts to qualified donees each year. As of 2023, most charities must spend at least 3.5% of assets not used in charitable activities, and 5% on the portion of assets above $1 millioncanada.ca. This is to prevent charities from hoarding funds. Failing to meet your DQ is a serious breach of the Income Tax Act. The CRA expects you to track this and report it on your T3010; a shortfall can lead to follow-up inquiries, sanctions, or eventual revocation if not correctedcanada.ca. Prudent charities plan their budgets to exceed the DQ each year and document all charitable expenditures.

• Books, Records, and Control of Resources: The CRA requires charities to keep reliable and complete books and records (financial records, donation logs, board minutes, etc.) that demonstrate all activities are charitablecanada.ca. These records must be retained for specified periods and made available to CRA auditors on request. If your charity works with partners or intermediaries – for example, sending money to an overseas charity or running joint programs – you must maintain direction and control over the use of your resourcescanada.ca. This typically means having written agreements, clear project plans, oversight mechanisms, and documentation to prove that funds sent abroad are spent on your charity’s programs. Simply transferring money to a foreign organization (that is not a qualified donee) without oversight is not allowed. The Charities Directorate’s policies (e.g. Guidance CG-002 on activities outside Canada) outline how to properly structure these arrangements. In Quebec, charities should also ensure compliance with any provincial requirements (like the Civil Code or provincial corporations act), but generally the federal rules on “direction and control” set the standard.

By adhering to this legal framework – charitable purpose, allowable activities, proper receipting, meeting the DQ, record-keeping, and oversight – your charity will fulfill its obligations under the Actcanada.ca. The CRA’s Charities Directorate provides extensive guidance (policy statements, guidance documents, and checklists) to help organizations stay on track. It’s wise to regularly consult official resources (see the Operating a Registered Charity pages on Canada.ca) and seek professional advice when in doubt. Non-compliance, even unintentional, can put your charity’s status at riskcanada.ca. In the next section, we’ll look at what specific red flags can lead the CRA to audit a charity in the first place.

Audit Triggers and Risk Areas

The Charities Directorate uses a risk-based approach to select charities for audit each year. While some audits are purely random spot-checks, most occur because something about the charity’s information or activities raised a concerncanada.ca. Below are common audit triggers and high-risk areas for charities – factors that can prompt the CRA to take a closer look:

• Improper Donation Receipting: Donation receipts are a frequent flashpoint for audits. The CRA receives complaints from donors and cross-checks tax returns, so if a charity is suspected of issuing invalid or inflated receipts, an audit may follow. Red flags include receipts missing required details, receipts for non-qualifying gifts (like services or gifts where the donor received a benefit), or total receipted amounts that don’t reconcile with the financial statements. The CRA treats receipting infractions very seriously – for example, issuing false receipts can draw six-figure penalties and even suspension of receipting rightscanada.ca. If your charity’s T3010 return shows anomalies in receipting or if the CRA gets wind of questionable receipt practices, expect an audit. Tip: Ensure every official receipt meets the CRA’s criteria and that you have copies and records to back them up. It’s wise to perform internal audits of your receipting process annually.

• Political Activities and Advocacy: Charities that are visibly active in advocacy or political issues can attract CRA scrutiny to ensure they aren’t overstepping the rules. This doesn’t mean you can’t speak out on issues – as noted, charities can engage in unlimited public policy advocacy related to their mission. However, any hint of partisan activity (e.g. endorsing a political candidate, or funneling resources to a political campaign) is a big red flag for auditorscanada.ca. Additionally, in the past, charities were restricted in how much political activity they could do (typically no more than 10% of resources on non-partisan political work). Although the rules changed in 2019 to remove the quantitative limit, CRA will still audit charities to ensure advocacy is tied to charitable purposes and not veering into pure politics. For instance, if your charity frequently appears in the media lobbying for legislative change, or if your social media looks more like partisan campaigning than education, the CRA may review whether those activities further your charitable purpose. An audit will examine content of publications, speeches, and use of funds in this area. Stay safe by documenting how your advocacy efforts relate to your mission (e.g. a health charity advocating for policy reform in healthcare) and by never using charity resources to support or oppose any political partycanada.ca. Remember, influencing public policy is allowed only in a non-partisan, purpose-driven manner.

