Top 10 Canadian Charity Compliance Issues

Q. As a newly appointed Director of a charity, your role is crucial in maintaining compliance with the CRA Charities Directorate. What are the key compliance issues that demand your attention?

A. The top 10 compliance issues the CRA repeatedly focuses on are listed below. This list reflects CRA enforcement priorities as observed through ongoing compliance audits and the CRA's published Report on the Charities Program 2024–2025. Directors should note that the Charities Directorate underwent significant internal restructuring in 2025–2026, including the creation of a new Client Division and a Compliance Promotion section — a signal that enforcement activity and proactive outreach are increasing across the sector.

The Top 10 Compliance Issues in Detail

1. Incorrect Issuance of Donation Receipts

Incorrect receipting is one of the most common — and most consequential — compliance failures CRA identifies during charity audits. Charities must issue official donation receipts for all gifts of $20 or more, and each receipt must include specific information required under the Income Tax Act and CRA regulations. Missing fields, incorrect amounts, improperly described property, or receipts issued for ineligible gifts can all trigger an audit and, in serious cases, result in the suspension of receipting privileges or revocation of charitable status.

Common receipting mistakes include issuing receipts for volunteer time (which is not a gift), issuing receipts for the full value of a fundraising dinner ticket rather than only the eligible amount, and failing to include the charity's registration number or the date the gift was received. For a detailed breakdown of what qualifies as a receiptable gift, see our guide on charitable receipting for non-cash gifts. 

2026 Update: Budget 2025 proposed that certain fields would be removed from the mandatory receipt requirements, and that charities would be expressly permitted to issue electronic donation receipts going forward. These changes are proposed and not yet fully in force. Directors should confirm current receipt requirements directly with a charity lawyer or by consulting CRA's official donation receipt guidance before making any changes to their receipting process. 

What directors should do: Conduct an annual review of your receipting template against the CRA's current official donation receipt requirements. If your charity issues a high volume of receipts, consider having a charity lawyer review your process.

2. Failure to File the Annual T3010 Return

Every registered charity in Canada is required to file a T3010 Registered Charity Information Return within six months of its fiscal year end. Failure to file on time is one of the leading causes of charitable status revocation in Canada — and unlike many other compliance issues, it is entirely avoidable.

CRA does not grant extensions automatically. If a charity misses its deadline and does not respond to CRA's notice, revocation proceedings can begin. A charity that loses its registered status loses the ability to issue tax receipts, which typically devastates donor relationships and funding.

2026 Update: This is the single most important operational change for Canadian charities in 2026. As of April 1, 2026, the CRA's Charities Directorate no longer accepts documents by fax. All T3010 returns must now be submitted online through CRA My Business Account or CRA-certified software. Paper and fax submissions are no longer accepted. Charities that have not yet registered for CRA's online services need to do this immediately. CRA has made a free Digital Concierge service available — call 1-800-267-2384 for one-on-one help setting up online access.

What directors should do: Confirm your charity is registered for CRA My Business Account. Set a calendar reminder at least 60 days before your T3010 deadline. Assign a specific board member or staff person as accountable for filing.

3. T3010 Errors and Omissions

Filing the T3010 on time is only half the requirement — the return must also be accurate and complete. CRA reviews T3010 returns and routinely flags inconsistencies, missing information, or figures that do not reconcile with the charity's financial statements. Common errors include misreporting program expenditures, failing to disclose compensation for directors or senior staff above the required threshold, and incorrectly categorizing fundraising costs.

Errors and omissions on the T3010 can prompt a formal CRA audit, requests for additional documentation, and in cases where CRA determines the inaccuracy was material or deliberate, penalties or loss of charitable status.

2026 Update: As of February 2026, the CRA's Open Government Data Portal now hosts T3010 public charity data going back to 1990 — over three decades of sector data accessible to researchers, journalists, and the public. This means CRA has significantly more historical data available to cross-reference against current filings. Inconsistencies between this year's return and prior years are far easier for CRA to identify. Accuracy has never mattered more.

What directors should do: Have your T3010 reviewed by a qualified accountant or charity lawyer before submission. Compare this year's return against the prior year's filing to identify any unexplained variances before CRA does.

