Applying for tax exempt status from the CRA – it’s a really important step in starting a charity, right?
So why is it that I meet SO many founders who have tried to do it themselves? Or trusted a paralegal or even a corporate lawyer with zero experience in charity law do it for cheap?
I get it – the prospect of hiring someone to do this is expensive and daunting. But things can get really hosed up if it isn’t done right.
We were recently contacted by a prospective client who had hired a prominent law firm in North Toronto about a year ago, who while experts in corporate law, have zero experience in Not-for-Profit Law and Charity Law.
Predictably enough, after incorporating in Ontario (first mistake), with improper wording in the Letters Patent (second mistake), the lawyers at this firm drafted bylaws for the wrong legislative jurisdiction (third mistake), and filed the form t2050, listing activities that are not charitable under the Income Tax Act. This is just a partial list of the many errors.
Our prospective client did a bunch of work and made some huge progress for the new organization. Everything seemed to be going great, until...
A year after beginning the process, and many thousands of dollars out of pocket, our client was informed that “regretfully, the CRA has rejected the application”.
Did the law firm offer our client her money back? Nope.
Would this application have been approved by the Charities Directorate? If done properly, yes!
That was a $3500 mistake, all for not hiring a lawyer proficient in Not-for-Profit and Charity Law.
This lady is a smart, capable person. She had NO way to know that the consequences could be so drastic.
Don’t let this be you. The charity application can be tricky and confusing, and it’s just too easy to get yourself into this kind of situation.
Googling every question won’t get you to a point where you understand what you’re doing on these forms either. There’s just too much for a person to absorb everything.
You need an expert, someone who knows the ins and outs of Not-for-Profit Law and Charity Law. And you need help with the key questions (things you don’t know you should be asking) before you even get incorporated.
When you don’t have the right road-map, the mistakes add up and the cost multiplies.
My advice to founders?
Get someone to help you through this process.