When Does a Charity Need an Audit in Canada: CRA Guidance

Running a charity in Canada means following strict rules about financial reporting. Many charity leaders wonder when they need to have their books formally audited and what the legal requirements are.

In Canada, audit requirements vary by jurisdiction. Federal charities typically need an audit when their annual revenue exceeds $250,000, while Ontario charities require an audit at $500,000. Other provinces have their own thresholds. The Canada Revenue Agency monitors registered charities to ensure they use funds properly and meet their reporting obligations.

Provincial laws also set specific audit requirements based on where the charity is incorporated, with thresholds ranging from $250,000 to $500,000 depending on the jurisdiction. Understanding these requirements helps charities avoid penalties, maintain their registered status, and keep donor trust.

The audit process involves more than just meeting a revenue threshold. It includes knowing what type of financial review is needed and how the CRA conducts audits.

Charities should also know what steps to take to stay compliant year after year.

Legal Requirements for Charity Audits in Canada

The Income Tax Act and provincial corporate legislation work together to set audit requirements for Canadian charities. The threshold typically sits at $250,000 in annual revenue, though this varies by province and organizational structure.

Mandatory Audit Thresholds and Review Engagements

Determining whether you need an audit depends on two main factors: your annual revenue and your jurisdiction of incorporation (Federal vs. Provincial).

It is important to note that "requiring an audit" is the default starting position for most charities. However, the law often allows members to vote to lower this requirement to a Review Engagement or a Compilation if revenue falls below certain limits.

The table below outlines the statutory requirements for the two most common jurisdictions for our clients:

Audit & Review Thresholds: Federal vs. Ontario

> Note: If your charity is incorporated in a province other than Ontario, or if you have specific bylaws that mandate an audit regardless of revenue, different rules may apply. Always check your letters patent or articles of incorporation.

Federal Versus Provincial Audit Requirements

It is a common misconception that the CRA sets the audit threshold. In reality, corporate law dictates when you need an audit, while the Income Tax Act dictates what you must file.

• Corporate Law (The Requirement): Your obligation to audit comes from the act you incorporated under (e.g., the Canada Not-for-profit Corporations Act or the Ontario Not-for-profit Corporations Act). This is about accountability to your members.
• CRA (The Filing): The CRA does not explicitly force an audit in the Income Tax Act. However, when you file your T3010 return, the CRA asks if you have prepared financial statements and if they were audited. If your revenue is over $250,000, the CRA recommends audited statements to ensure accuracy, but they enforce the rule based on your governing legislation.

Non-Profit Versus Registered Charity Rules

Registered charities must maintain their charitable registration by meeting CRA standards and filing annual returns. This status allows them to issue donation receipts to qualified donees and access certain tax benefits.

Non-profit organizations without charitable registration follow corporate law requirements but don't answer to the CRA's Charities Directorate. They can't issue tax receipts and face different compliance obligations.

Both registered charities and non-profit organizations must follow provincial audit thresholds if they're incorporated. However, registered charities face additional scrutiny because they benefit from tax-exempt status and can provide tax advantages to donors.

The audit requirements for registered charities often exceed those for standard non-profits. Grant-makers and government funders typically demand higher financial reporting standards from registered charities due to their public accountability obligations.

Canada Revenue Agency's Role in Charity Audits

The Canada Revenue Agency (CRA) oversees all registered charities in Canada through its Charities Directorate. The CRA conducts between 150 and 800 audits each year using a risk-based approach that targets specific compliance concerns.

Charities Directorate Responsibilities

The Charities Directorate manages the registration and ongoing compliance of all Canadian registered charities. This branch of the CRA processes applications for charitable status and monitors registered organizations to ensure they follow the Income Tax Act.

The Directorate's primary duties include reviewing annual T3010 returns, conducting audits, and providing guidance to charities about their legal obligations. Staff members assess whether charities operate within their stated charitable purposes and use resources appropriately.

When issues arise, the Directorate works with charities to correct problems before taking enforcement action. This educational approach helps organizations maintain compliance without facing penalties.

Serious or repeated violations can lead to sanctions, including monetary penalties or revocation of charitable status. The Directorate also makes information about registered charities publicly available through online databases.

This transparency allows donors and the public to verify a charity's registration status and review basic financial information.

Risk-Based Audit Approach

The CRA uses a risk-based approach to decide which charities to audit. This method focuses resources on organizations that show higher risk indicators.

Risk management tools analyze data from annual returns, public complaints, and other sources to identify potential compliance issues. Charities with higher risk scores receive more scrutiny through desk reviews or full audits.