4. Undertaking Non-Charitable Activities

Registered charities in Canada must devote their resources — funds, staff time, and property — exclusively to charitable activities that further their stated charitable purposes. Engaging in activities outside those purposes, even with good intentions, puts charitable status at risk.

Non-charitable activities are a broader category than many directors realize. They include operating a social enterprise that benefits private individuals, running programs that serve members rather than the public, or pursuing advocacy that goes beyond what is permitted under the charity's registered purposes. CRA does not require that the non-charitable activity be large-scale — even a minor, ongoing activity can form the basis of a compliance concern if it is not captured within the charity's registered purposes. For guidance on what changes require CRA notification, see our article on keeping the CRA informed of changes to your charity. 

If a charity wants to expand into new areas, the correct step is to formally amend its charitable purposes with CRA before beginning the new activity. Note that as of 2025–2026, CRA no longer provides pre-approval or advance review of purpose changes — which means charities cannot get informal sign-off before making changes and must ensure any amended purposes meet CRA's legal requirements before submitting.

What directors should do: Review your charity's registered purposes at least annually. Before starting any new program or activity, confirm it falls clearly within those purposes. Consult a charity lawyer before amending your purposes.

5. Gifts to Non-Qualified Donees

Canadian charities may only transfer funds, property, or resources to qualified donees as defined under the Income Tax Act. Qualified donees include other registered charities, certain government bodies, and prescribed organizations. Gifts to individuals, foreign organizations that are not qualified donees, or Canadian non-profits that are not registered charities all risk triggering a CRA compliance review.

This issue most frequently arises when charities want to support international causes or partner with local community groups that are not registered. The desire to help is understandable — but the legal requirement is clear. A gift to a non-qualified donee, regardless of how worthy the recipient, is a compliance violation that can result in loss of registered status.

The solution is not to abandon international or community partnerships, but to structure them properly — typically through a direction and control framework or through a formal agency relationship — so that the funds remain under the charity's legal control.

What directors should do: Before transferring funds to any organization, confirm its status using the CRA Charities Listing. If you are partnering with a foreign organization, speak with a charity lawyer about how to structure the relationship properly.

6. Failure to Maintain Direction and Control Over Foreign Activities

When a Canadian charity operates programs or transfers funds outside Canada, it remains legally responsible for ensuring those resources are used for its own charitable purposes. This is the direction and control requirement — and failing to meet it is one of the most serious compliance issues CRA identifies in international work.

Direction and control means the charity must actively manage and oversee how its funds are being used abroad, not simply trust a foreign partner organization to use them appropriately. This requires written agreements, activity reporting from partners, financial accountability mechanisms, and evidence that the charity reviewed how the funds were spent. For a practical framework on working through third parties, see our article on how a charity can collaborate with an intermediary. 

2026 Update: CRA's Charities Directorate is participating in the Financial Action Task Force (FATF) mutual evaluation focused on terrorist financing risk in the non-profit sector. This review is scheduled across the 2025–2026 fiscal year and signals that CRA is under international pressure to demonstrate rigorous oversight of how Canadian charity funds flow internationally. Charities with foreign programs should expect that this area will receive increased scrutiny in coming years.

What directors should do: Ensure all foreign programs operate under a written agreement that specifies how funds must be used, what reporting is required, and how your charity will verify compliance. Retain all documentation. Review your foreign activity protocols with a charity lawyer.

7. Unreasonable Fundraising Costs

CRA expects charities to fundraise in a cost-effective manner. While there is no fixed legal threshold, CRA uses a ratio of fundraising costs to fundraising revenue as one indicator of whether a charity's fundraising practices are reasonable. Ratios above 35% attract scrutiny; ratios above 70% are generally considered unacceptable and can result in compliance action.

Fundraising cost issues most often arise when a charity relies heavily on third-party fundraising firms, runs telethon or direct-mail campaigns with high overhead, or fails to properly allocate costs between fundraising and program delivery. Directors must understand how their charity's fundraising expenditures are categorized and reported, because how costs are labelled on the T3010 directly affects how CRA assesses the charity's fundraising efficiency.

What directors should do: Review your charity's fundraising cost ratio annually. If your charity uses third-party fundraisers, review the contract terms and ensure the arrangement is structured appropriately. If your ratio is above 35%, seek legal advice before your next T3010 filing.

