What is Resource Accountability?

Bill S-222, the Effective and Accountable Charities Act, replaces the current Income Tax Act language of “own activities” with new language of “resource accountability.” Learn more about what the term resource accountability means:

Under resource accountability, a charity working through an intermediary outside of Canada will engage in full due diligence up front and develop agreements on the deliverables, activities, budgets, reporting and timelines. The non-charity will be required to provide full accountability to the charity for receiving and reporting on the use of funds as per the timelines agreed upon. When these agreements are complete, the non-charity will report to the charity about how the money is spent or resources that were used and about the progress on outcomes and impact, but the non-charity will not be controlled or dictated to by the charity. The project management will rest with the non-charity.

In this way, the amended act will allow charities to move away from “direction and control” as a measure of accountability to upfront due diligence, financial control and reporting as the measure which will provide accountability to the charities donors and taxpayers.

In many situations it is imperative for a charity to work with a non-charity because they are on the ground and know the community or situation best and are in the best place to determine how to use the money. The charity will have assurances through due diligence that the money is spent to achieve its charitable purpose. Resource accountability is more than appropriate to ensure that charitable funds are being used for charitable purposes and providing accountability for charitable giving.

Should the language in the Income Tax Act change as a result of this amendment, the CRA will launch extensive consultations to change their guidance on how charities must follow the law and report on activities. Further, it may compel the CRA to add questions and require some more pointed information on the T3010 tax filing: e.g., “how much money did the charity spend on programs operated either jointly or through another person or organization that is not a qualified donee?” and “please provide the name, address and location of the other person or organization.”

The CRA continues to have full ability to conduct an audit of the charity to ensure accountability. At the outcome of an audit, if the CRA concludes that the charity acted improperly, it can pursue a number of avenues:

• a warning (the CRA refers to this as an “education letter”, typically reserved for first offenses, or in cases where the funds involved are relatively small, or errors are inadvertent),
• requiring the charity to agree to a number of operational steps in order to prevent the non-compliance from occurring again (CRA refers to this as an “undertaking letter”),
• temporarily suspending the charity’s ability to issue receipts, in cases specified in s. 188.2 of the Act (e.g., failure to keep and provide “…information in such form as will enable the Minister to determine whether there are any grounds for the revocation..”. of the charity, or
• outright revocation, usually reserved for egregious non-compliance or repeat offenders.