 Volume 11, No. 3 - May/Mai 2008
Consultation on Proposed Policy on Fundraising by Registered Charities CRA Imposes New Sanctions Statutory Obligations, Provincial Offences and Due Diligence – How to be Prepared The Price of Incorporating is Eternal Vigilance New CRA Guide on Charitable Work and Ethnocultural Groups Competition Bureau Launches Education Campaign to Help Organizations Combat Fraud Canada Revenue Agency Notes SECTION NEWS
Charitable Thoughts is published by the Charity and Not-for-Profit Law Section of the Ontario Bar Association. Members are encouraged to submit articles or suggest story ideas. The articles that appear in this publication represent the opinions of the authors. They do not represent or embody any official position of, or statement by, the OBA except where this may be specifically indicated; nor do they attempt to set forth definitive practice standards or to provide legal advice. Precedents and other material contained herein are intended to be used thoughtfully, as nothing in the work relieves readers of their responsibility to consider it in the light of their own professional skill and judgment. |
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Consultation on Proposed Policy on Fundraising by Registered Charities Susan Manwaring*
The Charities Directorate Canada Revenue Agency (CRA) released draft guidelines concerning the fundraising activities of registered charities. This draft proposed policy can be found at: http://www.cra-arc.gc.ca/tax/charities/consultations/fundraising-e.html The policy statement responds to questions and difficulties organizations have when they try to distinguish between fundraising costs and other expenditures incurred annually. The policy statement is intended to clarify how to classify and report activities, in particular those which both raise funds and advance charitable programming. The policy confirms that it is permissible for a charity to use a modest amount of resources for fundraising. Section 6 of the draft policy focuses on the difference between fundraising activity and charitable purpose activities. The policy confirms CRA’s acceptance of the judicially determined principle that fundraising (whether undertaken as a purpose or activity) is not in itself charitable and that fundraising activities cannot normally be treated as advancing the charitable purposes of a registered charity. CRA states that the general rule is that charities are to report as fundraising expenditures all costs related to any activity that includes a solicitation of support. This is the case even where no donation receipt is issued for the transaction. The policy goes on to state that if the charity can demonstrate the activity would have been undertaken without the solicitation of support, then it may be appropriate to either treat the expenses as charitable programming expenses or allocate the expenses between fundraising and the charitable activities. That said, as drafted it appears that the instances where it would be appropriate to allocate are limited. As drafted it applies to all registered charities. This is of course of interest as there are many different types of organizations in the sector and one set of rules applying to all may prove to be somewhat problematic. The policy contains a proposed evaluation grid. The grid sets out the ratio of fundraising costs to fundraising revenue in a fiscal period in several categories and can be used by registered charities as a guideline as to whether CRA will audit their activities. The evaluation grid is as follows: Rarely acceptable: Generally acceptable: Potentially not acceptable: Generally acceptable: Acceptable: The proposed policy acknowledges that factors may exist to explain why the fundraising is acceptable, despite the fact that an organization falls into one of the unacceptable categories high in a particular fiscal period. The policy goes on to list conduct considered as increasing or as decreasing the risk of acceptable fundraising as follows: 1. Conduct considered as decreasing the risk of unacceptable fundraising:
2. Conduct considered as increasing the risk of unacceptable fundraising:
The policy includes two checklists for smaller and rural charities which are defined to be charities with total revenues of less than $100,000. These checklists are designed to simplify the rules for these smaller or rural charities and allow them to self-assess their fundraising conduct. CRA confirmed that a more detailed document containing detailed explanations of the individual elements set out in this policy will be released at the end of April or early May. As indicated, comments are to be provided to the Charities Directorate by June 30, 2008. * Susan Manwaring, Miller Thomson LLP, (416) 595-8583. |
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CRA Imposes New Sanctions Karen J. Cooper*
This article is based on an article by the author that appeared in the June 2008 issue of The Bottom Line. According to the Notice of Suspension, the basis for CRA’s suspension of ICAN’s receipting privileges was that ICAN failed to maintain adequate books and records and failed to provide records or to provide access to records to CRA, contrary to subsections 230(2), 231.1(1) and 231.2(1) of the ITA. ICAN applied to the Tax Court of Canada for a postponement of the suspension. In its affidavit in support of the suspension, CRA stated that it was concerned by ICAN’s participation in tax shelters, which have resulted in a significant increase of total revenue during this period: from $528,000 in 2001 to $314 million in 2005. CRA’s concerns also related to the valuation and existence of gifts in kind, which comprised the majority of ICAN’s donations, and whether or not ICAN actually received the goods for which it issued income tax receipts. In his decision dismissing the application, Justice Rip noted that if the suspension were postponed CRA would be “handcuffed” in its ability to administer the charities provisions