• Foreign Activities and Spending Outside Canada: Many charities based in Montreal undertake projects abroad or send funds to partners overseas (for humanitarian relief, development, etc.). This is a high-risk area because the CRA wants assurance that Canadian charitable dollars are used for charitable work and not diverted for private benefit or non-charitable purposes internationally. If your T3010 shows significant expenditures outside Canada, or if your charity is known to work extensively with foreign intermediaries, the CRA may audit to check compliance with the “direction and control” rulescanada.ca. Specific triggers include large wire transfers to foreign organizations that are not qualified donees, or public allegations that funds were misused overseas. In an audit, CRA will ask for written agreements, progress reports, invoices, and other evidence that your charity maintained control over how its money was spent abroad. Failure to have such documentation is a serious issue. In fact, Canadian courts have upheld CRA revocations in cases where charities did not properly oversee foreign operations – emphasizing that simply sending money and “hoping for the best” is not acceptable. (One notable case involved a charity that lost its status for funding overseas programs without adequate oversight, leading to the court affirming that a charity must carry on its own activities, even when working with foreign partners.) To avoid audits in this area, implement strong project agreements, require regular reports from overseas agents, and track every dollar spent. By being proactive, you demonstrate compliance and reduce the risk of a negative audit finding.

• Director/Insider Compensation and Private Benefit: A sensitive red flag is any indication that a charity’s board members or other insiders are receiving undue benefits. In Canada, registered charities generally cannot pay directors simply for acting as directors – board members are expected to serve in a volunteer fiduciary capacitymillerthomson.com. Salaries or fees to directors (outside of reimbursement for expenses or perhaps payment for separate duties allowed by provincial law) will draw scrutiny. The CRA examines the T3010 disclosures of compensation carefully. If your charity reports paying honorariums or consulting fees to a board member, it may trigger questions about whether this was arm’s-length, necessary, and reasonable. Similarly, excessive salaries to staff who are related to board members, or other insider transactions, raise conflict-of-interest concerns. The law prohibits “undue benefit” to any proprietor, member, shareholder, or trustee of the charitycanada.ca – which in practice means any compensation must be for legitimate work at fair market value. A CRA audit in this area will look at board minutes (for approval of any such payments), contracts, and comparables. Best practice: Avoid compensating directors for their governance role. If a director is hired in a different capacity (e.g. your board treasurer is paid as a part-time bookkeeper), ensure you follow all required procedures: that person should abstain from board decisions on their hiring, the pay should be market-rate, and it should be permitted under provincial law. By keeping governance and personal gain separate, you’ll steer clear of this audit minefield.

• Disbursement Quota Shortfall: The CRA automatically monitors whether charities meet their annual spending requirement. Your T3010 return includes Schedule 6 to calculate the disbursement quota (DQ) – if you report a shortfall (not spending enough on charitable activities), this can trigger follow-up. One year of missing the mark might prompt an educational letter or phone call from the CRAcanada.ca. Repeated failures to meet the DQ will raise your risk profile considerably. The CRA could audit to see why funds are accumulating. Perhaps donations were being saved for a project – in which case you should have obtained CRA approval to accumulate property – or perhaps governance oversight is lacking. Not meeting the DQ is considered serious non-compliance if not corrected, since it frustrates the whole purpose of charitable tax status (which is to ensure donated money is actively used for charity, not parked indefinitely). Plan expenditures so that you consistently meet or exceed the quota. If you do fall short in a given year, take steps in the next year to catch up, and be prepared to explain to CRA the reasons (e.g. unexpected delays in a program). This transparency can help stave off a punitive audit response. Ultimately, failing the DQ can lead to revocation, so it’s far better to address it early than to ignore itcanada.ca.

Other general audit triggers include public complaints, media exposés about a charity, referrals from other government bodies, or a CRA initiative focusing on a particular sectorcanada.ca. For example, if a newspaper reports that a charity is misusing funds or involved in a tax shelter scheme, the Charities Directorate will likely investigate. The five areas above, however, are among the most common issues that land charities in hot water. By being aware of these risk zones – receipting, political activities, foreign operations, insider benefits, and spending requirements – your organization’s leadership can put internal controls in place to remain compliant. In the next section, we’ll look at how the courts have treated charities that crossed these lines, providing cautionary tales for today’s nonprofit boards.