8. Involvement in Partisan Political Activities

Canadian charities are strictly prohibited from engaging in partisan political activities — meaning activities that support or oppose a specific political party or candidate. This prohibition is absolute and applies regardless of how indirectly the support is expressed.

Charities may engage in public policy dialogue and development activities (PPDDA) — formerly referred to as political activities — provided those activities are non-partisan and connected to their charitable purposes. CRA issued updated guidance on PPDDA under CG-027, which clarifies what is permitted. However, crossing into partisan territory remains a revocation-level risk.

2026 Update: The government confirmed by late 2025 and into 2026 that proposed legislative changes that would have introduced new political disclosure obligations for certain charities — and which were widely criticized as viewpoint discrimination — were taken off the table. CRA's existing non-partisan requirement under the Income Tax Act remains fully in force. Directors should not interpret the withdrawal of those proposals as any relaxation of the partisan activities prohibition — the rules are unchanged.

What directors should do: Review CRA's guidance document CG-027 on public policy dialogue and development activities. Establish a board-level policy on what political engagement your charity will and will not participate in. When in doubt, consult a charity lawyer before any public advocacy campaign.

9. Unrelated Business Activities

Registered charities may carry on a business, but only in limited circumstances. A charity can operate a related business — one that is directly connected to its charitable purposes — or a business that is run primarily by volunteers. Operating an unrelated business for profit is not permitted for registered charities and will attract CRA enforcement.

This issue tends to arise when a charity grows and seeks to diversify its revenue. A food bank that opens a grocery store to generate income, or an arts charity that runs a commercial event space, may find that CRA views those activities as unrelated business activity. The test is not whether the revenue goes to good causes — it is whether the business itself is sufficiently connected to the charity's purposes.

What directors should do: Before launching any earned revenue or social enterprise activity, have a charity lawyer assess whether it qualifies as a related business under CRA's rules. Do not assume that because the revenue will support charitable programs, the activity is automatically permitted.

10. Inflated Tax Receipts Related to Religious Tuition

This compliance issue is specific to charities that operate private religious schools or educational programs and issue donation receipts to parents whose children attend those programs. CRA has identified a pattern in which receipts are issued for amounts that exceed the true eligible donation, or in which tuition payments are recharacterized as charitable gifts and receipted inappropriately.

CRA's position is clear: parents cannot receive a donation receipt for amounts that represent payment for their child's tuition or services received. Where a bona fide gift is made to a religious school charity — an amount given freely and without expectation of benefit — a receipt may be issued for the eligible portion only. The receipting rules in this area are specific and heavily scrutinized.

This issue has resulted in a significant number of audits, revocations, and gross negligence penalties for charities and their directors. It is not a technical grey area — it is an area of known and active CRA enforcement.

What directors should do: If your charity operates a religious school or educational program, have your receipting practices reviewed by a charity lawyer immediately. Do not rely on informal advice or historical practice — this is an area where CRA has demonstrated it will pursue enforcement aggressively.

Emerging Compliance Issues Directors Should Watch in 2026

The compliance landscape for Canadian charities is evolving. In addition to the core ten issues above, directors should be aware of two emerging areas that CRA and the federal government are actively focusing on.

Digital Filing Non-Compliance

The shift to mandatory online filing is no longer optional or gradual — it is complete. As of April 1, 2026, the CRA's Charities Directorate no longer accepts faxed documents of any kind. All filings, including the T3010 return, must be submitted through CRA My Business Account or approved software. Charities that have not yet made this transition risk filing delays, missed deadlines, and the compliance consequences that follow.

CRA has made the Digital Concierge service available at no cost to help charities get set up. Additionally, the government's April 2026 Spring Economic Update announced an intention to modernize the entire regulatory framework for the charitable sector in 2026–2027, with a specific focus on leveraging technology and digitization. Directors should treat digital compliance as a board-level priority, not an administrative afterthought.

What directors should do: Ensure your charity is registered for CRA My Business Account today. Assign a board member or senior staff person to own the digital transition. Call CRA's Digital Concierge at 1-800-267-2384 if your charity needs help getting started.

Terrorist Financing and AML Risk

Charities that operate internationally or that transfer funds to foreign partners are subject to heightened scrutiny under Canada's Anti-Money Laundering and Anti-Terrorist Financing regime. The CRA's Charities Directorate is currently supporting a Financial Action Task Force (FATF) mutual evaluation focused on Canada's compliance with Recommendation 8 — the international standard addressing the risk of terrorist financing through the non-profit sector. This evaluation is taking place across the 2025–2026 fiscal year.

