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Voluntary disclosure and non-profit organizations

taxesIf you operate an incorporated not-for-profit organization, you must file a tax return every year, unless your org is a registered charity. If you fail to file a return, you could be on the hook for a big past tax judgment. Arthur Drache, senior partner with charity and non-profit law firm Drache Aptowitzer LLP, suggests that many such organizations fail to understand their tax obligations, and only learn about them when they retain a new accountant—one who actually understands the law.

What we have noticed is that very often when there is a change of accountants, the first bad news delivered to the client is that it is many years in arrears of its filings. This may not in itself be a serious problem in that the penalties associated with the non-filing of income tax returns is based on a percentage of tax owing. But the non-filing means that the tax authorities can go back as far as they wish in examining the finances of the organization. And since non-profit status is based on financial and legal “facts” rather than registered status as is the case of a charity, there is at least a theoretical possibility that the Revenue Agency could impose taxes for years gone by, based on a finding that the non-profit status is not in fact appropriate.

Drache recommends organizations in this position voluntarily disclose their tax information for all years in question. By offering a voluntary disclosure, organizations can avoid the penalties associated with missed filings. Of course, there are rules for this sort of thing. The disclosure must:

  • Be truly voluntary, not the result of an audit or other action
  • Be complete
  • Cover information at least a year old

Now might be a good time to ask yourself—or your accountant: have you been filing tax returns?

Adam Gorley
First Reference Internal Controls, Human Resources and Compliance Editor

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Adam Gorley

Editor at First Reference
Adam Gorley, B.A. (Phil.), is a researcher, content provider and editor. He contributes regularly to First Reference Talks and Internal Control blogs, HRinfodesk and other First Reference publications. His areas of focus include broad human resources issues, corporate social responsibility, corporate governance and government policies, information technology and labour market trends.Read more
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