Judicial Precedents on Non-Compliance

When a charity disagrees with the CRA’s findings and faces revocation, it can appeal to the courts. Over the years, several landmark cases have defined how courts interpret non-compliance by charities, often underscoring the strict expectations placed on registered charities. One of the most cited cases is Human Life International in Canada Inc. v. M.N.R. (FCA 1998). In that case, a charity focused on anti-abortion advocacy had its registration revoked on the basis that its activities were not truly charitable. The Federal Court of Appeal upheld the revocation, ruling that activities primarily designed to sway public opinion on controversial social issues are not charitable in law, but essentially politicalcanada.ca. The court reasoned that it is not the role of judges or the CRA to decide if promoting one viewpoint (for example, an anti-abortion stance) is “for the public benefit” – doing so would be an inherently political judgmentcanada.ca. Human Life International therefore fell outside the realm of charitable purpose. This precedent cast a long shadow: it warned charities that if your dominant purpose is advocacy of a cause (rather than education or relief of a recognized need), you risk losing your status. The case also confirmed that even issue-based advocacy, if not connected to a charitable purpose like education, could be viewed as an impermissible political purpose. (Notably, the legal landscape for “political activities” has evolved since 1998 – today charities may engage in non-partisan policy advocacy as discussed – but the principle that charities cannot have a primary non-charitable purpose remains fundamental.)

Another instructive precedent is Canadian Magen David Adom for Israel v. M.N.R. (FCA 2002). This case involved a Montreal-based charity that supported ambulance services in Israel. The CRA moved to revoke the charity’s status after finding that it essentially acted as a fundraising pass-through, sending money and ambulances abroad without maintaining sufficient control over their use. The Federal Court of Appeal upheld the revocation, emphasizing that a charity must devote its resources to charitable activities carried on by itself – it cannot simply transfer funds to a foreign entity that isn’t a qualified donee and call it charityicnl.orgicnl.org. In other words, if you’re funding work outside Canada, you must either work through other qualified donees or actively direct and supervise the projects as your own. This case reinforced the CRA’s “direction and control” requirements as having the force of law. For charities, it stands as a clear message: if you fail to document and enforce how your funds are used, especially overseas, the courts will side with the CRA’s enforcement actions. The revocation in Magen David Adom sent shockwaves through the charitable sector at the time, prompting many international NGOs to tighten their partnership agreements and oversight processes.

Through these and other cases (such as Alliance for Life v. M.N.R. (1999) on advocacy, or Vancouver Society of Immigrant Women v. M.N.R. (SCC 1999) on the scope of charitable education), the judiciary has generally supported the CRA’s role in upholding the integrity of the charitable regime. The courts have consistently ruled that serious non-compliance – whether it be operating with an unstated political agenda, providing undue benefits, or neglecting legal spending requirements – justifies revocation in order to protect public trust. It’s worth noting that revocation appeals are rarely successful; courts give deference to the Minister’s decision if a charity has breached the requirements of the Income Tax Acticnl.org. The takeaway for charity boards is sobering but useful: learn from these cases. They illustrate how seemingly noble intentions (advocating passionately for a cause, or informally helping overseas partners) can run afoul of charity law. To avoid ending up in court, ensure your charity sticks to its charitable purposes, keeps tight control over resources, and follows the CRA’s guidance scrupulously. Next, we’ll turn to common operational mistakes charities make and best practices to stay onside of the rules.

Common Mistakes and Best Practices

Even well-meaning charities can slip up on compliance. Here are some common mistakes that charities – especially smaller organizations or those with volunteer-driven administration – often make, along with best practices to avoid these pitfalls:

1. Receipting Errors and Omissions – Mistake: Charities issuing donation receipts that lack required information (such as the CRA registration number, donor address, or the eligible amount for split donations), or offering receipts for contributions that aren’t actually “gifts” (for example, a business sponsorship with advertising benefit, or a gift of service). These mistakes can be costly. Best Practice: Use the CRA’s receipting checklistcanada.ca. Train whoever prepares receipts on the rules and have a second person review receipts for accuracy. If a mistake is made, issue a corrected receipt marked "Replacement" as per CRA guidelines. Never agree to inflate a receipt or back-date it – maintain integrity. Keeping a receipts log that ties every issued receipt to an actual donation and donor will help catch discrepancies. This level of diligence not only avoids penalties but also assures donors of your professionalism.