The practical implication for directors is that CRA is actively demonstrating to international regulators that it has rigorous controls over how Canadian charity funds flow abroad. Charities without documented due diligence policies for foreign partners, gift recipients, and international transfers are exposed.

What directors should do: If your charity transfers funds internationally, have a charity lawyer review your due diligence and direction and control framework. Document everything — partner agreements, activity reports, payment records, and the steps your charity took to verify how funds were used.

What CRA Is Focusing On in 2026

Directors should understand the broader context in which these compliance issues sit. The CRA's Charities Directorate is not simply enforcing existing rules — it is actively modernizing how it operates and how it monitors the sector. For a full picture of recent CRA activity, see our analysis of CRA's Report on the Charities Program 2024–2025. 

Key developments from 2025–2026 that directly affect compliance expectations:

The CRA restructured its Charities Directorate in 2025–2026, creating a new Client Division and a dedicated Compliance Promotion section. These changes are designed to improve enforcement consistency and deliver more targeted education to charities before compliance failures occur — which means charities can expect both more outreach and more systematic audit activity.

Online filing uptake is a CRA priority for 2026. CRA has stated explicitly that filing the T3010 online is the required method going forward, and has delivered multiple national webinars in partnership with Imagine Canada to drive adoption. The fax retirement on April 1, 2026 was the final step in making this mandatory in practice.

The April 2026 Spring Economic Update announced a government commitment to modernize the entire charitable sector regulatory framework in 2026–2027 — including updated rules, digital-first processes, and potentially expanded reporting requirements for non-profit organizations. Directors should stay current with Charities Directorate quarterly updates as these changes unfold.

Frequently Asked Questions

What happens if a Canadian charity doesn't file its T3010 on time? 

If a charity fails to file its T3010 Registered Charity Information Return within six months of its fiscal year end, CRA may issue a notice of intention to revoke charitable status. Revocation means the charity can no longer issue tax receipts and loses its tax-exempt status. CRA does not grant filing extensions automatically, so missing the deadline — even by a short period — can trigger a formal process.

Can a Canadian charity lose its registered status for political activities?

Yes. Partisan political activities — supporting or opposing a political party or candidate — are absolutely prohibited for registered charities and can result in revocation of charitable status. Non-partisan public policy dialogue and development activities are permitted if they are connected to the charity's charitable purposes, under CRA guidance CG-027. The line between permissible advocacy and prohibited partisan activity requires careful legal review.

What is an unreasonable fundraising cost according to CRA? 

CRA does not set a single fixed threshold, but uses a fundraising cost ratio as a key indicator. Ratios above 35% of fundraising revenue attract scrutiny; ratios above 70% are generally treated as unacceptable. Ratios that fall into the high range can result in a compliance review, education letter, or audit. Charities should track and review their fundraising cost ratios annually.

How does a charity maintain direction and control over foreign activities?

Direction and control means a Canadian charity must actively oversee how its funds are used abroad, rather than simply trusting a foreign partner. In practice, this requires written agreements with foreign organizations specifying how funds are to be used, regular reporting from partners on activities and expenditures, and documented evidence that the charity reviewed and approved how funds were spent. The foreign organization acts as an agent of the Canadian charity — not as an independent recipient.

What are CRA's online filing requirements for charities in 2026? 

As of April 1, 2026, the CRA Charities Directorate no longer accepts T3010 returns or any other documents by fax. All filings must be submitted electronically through CRA My Business Account or CRA-certified software. Paper submissions are no longer the recommended method. Charities that have not yet registered for CRA's online services should do so immediately. CRA's free Digital Concierge service (1-800-267-2384) provides one-on-one help for charities transitioning to online filing.

What is the penalty for issuing incorrect donation receipts in Canada?

Issuing incorrect or fraudulent donation receipts can result in a penalty equal to 125% of the face value of the receipt under the Income Tax Act. In cases involving deliberate inflation or misrepresentation, CRA can also revoke the charity's registration. Directors can face personal liability if they knowingly authorize improper receipting. This is one of the most aggressively enforced areas of charity compliance.

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