This targeted system allows the CRA to conduct more effective audits with limited resources. The audit program examines financial records, governance practices, and program activities to verify that charities meet legal requirements.

Most audits begin with a formal notification letter. The CRA then requests specific documents like bank statements, receipts, board meeting minutes, and contracts.

Auditors may visit the charity's location or conduct the review remotely depending on the circumstances.

Triggers for CRA Audits

Several factors increase the likelihood of a CRA audit. Large or unexplained changes in revenue or expenses from one year to the next often raise questions about a charity's financial management.

Other common triggers include:

• Late or missing annual returns filed with the CRA
• Incomplete or inconsistent information on T3010 forms
• High administrative costs compared to program spending
• Political activities that exceed permitted limits
• Fundraising expenses that seem unreasonably high
• Related party transactions that lack proper documentation
• Activities outside charitable purposes as registered

Public complaints about a charity's operations also prompt investigations. If someone reports concerns about misused funds or improper activities, the CRA reviews the allegations and may launch an audit.

Government Department Referrals

Government departments can refer charities to the CRA when they identify potential compliance issues during their own oversight activities. These referrals typically come from provincial regulators, law enforcement agencies, or federal departments that provide grants to charities.

When a government department discovers irregularities in how a charity uses public funds or operates its programs, it may notify the Charities Directorate. The CRA then reviews the referral to determine whether an audit is warranted.

These inter-agency communications help protect public resources and maintain accountability across the charitable sector. Referrals from government departments often involve serious concerns like fraud, misrepresentation, or significant non-compliance with funding agreements.

Types of Charity Audits Conducted by the CRA

The CRA uses different audit approaches depending on the complexity of a charity's operations and the specific compliance concerns identified. These audit types range from comprehensive on-site examinations to focused reviews of particular issues.

Regular Audit

A regular audit involves a thorough examination of a charity's operations at its physical location. CRA auditors spend between three and five days on the charity's premises reviewing financial records, governance documents, and operational practices.

During this process, auditors examine bank accounts, contracts, board minutes, annual reports, and other documents related to the charity's activities. They conduct interviews with directors and staff members to understand how the organization functions.

Auditors often request a tour of the premises to observe programs in action and verify that recorded transactions match actual operations. This comprehensive approach allows the CRA to assess whether the charity meets all requirements under the Income Tax Act.

Regular audits are typically reserved for larger organizations or situations where multiple compliance concerns exist.

Restricted Audit

A restricted audit focuses on specific risk issues rather than examining all aspects of a charity's operations. This limited scope audit allows the CRA to address particular concerns efficiently without conducting a full organizational review.

Auditors review documents already on file with the CRA, including governing documents, program descriptions, annual information returns, and financial statements. They may contact the charity to request additional information about specific activities or practices.

In some cases, auditors conduct an on-site visit to gather more details about the identified concerns. The restricted audit approach works well when the CRA needs to verify compliance in targeted areas.

This audit type takes less time than a regular audit and causes less disruption to the charity's daily operations.

Field Audit

Field audits represent the main on-site audit activities conducted by CRA auditors from regional Tax Service Offices. Both regular audits and restricted audits can be classified as field audits when they involve visiting the charity's location.

These audits require direct access to the charity's books and records in their actual operating environment. Auditors can observe how the organization functions and verify that internal controls are working properly.

The field audit process helps auditors understand the context behind financial transactions and program activities. The size and complexity of the charity often determines whether a field audit is necessary.

Organizations with multiple locations or complex funding arrangements typically require this hands-on approach.

Internal Review

The CRA conducts internal reviews of its own audit program to maintain quality and consistency. These reviews examine how auditors follow established procedures and apply fairness principles during charity audits.

Internal oversight processes ensure that audit workflows are properly communicated and followed within the Charities Directorate. The CRA evaluates planning and oversight practices to strengthen controls and demonstrate impartiality in how it conducts charity audits.

While internal reviews don't directly affect individual charities, they help improve the overall audit process. These reviews identify areas where the CRA can enhance its procedures to better serve the charitable sector while maintaining compliance standards.

Preparation and Best Practices for Charity Audits

Proper preparation for a charity audit requires maintaining organized financial records, implementing strong internal controls, filing accurate annual returns, and managing donation receipts correctly. These practices help charities demonstrate compliance with CRA requirements and reduce the risk of audit complications.

Financial Records and Documentation

Charities must maintain complete and accurate financial records throughout the year. These records form the foundation of any audit and prove that funds are used appropriately.