2. Inadequate Bookkeeping and Records – Mistake: Poor record-keeping is a silent killer of compliance. Examples include failing to separate restricted funds (spending donations on something other than what was promised), not keeping invoices or payroll records, or losing past years’ documents. In an audit, the onus is on the charity to provide records; if you can’t, the CRA assumes non-compliance. Best Practice: Implement robust financial record systems. Use accounting software tailored for nonprofits and have clear categories for each program, administration, and fundraising expense. Keep receipts (in digital or paper form) for all purchases and maintain donor records securely. CRA requires records to be kept for at least 6 years (and even longer for certain documents like incorporation papers), so have a retention policy. Regularly reconcile bank statements and have an independent review (by a CPA or at least a board treasurer) of the books. These habits not only prepare you for any audit, they also improve overall financial management.

3. Missing T3010 Filing or Errors on the Return – Mistake: Forgetting to file the annual charity information return on time, or filing it with significant errors. Late filing can result in penalties and even automatic revocation if the return is over a year late. Errors – such as misreporting revenues, assets, or the public support calculation – might mislead the CRA and trigger questions. Best Practice: Mark your calendar well in advance of the six-month deadline after fiscal year-end. Many charities in Quebec have December 31 year-ends, meaning the T3010 is due by end of June. Consider engaging an accountant or using the CRA’s online services to file. Double-check key figures against your financial statements. Have a board member review the completed return before submission. Also, be sure to answer all the schedules and questions accurately (e.g. did you carry on activities outside Canada? Did you pay any staff over $40,000? etc.). If something unusual happened – say you skipped the DQ or underwent a major change – it’s often better to proactively explain it in an attachment than to leave the CRA guessing. Timely, accurate filing keeps your charity off the CRA’s radar for avoidable issues.

4. Failure to Meet the Disbursement Quota – Mistake: Not tracking your required charitable expenditures and inadvertently failing to spend enough in the year. This often happens if a charity receives a large bequest or investment income and holds onto it without deploying it, or if a capital project causes funds to be set aside without CRA approval. Best Practice: Plan charitable programs and grants such that you meet or exceed your DQ every year. If you have investment assets, calculate the 3.5% (or 5%) minimum and ensure your board is aware of the spending targetcanada.ca. If you truly need to accumulate funds for a multi-year project, apply to CRA for permission to accumulate (this is a formal process that can exempt certain funds from the DQ calculation). Review your DQ status during budget planning – it should be a line item just like any other obligation. By consciously managing this, you avoid surprises. Remember, consistently underspending on charitable work not only risks CRA sanctions but also betrays donor intent.

5. Unclear or Expanded Purpose Drifting into Non-Charitable Activities – Mistake: “Mission drift” can occur when a charity, over time, takes on projects that are outside its registered purposes or ventures into areas not allowed. For example, a charity whose purpose is to provide education might start an unrelated business venture without realizing it (e.g. opening a café with paid staff as a side revenue stream – which could violate the rules on unrelated business for charitable organizationscanada.ca). Another instance is a charity starting to offer services that benefit a very private group without public benefit, or engaging in high-risk fundraising schemes. Best Practice: Regularly revisit your stated objects (purposes) and CRA’s guidance on allowable activities. Before launching any new initiative, run it through a compliance filter: does this directly further our charitable purpose? Is it within the scope of what the CRA and our letters patent allow? If you’re considering a business activity to raise funds, consult CRA’s policy on related business – generally, it must be linked and subordinate to your purpose, or run substantially by volunteerscanada.ca. If it doesn’t fit those criteria, don’t do it (or consider setting up a separate taxable entity). Keeping a tight focus on your mission and how you achieve it will help avoid wandering into grey zones.

6. Lax Governance and Oversight – Mistake: Sometimes problems arise simply because the board of directors wasn’t paying close enough attention. Examples include: not reviewing financial statements, allowing one person (e.g. the founder or ED) to have unchecked control, or neglecting to update bylaws and legal status. A disengaged or ill-informed board can miss warning signs of non-compliance. Best Practice: Strengthen your governance practices. Ensure your board meets regularly and reviews the charity’s financial performance and compliance checklist at least annually. Have a finance or audit committee in place to dive deeper into these issues. Document board decisions, especially around compensation, conflict of interest, and significant transactions. If your charity undergoes changes (like moving offices, changing directors, altering its activities), inform the CRA as requiredcanada.ca. Good governance not only prevents many compliance errors but also provides evidence to CRA that you are acting responsibly if you’re ever audited.