of the ITA, to ensure compliance and to protect the public interest. As the first decision with respect to the application of CRA’s new intermediate sanctions and the Tax Court of Canada’s first foray into the regulation of charities, this case is instructive on a number of issues. It clearly establishes that, from the Tax Court of Canada’s perspective, the test for applications pursuant to subsections 188.2(4) and (5) is the same as that for seeking injunctive relief. The threshold for the first part of the test – serious issue to be tried – seems to have been set fairly low and was easily satisfied by the applicant in this instance. The application of the second part of the test – irreparable harm – indicates that the Court will be looking for corroborating evidence from the charity to support any claim of irreparable harm. Finally, it appears that the third part of the test – balance of convenience – will generally favour CRA, given its role in regulating charities and protecting the public interest. The decision also highlights the importance of maintaining adequate books and records, and notes that CRA is entitled access to invoices, receipts, vouchers, valuation reports, and any other documents that permit CRA to verify a charity’s income and disbursements. It is evident from CRA’s submissions that its’ main concern with ICAN was not the adequacy of its books and records, but its participation in various donation tax shelters. However, rather than deal with this issue directly, CRA has chosen to suspend the charity’s receipting privileges on the basis of the inadequacy of the organization’s books and records. The difficulty for charities in the face of such tactics is determining what constitutes adequate books and records. The list of what CRA will require on an audit is long and detailed. Charities seeking to avoid problems during an audit should become familiar with the books and records CRA requires, as well as the various mandated retention periods. Finally, in obiter dictum, the Tax Court noted that a temporary suspension under section 188.2 of the ITA is very different from revocation of charitable status pursuant to section 168 of the ITA. The Court stated that during the period of suspension, it is possible for a charity to put its books and records in order, and resume its charitable activities. Unfortunately for ICAN, on December 3, 2007, CRA issued a notice of intention to revoke ICAN’s registration as a charity. ICAN sought a deferment of the publication of the Notice of Revocation in order to allow it time to challenge the revocation through an application to the Federal Court of Appeal. The Federal Court of Appeal dismissed ICAN’s motion seeking deferment on April 2, 2008, on the basis that a review of the record before the Court disclosed “no basis for concluding that ICAN will suffer irreparable harm from the loss of receipting privileges after the termination of the Minister’s suspension.” The Court further stated that even if it had found irreparable harm, the balance of convenience favours the Minister in this instance, as it is reasonable for the Minister to attempt to safeguard the integrity of the charitable sector by “carefully scrutinizing tax shelter schemes involving charitable donations of property and, where there are reasonable grounds to believe that the property has been overvalued, by taking appropriate corrective action.” In the case of Adath, CRA not only suspended its ability to issue receipts, but also imposed a monetary penalty of $499,055 on the basis that certain donation receipts issued by Adath contained false information. It appears from CRA documents that the main concern related to receipts issued for burial plots and attendance at a synagogue-run nursery. The amount of the penalty is 125% of the amount of the receipts determined by CRA to be false. At this point, there is no public indication from CRA with respect to whether or not it will immediately seek revocation of Adath’s charitable status, as it has done in the case of ICAN. Both situations highlight the importance of ensuring that charities comply with their obligations under the ITA with respect to record-keeping and receipting – the consequences of a failure to comply can be very serious. * Karen J. Cooper is a partner at the law firm of Carters Professional Corporation, www.carters.ca. |
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Statutory Obligations, Provincial Offences and Due Diligence — How to be Prepared Bryan Buttigieg*
This article was originally published in the Miller Thomson LLP Charities and Not for Profit Newsletter. Often these offence sections go unnoticed and little attention is paid to them until some unfortunate individual or organization finds itself involved in a regulatory investigation. No one ever expects to be in violation of those regulatory requirements and no one really has the time to know what could be done proactively. In some cases, the very existence of the obligation comes as a surprise. In what follows, we hope to provide a framework to help prepare for the unthinkable day when an organization finds itself the subject of an investigation that could ultimately result in a punitive sanction. In Ontario, any provincial statute that declares any act to be an offence and imposes a fine or punishment is, in turn, governed by the rules of the Provincial Offences Act. Convictions under such statutes do not result in a criminal record, but can still have very significant negative consequences. Fines under statutes, such as the Occupational Health and Safety Act, can be in the hundreds of thousands of dollars. A conviction under a provincial statute, even where the penalty is relatively small, can, in turn, result in revocation of a licence by a professional body or licensing authority. (See for instance s.9 of the Charitable Gifts Act - anyone convicted of an offence is liable to a fine of up to $10,000, up to one year imprisonment, or both.) Because the offences