Essential documents include:

• Bank statements and reconciliations
• Receipt books and donation records
• Invoices and expense reports
• Contracts and funding agreements
• Board meeting minutes
• Payroll records

Financial statements should follow Canadian accounting standards such as ASNPO. Directors should review and approve these statements before submission to auditors or the CRA.

Organized recordkeeping makes the audit process faster and less stressful. Charities should use accounting software designed for non-profits to track income and expenses accurately.

Digital backups protect records from loss or damage.

Internal Controls and Segregation of Duties

Strong internal controls protect charity assets and prevent errors or fraud. Segregation of duties ensures no single person controls all aspects of financial management.

Key control practices include:

• Requiring two signatures on cheques over a set amount
• Separating the person who receives donations from the person who records them
• Having different staff members approve expenses and process payments
• Conducting regular bank reconciliations by someone not involved in daily transactions

Smaller charities with limited staff can still implement controls by involving board members in financial oversight. Regular reviews of financial reports by the board help catch problems early.

Annual Information Return (T3010)

Every registered charity must file the T3010 Registered Charity Information Return with the CRA within six months of its fiscal year-end. This filing provides detailed information about the charity's activities and finances.

The T3010 return includes sections on:

• Programs and activities carried out during the year
• Revenue from donations, grants, and fundraising
• Expenses for charitable programs and administration
• Compensation paid to staff and contractors
• Political activities, if any

Late or incomplete filings can result in penalties or public notices of non-compliance. Charities should gather information throughout the year rather than rushing at filing time.

Accurate T3010 submissions demonstrate transparency and help maintain public trust.

Tax Receipting Privileges

Issuing official donation receipts is a privilege, not a right. Improper receipting is the number one reason for CRA sanctions. To be legally valid, a receipt must contain specific elements mandated by Regulation 3501 of the Income Tax Act, including:

• A unique serial number.
• The exact name and address of the charity as recorded with the CRA.
• The charity’s registration number.
• The date the donation was received and the date the receipt was issued.
• The eligible amount of the gift for tax purposes.
• The name and address of the donor.
• The signature of an authorized individual.
• The name and website of the Canada Revenue Agency.

Audit Outcomes and Implications for Charities

When the CRA completes a charity audit, the outcome depends on what they find and how serious any issues are.

Minor problems may result in education letters, while serious non-compliance can lead to sanctions or loss of charitable status.

Audit Findings and Education Letters

The CRA issues an education letter when it finds minor compliance issues that do not need formal penalties.

These letters explain what the charity did wrong and how to fix it.

Education letters are the most common audit outcome. They give charities a chance to correct problems without facing sanctions.

The letter usually includes specific steps the charity must take to improve its practices.

Common issues addressed in education letters include:

• Incomplete or inaccurate T3010 filings
• Minor errors in donation receipts
• Inadequate record-keeping procedures
• Small gaps in governance policies

Charities must respond to education letters promptly. The CRA expects the organization to implement recommended changes and confirm in writing that corrections have been made.

Ignoring an education letter can lead to more serious consequences if the same issues appear in future audits.

Compliance Agreements and Sanctions

A compliance agreement is a formal arrangement between the CRA and a charity that has committed more serious violations.

The charity agrees to specific corrective actions within set deadlines.

These agreements are legally binding. They outline exactly what the charity must do to return to good standing.

The CRA monitors progress and may conduct follow-up reviews to ensure the charity meets its commitments.

Sanctions can include:

• Suspension of tax-receipting privileges for up to one year
• Financial penalties for directors or trustees
• Mandatory corrective actions with strict timelines
• Public disclosure of non-compliance

Failing to meet the terms of a compliance agreement often leads to harsher penalties, including possible revocation of charitable status.

The CRA expects full cooperation from the charity's board and management.

Revocation and Annulment of Registration

Revocation of charitable status is the most severe outcome of an audit.

The CRA revokes registration when a charity commits serious violations or repeatedly fails to comply with its obligations.

Grounds for revocation include:

• Operating outside charitable purposes
• Issuing false donation receipts
• Failing to file annual returns for two consecutive years
• Transferring funds to non-qualified organizations

When the CRA revokes status, it issues a revocation tax equal to the charity's remaining assets.

This tax ensures that charitable property does not benefit private interests. The charity must pay this tax and transfer any remaining assets to other registered charities.

Annulment of registration is different from revocation. The CRA uses annulment when a charity never should have been registered in the first place.

Annulment treats the registration as if it never existed, which has different tax implications than revocation.

Access to Federal Court of Appeal and Tax Court of Canada

Charities can appeal CRA decisions through Canada's court system.