By learning from these common mistakes and implementing corresponding best practices, your charity will be much better positioned to pass any scrutiny. Think of compliance as part of your mission’s foundation: it isn’t the most glamorous part of charity work, but it enables the impactful programs to continue unimpeded. In the next section, we shift from prevention to cure – how Mackisen CPA can assist charities that find themselves facing a CRA audit or other compliance challenges.

Mackisen Strategy for Charity Audit Defense

At Mackisen CPA, we specialize in guiding charities through the complex world of compliance – before, during, and after a CRA audit. Our strategy for charity audit defense is comprehensive and proactive, designed to minimize disruptions and protect your organization’s status. Here’s how we approach helping a charity client in an audit scenario:

• Pre-Audit Preparation and Compliance Review: The best defense is a good offense. We begin by conducting a thorough compliance health check for your charity. This involves reviewing your financial records, T3010 filings, donation receipts, and governance policies against CRA requirements. Our Montreal-based team is familiar with both federal rules and Quebec-specific considerations, so we ensure nothing is overlooked. If we spot weak areas (for example, missing documentation for a foreign project or an unclear receipting practice), we help you correct them before the CRA comes knocking. This preparatory step often includes training your staff or board on compliance basics. By fortifying your compliance posture early, we reduce the likelihood of an audit, and if one does occur, you’ll be ready.

• Guidance During a CRA Audit: Facing CRA auditors can be stressful – but Mackisen will be by your side every step of the way. Once an audit is initiated, our CPAs help you manage the process strategically. We act as a liaison with the CRA auditors, making sure your rights are respected and that you clearly understand each request. Our team helps gather and organize the documents the auditors want to see (books of account, bank statements, receipts, board minutes, charitable program reports, etc.), in a format that addresses their questions succinctly. We know that audits can take place either as a field audit on-site (typically 3–5 days at your office) or as a desk audit by correspondencecanada.ca, and we prepare accordingly. Throughout the audit, we provide quick responses to CRA queries, preventing delays. If an auditor raises an issue during their review, we can provide clarifications or additional info on the spot whenever possible. Essentially, we act as your interpreters and advisors – translating CRA’s bureaucratic language into actionable to-dos for your team, and presenting your charity’s information to the CRA in the most favorable and factual light.

• Responding to Audit Findings (Post-Audit Representation): After the audit, the CRA will issue a letter outlining any concerns or preliminary findings – sometimes called an Administrative Fairness Letter (AFL) or proposal lettercanada.cacanada.ca. This is a critical juncture. Mackisen CPA helps you craft a strong, evidence-based response to the CRA’s findings within the given 30-day window (or as specified). We will explain any areas of alleged non-compliance from your perspective, correct any misunderstandings the auditors might have, and detail the remedial actions you’re willing to take. For example, if the CRA believes you missed your disbursement quota, we’ll show calculations or subsequent donations that remedy the shortfall. If they flag a governance issue, we’ll outline new policies the charity will implement. Our goal is to persuade the Charities Directorate that your charity either was in compliance or can quickly come into compliance without severe sanctions. This stage often involves referencing CRA policy documents or past correspondence – we handle the technical citations and ensure your case is presented clearly and confidently.

• Negotiating Compliance Agreements or Settlements: In cases of moderate non-compliance, the CRA may propose a compliance agreement instead of immediate penaltiescanada.cacanada.ca. This is essentially a contract where the charity agrees to specific corrective measures within a timeline. Mackisen will help negotiate the terms of any compliance agreement to be fair and realistic. We ensure you understand each obligation and we set up a timeline and assistance for you to fulfill them. Our team can also assist in navigating any sanctions (like a temporary receipting suspension or fines) if they are imposedcanada.ca – for instance, we advise on how to operate during a receipting ban and manage donor relations in the interim. In the rare event the CRA issues a Notice of Intention to Revoke, we guide you on the next steps (from filing a Notice of Objection to considering an appeal). Throughout, our focus is damage control: containing the compliance issues and keeping your charity’s lifeline intact.

• Post-Audit Recovery and Continuous Support: Surviving an audit is one thing; emerging stronger is another. Mackisen doesn’t just drop you at the finish line. We help your charity institutionalize the lessons from the audit. This might mean updating your financial controls, adopting a new receipting system, or scheduling regular check-ins for compliance maintenance. We also debrief with your board and management: what went well, what needs improvement, and how to prevent future issues. If the audit resulted in revocation (worst-case scenario), we can assist with the process of applying for re-registration down the road or managing the wind-up in compliance with CRA rules (including the handling of the revocation tax if applicable). The end goal is to ensure your charity not only clears the audit but is set up to thrive afterward with best practices in place.