are not considered criminal, they may well not require the wilful intent that one normally associates with a crime. In other words, it is possible to commit an offence under a provincial statute without "intending to", but simply by failing to pay reasonable attention to prevent committing the offence. In all but the most minor of offences however, there are defences that are available if the defendant can show "reasonable care" was taken. Offences of this type are called "Strict Liability Offences". Most provincial offences that may apply to charities fall into this category. To avoid a conviction under a strict liability offence, assuming the act in question was in fact committed, the defendant will be obliged to show one of two general types of defences - either that the defendant was operating under a reasonable mistake of fact, which, if true, would have rendered the act innocent, or that the defendant had sufficient systems and checks and balances in place as to prove that reasonable care was being taken to prevent the prohibited act from occurring. Note that ignorance of the law is never a defence. In short, it is up to the organization to find out what laws apply to it and then to develop systems to ensure compliance. How is a charitable organization to take these abstract concepts and put them into day-to-day action? There might be hundreds of potentially applicable statutes each with its own myriad of obligations. We suggest the following steps:
Industry organizations, competitors and sometimes even regulators can be good sources of information to identify crucial compliance issues and strategies to avoid contravention. One very good way to demonstrate that procedures are reasonable is to demonstrate that they meet or exceed the "standard of the industry" (as long as that standard is not in itself inadequate of course!). The standard expected is not perfection, but it is an ever-improving standard. Organizations should be engaged in a legal form of continuous quality improvement, such as to review their operations regularly, identify mistakes and implement changes to avoid repetition. The task sounds daunting, but can be made more manageable with the right processes in place and is one that organizations ignore at their peril. * Bryan Buttigieg, Toronto, (416) 595-8172. |
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The Price of Incorporating is Eternal Vigilance Adam Aptowitzer*
A recent case decided by the Ontario Superior Court of Justice should strike fear in the hearts of those whose corporations are not kept up to date. In the case of the Warriors of the Cross Asian Church v. Misih et al,[1] the Court found that the only appropriate remedy to a dispute over control of a corporation whose members and directors were not legally admitted and elected was to dissolve the corporation. It is almost trite to suggest that neglect of proper corporate procedure is rampant among small (and not so small) corporations without share capital in Canada. If anything, the Superior Court of Justice is making it clear that those ignoring their constituting documents, do so at their own peril. In the Warriors case, Letters Patent were issued to the Corporation under the Ontario Corporations Act on April 3, 1981. From that time until August 2006, no corporate documents were filed updating the members or electing new directors of the corporation. Thus, when a problem arose between the ostensible members in 2006, two different factions arose. The first faction said that the members of the corporation were those who had, from time to time, been considered members of the Church by those involved in the Church. The second group insisted that the only true members of the corporation were those who were the original members of the corporation, given that no steps had been taken since then to admit new members under the requirements of the legislation or the original By-Laws of the corporation. The Court’s decision outlines that the case law makes it clear that a non-share capital corporation is not held to the same exacting standards of share capital corporations in terms of the technical requirements of corporate procedure, so long as the basis processes followed are fair. The case law also suggests that courts should refrain from interfering in the workings of non-share capital corporations where they can, but of course, this is not always possible. In the event, the Court decided that clearly the individuals who claimed to be members of the corporation were not legally members. However to return control of the corporation to the original incorporators, most of whom had not been involved since the time of incorporation (and two of them whom could not even be located) was an unfair result. Thus, the Court had little choice but to dissolve the corporation for lack of a membership and validly elected Directors. It is common knowledge that there are many organizations which, broadly speaking, call individuals who support their organization members. However, members of a corporation are only those who are admitted as members according to the governing law and By-laws of the corporation. For that matter, when removing members, a corporation must also follow proper procedure. One reasonably foreseeable effect of not removing members is to create an unwieldy list that can become an unforeseen liability during contentious votes. The importance of removing members was illustrated in another recent Ontario decision. In Canada Universities Reciprocal Insurance Exchange v. CGU Insurance Co. of Canada,[2] a judo club was sued for an injury incurred immediately after a sparing session held by the club. In the original decision, the Court held that the judo club bore at least some responsibility for the injury. As far as the insurance companies were concerned, the case turned on whether this particular judo club was a member of Judo Ontario. As the club had previously been a member in good standing of Judo Ontario (i.e., paid its fees), the fact that it had not paid its fees in the year of the injury was not enough to revoke its membership. Such an action required an effective resolution by the board of directors of Judo Ontario. As this had never occurred, the Court held that the club was a member of Judo Ontario and therefore vicariously liable for the injury. Thus, it is not difficult to imagine scenarios which require that a court be involved either to dissolve the corporation or assign it liability for a simple lack of vigilance in maintaining their corporate records. If your organization requires help in updating their corporate records, please feel free to contact the author. * Adam Aptowitzer, Drache LLP, (613) 233-2675 x17. |