Before the CRA takes final action, it sends an administrative fairness letter explaining the proposed decision and giving the charity a chance to respond.

The Tax Court of Canada hears appeals related to tax assessments, including revocation tax.

Charities have 90 days from the date of a notice of assessment to file an appeal with this court.

The Federal Court of Appeal handles judicial reviews of CRA decisions about charitable registration.

This includes challenges to revocation or refusal to register. The appeal must be filed within 30 days of the CRA's final decision.

Before going to court, charities should:

• Gather all relevant documentation
• Consult with legal counsel experienced in charity law
• Prepare detailed written submissions
• Consider settlement discussions with the CRA

Court appeals are costly and time-consuming. Many charities find it more practical to work with the CRA to resolve issues through compliance agreements rather than litigation.

Maintaining Ongoing Compliance After an Audit

After an audit, charities must take active steps to maintain compliance and prevent future issues.

Strong internal systems, clear accountability, and prompt implementation of audit recommendations help organizations stay in good standing with the CRA and maintain donor confidence.

Strengthening Internal Controls

An audit often reveals gaps in financial controls that need attention.

Charities should review their policies and update them based on audit findings.

Key areas to strengthen include:

• Separation of duties so one person does not handle all aspects of a financial transaction
• Authorization requirements for spending decisions above certain thresholds
• Regular bank reconciliations performed monthly by someone independent of cash handling
• Document retention policies that specify what records to keep and for how long

Written procedures ensure consistency even when staff or volunteers change.

Board members should receive training on their oversight responsibilities to catch problems early.

Regular internal reviews between audits help identify issues before they become serious compliance problems.

Implementing Audit Recommendations

Auditors usually provide a management letter outlining areas for improvement.

Taking action on these recommendations shows the CRA and funders that the charity takes accountability seriously.

Organizations should create a detailed action plan that assigns responsibility for each recommendation.

This plan needs specific deadlines and regular progress checks.

Priority should go to recommendations that address:

• Financial reporting accuracy
• Revenue recognition practices
• Restricted fund tracking
• Documentation gaps that could trigger non-compliance findings

The board should receive regular updates on progress.

Some recommendations may require new accounting software, extra training, or policy changes that take time to complete.

Documenting actions taken demonstrates good governance if questions arise during future CRA reviews.

Accountability and Transparency

Transparency builds trust with donors, regulators, and the public.

After an audit, charities should communicate their financial health and compliance status clearly.

This includes:

• Posting audited financial statements on the charity's website
• Sharing results with members at annual meetings
• Updating key stakeholders about any significant changes made
• Being honest about challenges identified and how they were addressed

The CRA expects charities to maintain accurate records that are ready for review at any time.

Good record-keeping includes donor receipts, expense documentation, board meeting minutes, and program activity reports.

Regular financial reports to the board help directors ensure resources are used appropriately.

When everyone understands their accountability role, compliance becomes part of daily operations instead of an annual scramble.

Avoiding Future Non-Compliance

Prevention requires ongoing attention to CRA requirements and changes in charitable sector regulations.

Charities should assign someone to monitor filing deadlines and regulatory updates.

Common causes of non-compliance include:

• Missing the T3010 filing deadline
• Inadequate documentation for expenses or donations
• Operating outside stated charitable purposes
• Poor tracking of restricted funds

Setting calendar reminders six months before the fiscal year-end gives enough time to prepare financial statements and file required returns.

Working with an accountant familiar with charity requirements reduces the risk of errors.

Board members need regular updates on compliance status throughout the year.

If issues arise, addressing them immediately prevents small problems from escalating to penalties or loss of registered status.

Training new staff and volunteers on compliance requirements protects the organization when personnel changes occur.

The goal is building a culture where everyone understands their role in maintaining the charity's good standing.

Conclusion

Canadian charities must understand when an audit is required to stay compliant and maintain donor trust.

Most provinces set the audit threshold at $250,000 in annual revenue, though requirements vary based on provincial laws and organizational bylaws.

Smaller charities may only need a review engagement or compilation, while those exceeding the threshold typically require a full audit by a licensed accountant.

Meeting these requirements protects a charity's registered status and shows financial accountability to donors, funders, and regulators.

Professional guidance makes audit requirements easier to navigate and ensures compliance with CRA and provincial regulations.

B&H Charity Accounting Firm specializes in helping Canadian charities meet their financial reporting obligations.

Whether a charity needs an audit, review engagement, or help with annual filings, our team provides expert support tailored to non-profit organizations.

Getting started is easy. Charities can call (289) 301-8883 or visit charityaccountingfirm.ca to learn more about our services.