The Mackisen approach is characterized by personalized service and deep expertise in charity regulations. We understand that every charity’s situation is unique – from a small community foundation in Montreal’s West Island to a large provincial nonprofit based downtown – and we tailor our audit defense strategy accordingly. Our team’s familiarity with the CRA Charities Directorate staff and procedures means we can anticipate what auditors are looking for and address issues proactively. Most importantly, we act as your partner in preserving the trust that your donors, beneficiaries, and regulators place in your organization.

Real Client Experience

Nothing illustrates our approach better than real-life success stories. Here are a few anonymized examples of Montreal-area charities that Mackisen CPA has helped resolve audit challenges and regain full compliance:

• Client Story 1 – Receipting Rescue: A local arts charity in Montreal ran into trouble when a former volunteer treasurer issued dozens of donation receipts with errors (missing the CRA disclaimer and appraising in-kind gifts incorrectly). A donor’s complaint led to a CRA audit focusing on receipting. The charity’s new executive director was overwhelmed and came to Mackisen for help. Our intervention: We quickly performed a receipting audit – reviewing all issued receipts for the period and identifying which ones needed correction. We worked with the charity to issue corrected receipts and obtain signed cancellation of the faulty ones. During the CRA audit, we presented a binder of every corrected receipt along with proof of each donation. We also showed that the charity had adopted Mackisen’s improved receipting system moving forward. Outcome: The CRA auditors, initially inclined to impose penalties, were satisfied that the charity had fixed the problem. They issued an education letter but no finescanada.ca. The charity kept its registration, and donors were none the wiser. The Executive Director later remarked that Mackisen’s swift action “saved our charity’s reputation” by addressing the issue head-on.

• Client Story 2 – Disbursement Quota Dilemma: A family-run private foundation in Quebec had consistently underspent its disbursement quota for two years, not realizing the requirement had increased for larger assets. By the time they engaged Mackisen, they had received a stern CRA notice about the shortfall. Our intervention: We calculated exactly how much the foundation was behind on its DQcanada.ca and developed a plan to get them back on track. This involved scheduling additional charitable grants to qualified donees and earmarking funds for a special program before the fiscal year-end. We then opened communication with the CRA auditor, providing a schedule of the planned disbursements and a candid explanation (the foundation had been building capital for a future project, not understanding the need for CRA pre-approval). Outcome: Impressed by the proactive response, the CRA agreed to hold off on sanctions to allow the foundation to execute the catch-up plan. The foundation met its targets within the agreed timeframe, and the audit was closed with a compliance agreement instead of revocation. The founder commented that “Mackisen not only saved our status but helped us become a more effective grant-maker” since now they have a clearer annual giving strategy aligned with regulatory requirements.

• Client Story 3 – Overseas Oversight: An international relief charity based in Montreal faced an audit after media reports questioned how it was using donations for a project in West Africa. The CRA was concerned about whether the charity exercised control over funds sent abroad. Our intervention: Mackisen stepped in as the charity’s representative. We gathered all project documents: contracts with the overseas partner, wire transfer records, photos and receipts from the field, and beneficiary reports. Some gaps existed (e.g. no clear original budget or translation of foreign receipts), so we helped the charity recreate a reasonable paper trail and obtain affidavits from field volunteers about the work done. We also instituted a new financial monitoring procedure for future projects (requiring quarterly reports and fund reconciliation from the partner). Outcome: In meetings with the CRA, we demonstrated that while the charity’s documentation had been informal, the funds were indeed used charitably to build wells and distribute supplies. We presented the new oversight procedures as proof the charity was tightening controlcanada.ca. The CRA audit concluded with a few recommendations but no sanction – the charity was allowed to continue operating, with the Charities Directorate acknowledging the improvements. This was a close call; the charity’s founder later told us, “Without Mackisen’s guidance, we might have lost everything we worked for in our community overseas.”

These stories highlight a common theme: with expert help and a cooperative approach, even serious audit issues can be resolved. In each case, Mackisen CPA turned a potentially devastating audit into an opportunity for the charity to improve its practices and satisfy the CRA. We take pride in being problem-solvers and advocates for our charity clients, whether that means rolling up our sleeves to reconstruct records or negotiating with regulators on your behalf. Each successful resolution not only keeps a charity’s doors open but also preserves the important services and programs it provides to the community.

Frequently Asked Questions

Q: What information must appear on an official donation receipt?
A: An official receipt needs to include: the charity’s name (as registered) and Canadian registration number, the serial number of the receipt, the place/date of issue, the donor’s full name and address, the amount of the gift (and fair market value of any advantage received by the donor), a description of any in-kind gift, the signature of an authorized individual, and the CRA’s mandatory disclaimer “Tax receipts issued without authorization…” etc.canada.ca. Essentially, the receipt should paint a complete picture of the donation. Using the CRA’s receipting checklistcanada.ca is advisable. If you make an error on a receipt, do not alter it after the fact – instead, issue a corrected replacement and void the original as per CRA guidelinescanada.ca. Proper receipting protects both the donor’s tax deduction and your charity’s credibility.

Q: Is our charity allowed to engage in advocacy or political activities? What are the limits?
A: Yes, your charity can advocate for changes in laws or policies as long as it’s connected to your charitable purpose and remains non-partisan. After changes to the Income Tax Act in 2018, there is no fixed percentage limit on resources devoted to public policy dialogue and development activities – in fact, a charity may use 100% of its resources for advocacy that furthers its charitable purposescanada.ca. For example, a charity for the homeless can campaign for more affordable housing policies, since that relates to its purpose. The crucial limit is that you cannot support or oppose any political party or candidate for officecanada.ca. All advocacy must be issue-focused, not party-focused. Also, the activities should be well-informed and structured (essentially an extension of your charitable work, not just opinion pieces or protests for unrelated causes). Charities should avoid partisan elections work, donations to political campaigns, or excessive personal attacks on public officials. Those would violate the rules and risk sanctions. Stay factual, keep receipts of any expenditures on advocacy, and ensure the board approves advocacy initiatives as furthering your mission. If in doubt, consult CRA’s guidance CG-027 or a legal advisor for clarity on a planned activity.

Q: What should we expect if our charity is selected for a CRA audit?
A: A CRA charity audit typically begins with an official notice or phone call from the Charities Directorate explaining that your organization has been selected for audit. The audit can be conducted on-site at your charity’s office (field audit) or remotely (office audit), depending on the issues involvedcanada.ca. In a field audit, two CRA auditors might spend several days (3-5 days is common) at your locationcanada.ca, examining your books, records, and operations. They will likely ask for documents like bank statements, donation receipts, expense invoices, board minutes, and fundraising materials. They may also interview key personnel or directors. The auditors’ aim is to verify that your filings are accurate and that you’re complying with the Income Tax Act. Once the audit is done, the CRA will send you a summary of results – either a clean bill of health or an audit findings letter outlining concernscanada.ca. You will normally have a chance to respond to any issues before final decisions are madecanada.ca. Outcomes range from no action (if everything checks out), to an education letter or compliance agreement for minor problems, up to penalties or revocation for serious non-compliancecanada.ca. The whole process can take several months from start to finish. Throughout the audit, it’s important to be cooperative, provide information timely, and consult your CPA or lawyer with experience in charity audits. Remember, you also have rights – for instance, the right to appeal if you disagree with a revocation or penalty. But in many cases, open communication and prompt remediation of issues during the audit can lead to a fair resolution without escalation.

Q: Can our charity pay a salary or honorarium to a board member (director)?
A: Generally, no – charities in Canada do not pay their directors for acting in their director capacity. The norm (and in some provinces, the legal requirement) is that directors serve without remuneration to avoid any conflict of interest or private benefitmillerthomson.com. The Income Tax Act also stipulates that no part of a charity’s income can “enure to the benefit” of a proprietor, member, shareholder, or trusteecanada.ca. That said, there are a few nuances: a charity can reimburse directors for reasonable out-of-pocket expenses (like travel costs to attend meetings). Also, if a director provides services to the charity in a different role (for example, IT services or legal advice), the charity may compensate them for that provided strict conditions are met (full disclosure, the payment is fair market value, the director abstains from the decision, and it’s allowed by provincial trust law). In Quebec, the laws are a bit more flexible under the Quebec Companies Act or the new Not-for-Profit Corporations Act, but the best practice remains to avoid paying directors unless absolutely necessary and clearly justified. If you do contemplate compensating a board member, get legal advice and ensure it’s transparently approved by the rest of the board with the director in question recused. Also note, paying any honorarium or fee to a director must be reported on the T3010. The CRA will likely scrutinize such arrangements to ensure they are not an “undue benefit”. In sum: board members should not be on your charity’s payroll for their governance duties. Keeping governance volunteer-based is the safest way to demonstrate your charity operates for public benefit and not for private gain.