They can also schedule a free consultation to discuss specific audit requirements and compliance needs.

Working with experienced professionals helps charities focus on their mission while ensuring all financial obligations are met correctly and on time.

Frequently Asked Questions

Audit requirements for Canadian charities depend on annual revenue, provincial regulations, and organizational structure.

The $250,000 revenue threshold applies in many provinces, but some charities may require audits even below this level.

What are the audit requirements for charities in Canada?

Audit requirements are determined by your jurisdiction of incorporation and your annual revenue (gross income).

• Federal Charities: Generally require an audit if gross annual revenue exceeds $250,000. Between $50,000 and $250,000, a Review Engagement is usually sufficient if approved by members.
• Ontario Charities: Generally require an audit if annual revenue exceeds $500,000. Between $100,000 and $500,000, a Review Engagement is permitted if members pass an extraordinary resolution.
• Other Provinces: Each province has its own threshold. Always consult your corporate bylaws, as they may require an audit even if the law does not.

At what level do charity accounts need to be audited?

There are two major "upper limits" where an audit becomes mandatory and cannot be waived by members:

1. $250,000 for Federally incorporated soliciting corporations.
2. $500,000 for Ontario incorporated public benefit corporations.

Is audit mandatory for charitable trusts?

Charitable trusts follow similar audit requirements to other registered charities, though their structure differs.

A charitable trust holds assets managed by trustees for charitable purposes rather than operating as a membership-based organization.

Provincial trust legislation determines whether a charitable trust needs an audit.

If the trust generates annual revenue over $250,000, it generally requires an audit in most provinces.

The trust deed or agreement may also specify audit requirements independent of provincial law.

Trustees have a legal duty to account for trust assets properly.

Even when an audit is not legally required, trustees often commission one to fulfill their fiduciary obligations and demonstrate proper stewardship to beneficiaries.

Charitable trusts registered with the CRA must file the T3010 Registered Charity Information Return annually.

This filing includes financial information, but the CRA does not universally require audited statements unless revenue exceeds the provincial threshold.

Does every Canadian charity need a yearly audit?

Not every Canadian charity needs a yearly audit.

The requirement depends on annual revenue, provincial incorporation rules, and governing documents.

Small charities with revenue under $250,000 typically do not need a full audit in most provinces.

These organizations may meet reporting requirements with a review engagement or a compilation prepared by an accountant.

Some very small charities can prepare financial statements internally without external professional involvement.

Certain circumstances require audits regardless of revenue.

If a charity's bylaws mandate annual audits, it must comply even with minimal revenue.

Funders may require audited statements as a condition of receiving grants.

Some provinces have special rules for charities that solicit donations from the public.

Charities incorporated federally or in provinces with specific legislation should verify their obligations with a legal or accounting professional.

Requirements can change based on whether the organization is soliciting or non-soliciting and its incorporation status.

When does a charity in Canada usually need an audit?

A charity in Canada usually needs an audit when its annual revenue exceeds $250,000.

This is the most common trigger across multiple provinces, though exact thresholds vary by jurisdiction.

Other situations that trigger audit requirements include specific provisions in the charity's bylaws or articles of incorporation.

If founding documents require annual audits, the charity must conduct them regardless of revenue.

Grant agreements may mandate audited financial statements as a condition of funding, especially for large or multi-year grants.

Provincial corporate legislation may require audits based on factors beyond revenue.

These can include total assets, public fundraising activities, or the number of voting members.

Some provinces distinguish between soliciting charities and non-soliciting charities, with different requirements for each.

Board members should review their charity's specific obligations annually.

Changes in revenue, new funding sources, or amendments to governing documents can affect whether an audit is necessary.

Does the Canada Revenue Agency (CRA) require charities to have audited financial statements?

The CRA does not require all charities to have audited financial statements. The Charities Directorate recommends professional audits for charities with income over $250,000, but this is guidance rather than a strict rule.

All registered charities must file the T3010 Registered Charity Information Return each year. This return includes financial information.

The CRA accepts financial statements at different assurance levels: compilation, review, or audit. The required level depends on provincial laws and the charity's situation.

Provincial incorporation laws usually determine audit requirements, not federal CRA rules. For example, a charity in Ontario must follow Ontario's audit thresholds, while a federally incorporated charity follows federal legislation.

The CRA accepts the level of financial reporting required by the relevant provincial or federal standard. During a CRA audit or review, auditors may request financial statements and supporting documents.

Having professionally prepared or audited statements can make this process easier. The CRA may raise concerns if financial records are incomplete or poorly maintained, even if a formal audit was not required.

‍