Why Mackisen?

Running a charity in Montreal or anywhere in Quebec comes with unique challenges – language, jurisdictional nuances, and a complex federal regulatory regime. Mackisen CPA stands out as a trusted partner for charities and nonprofits in this landscape. Here’s why Quebec charity leaders choose us for audit defense and compliance guidance:

• Deep Charity Compliance Expertise: Our firm isn’t a generalist accounting office; we have a dedicated team that focuses on the charitable and non-profit sector. From the Income Tax Act nuances to CRA Charities Directorate policies, our professionals know the rules inside-out. We stay up-to-date on changes (like the latest disbursement quota updates and guidance on foreign activities) so you get advice that is current and accurate. This expertise means we can quickly pinpoint compliance issues and craft effective solutions that others might miss.

• Local Montreal Knowledge, National Reach: Located right here in Montreal, we understand the Quebec context in which you operate – whether it’s dealing with Revenue Quebec implications, bilingual record-keeping, or provincial fundraising laws. We’re “the CPA firm near you,” accessible for face-to-face meetings or quick phone calls when you need us. At the same time, we have experience with federal CRA processes and even court appeals, so we can represent you beyond the local level if needed. This combination of local touch and broader reach gives you the best of both worlds.

• Personalized, Hands-On Service: At Mackisen, we pride ourselves on being more than just auditors or consultants – we become partners in your mission. We take the time to learn about your organization’s goals and challenges. Our solutions are not one-size-fits-all checklists, but tailored strategies that fit your charity’s size, scope, and culture. And when an audit or compliance issue arises, we roll up our sleeves and work side by side with your team. Our clients often remark on our approachability and dedication: you’ll find us to be educators as much as advisors, ensuring you understand the “why” behind our recommendations.

• Holistic Support – Beyond the Audit: Our value proposition extends past resolving the immediate issue. We aim to strengthen your charity for the long run. That might mean setting up better financial systems, training your staff on CRA compliance, or helping your board establish an Audit & Finance Committee. We don’t just extinguish fires; we help fireproof the building. And because we offer a full suite of accounting services (from bookkeeping to financial statement audits), we can integrate compliance into all aspects of your financial management. This holistic approach saves you time and money, and it reduces stress knowing that one reliable firm has you covered.

• Proven Track Record of Success: The real proof is in results. Mackisen CPA has successfully guided numerous charities through CRA audits with outcomes ranging from “no change” audit letters to negotiated settlements that avoided revocation. We have helped organizations retain their charitable status, recover from past compliance lapses, and even re-register after a revocation. Our case studies (like the ones shared above) demonstrate a consistent ability to protect our clients’ interests. We’re proud that many of our clients come through referrals – there’s no greater endorsement than a nonprofit leader telling a peer, “Mackisen saved our charity.” We strive to earn that level of trust in every engagement.

In conclusion, Mackisen CPA is uniquely equipped to help Quebec charities keep their registration secure. We know that as a nonprofit executive or board member, your passion lies in your cause – be it feeding families, educating youth, or protecting the environment – and not in parsing tax law or dealing with auditors. That’s where we come in. We handle the nitty-gritty compliance and audit defense work so that you can focus on what you do best: making a difference in the community. With Mackisen in your corner, you gain peace of mind that your charity’s legal and financial foundations are solid. In the ever-evolving regulatory environment, we’ll be your guide and guardian, ensuring that a CRA audit becomes a footnote in your charity’s success story, not a headline. Let us help you navigate the complexities, safeguard your charitable status, and ultimately, empower your organization to achieve its mission with confidence.

Your mission is too important to be sidelined by compliance issues – and with the right expertise, it won’t be. Mackisen CPA is here to ensure your charity remains compliant, credible, and poised to serve Montreal and beyond for years to come. Together, we’ll keep your charitable registration secure and your impact growing.