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New CRA Guide on Charitable Work and Ethnocultural Groups Terrance S. Carter*
This article originally appeared in Charity Law Bulletin, No. 137, March 28, 2008. A. Introduction Canada Revenue Agency (“CRA”) has released a new guide to help ethnocultural organizations that want to apply for charitable status. The purpose of the guide, entitled Charitable Work and Ethnocultural Groups – Information on registering as a charity (the “Guide”), is to “put important general information together in one place”. The Guide is intended to complement the more detailed information contained in CRA’s Policy Statement CPS-023, Applicants Assisting Ethnocultural Communities. In the same way, this Bulletin is intended to complement the information contained in Charity Law Bulletin No. 74, which summarizes the earlier Policy Statement CPS-023.[1] This Bulletin is not intended to be an exhaustive review of the Guide’s entire contents, but instead only focuses on some of the new issues raised by the CRA since releasing Policy Statement CPS-023 on June 30, 2005. As such, readers should consult the Guide itself for more information, which may be found on CRA’s website at: http://www.cra-arc.gc.ca/tax/charities/policy/ethno-e.html. Similarly, CRA’s Policy Statement CPS-023, Applicants Assisting Ethnocultural Communities, can be found on CRA’s website at: http://www.cra-arc.gc.ca/tax/charities/policy/cps/cps-023-e.html. It should be noted that, although the Guide states that it is written specifically to assist ethnocultural groups, its contents provide general guidance that will be of assistance to all charities. B. Ethnocultural Groups and “The Advancement of Religion” Much of the Guide is dedicated to summarizing information compiled from other CRA documents. The Guide discusses the role of the Charities Directorate, the steps involved in applying for charitable status, and the requirements an organization must meet in order to qualify as “charitable”. The Guide reiterates much of what is discussed in Policy Statement CPS-023, such as the definition of “Ethnocultural”, the Public Benefit test, and examples of ethnocultural group activities that could qualify as charitable under each of the four heads of charity (the relief of poverty, the advancement of education, the advancement of religion, and other purposes that benefit the community). Many of the examples provided by the Guide under each heading are already listed in Policy Statement CPS-023. However, the Guide does provide some further guidance on the “advancement of religion” head of charity. Unlike the other three heads of charity, “advancement of religion” was only briefly discussed in the final draft of Policy Statement CPS-023.[2] The Guide reiterates that “it is a charitable purpose for an organization to teach the religious tenets, doctrines, practices, or culture associated with a specific faith or religion”, but added that “the religious beliefs or practices must not be subversive or immoral”. The Guide also states that “teaching ethics or morals is not enough to qualify as a charity in the advancement-of-religion category”. The Guide provides the example of “a Web site that states the opinions of an individual or group about what they think is right or wrong”, as something that does not qualify as advancement of religion. The Guide explains that “[t]here has to be a spiritual element to the teachings and the religious activities have to serve the public good”. This new development in the CRA’s policy on advancing religion raises some concerns and is reminiscent of a previous draft of Policy Statement CPS-023. That earlier draft listed the “pursuit of purposes that are more secular than theological” as an unacceptable charitable object under advancement of religion. As discussed in the paper Advancing Religion as a Head of Charity: What Are the Boundaries?[3] by the author, the earlier draft policy statement suggested a narrowing of the definition of advancement of religion at common law by stating that,
Several groups expressed concern that these sections of the draft policy statement could be interpreted to mean that activities undertaken for the purpose of advancing religion, but which could also be viewed by some as having a secular purpose, would be characterized by CRA as not fitting within the category of activities that advance religion. As discussed in the Advancing Religion paper reference above:
In response to expressed concerns, the CRA amended the draft policy statement by deleting the reference to “secular versus theological” and the abortion and same-sex marriage examples. However, it appears that the CRA has not completely abandoned its somewhat narrow interpretation of advancement of religion. The same concerns that arose from the comments contained in the draft policy could re-emerge as a result of the comments now found in the Guide, particularly if they are used by the CRA to deny charitable status to organizations that carry on activities for the purpose of advancing religion, but which could also be viewed by some as having a secular purpose. In that regard, it is interesting to note that the Guide does provide some examples of ethnocultural group activities that could qualify as the advancement of religion, but again in a narrow, traditional context that does not reflect the breadth of what advancement of religion fully encompasses. Those examples provided in the Guide include:
C. Other Rules that Affect Ethnocultural Groups Some additional information found in the Guide which may be of particular interest to charities is briefly discussed below. A group’s social events or cultural celebrations, such as “banquets, picnics, and Canada Day celebrations”, are not considered charitable purposes by the CRA. The Guide provides that charities can carry on social activities “to help achieve its charitable purposes and to help raise funds”. However, the Guide also explains that if a charity is charging admission to such an event, they can only write a charitable donation receipt for the portion of the ticket that was a gift. For example, if a ticket to an event costs $100, and the food and entertainment at the event is worth $75, the charity can only write a charitable donation receipt for the eligible amount of $25. The Guide states that a registered charity does not have to allow everyone in the community to access its services. However, the services must still be available to anyone whose needs are within the charity’s official purposes. The Guide informs charities that they cannot:
However, a charity is permitted to spend up to 10% of its resources on non partisan political activities that help to accomplish the charity’s purpose in accordance with the CRA’s Policy on Political Activities (CPS-022),[6] which was discussed in Church Law Bulletin No. 15.[7] The Guide provides the following examples of “acceptable social advocacy activities for an ethnocultural group”:
D. Ten Reasons for an Unsuccessful Application The Guide concludes with a list of the 10 most common reasons why an application for charitable status will not be successful, and they are worth repeating here:
E. Conclusion Overall, the Guide provides charities with useful information and constitutes a helpful compilation of relevant information for ethnocultural organizations that want to apply for charitable status. However, as discussed above, the Guide’s discussion of advancement of religion may be cause for concern. It is unclear whether the CRA’s statements are intended to apply to only organizations that have no religious basis for the moral issues they promote, or whether they will also apply to religious organizations with deeply held religious beliefs on matters that could also be characterized as political or social issues (such as opposing euthanasia or same sex marriage). As such, until the CRA provides further clarity on the issue, this policy and its implementation will need to be carefully followed. * Terrance S. Carter B.A., LL.B., Trade-Mark Agent, Carters Professional Corporation, (519) 942-0001. Assisted by Derek B. Mix-Ross, LL.B. [1] Available online at http://www.carters.ca/pub/bulletin/charity/2005/chylb74.pdf. |
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Competition Bureau Launches Education Campaign to Help Organizations Combat Fraud Andrew Valentine*
This article was originally published in the Miller Thomson LLP Charities and Not for Profit Newsletter. Although mass marketing fraudsters tend to target business organizations, charities and non-profit organizations of all sizes are also potentially vulnerable. These organizations should visit the Competition Bureau's website at www.competitionbureau.gc.ca and review the information provided in the FACT Campaign. This information will help charities and NPOs protect themselves against the array of scams perpetrated by a large number of sophisticated, professional fraudsters operating in Canada. Mass Marketing Fraud Although the Bureau informs that new scams are being invented daily, a large percentage of popular scams fall into three categories: office supply scams, directory scams and phoney invoice scams. Office supply scams involve a variety of tactics used to trick and pressure organizations into accepting and paying for supplies (paper, toner, etc.) that were never in fact ordered. Fraudsters use different tactics to imply a previous business relationship where none in fact exists, usually by calling one representative to obtain background information, then calling a different representative and using this information to suggest prior dealings with the organization. Fraudsters will attempt to get organizations to accept and pay for delivery of goods that were never ordered. The goods will be of poor quality and well above market price. Delivery people will not be authorized to cancel orders, and fraudsters employ aggressive collection tactics to pressure organizations into paying for the goods. Frequently, organizations simply pay for the supplies to avoid the nuisance of dealing with complaints and collection calls. With directory scams, organizations are asked if they wish either to advertise within or to purchase an online, CD-Rom or print directory specifically designed for their sector or industry. In fact, the directory either does not exist or contains no reliable information whatsoever. Fraudsters appeal to the organization's desire to market itself as widely as possible. Frequently, unless the organization looks closely at the directories, the organization will never realize that the directory is fraudulent. With phoney invoice scams, organizations receive false invoices, with professional layouts, printed on high-quality paper, and are misled into believing the invoice requires payment. Over time, these fraudulent operations appear on organizations' vendor lists, meaning that subsequent invoices are more likely to be paid without question. These invoices are typically for relatively small amounts, so as to attract less scrutiny, but these amounts add up to significant figures over time. Tactics to Avoid Fraud Typically, fraudsters adopt a highly professional, business-as-usual tone when attempting to gain the confidence of a representative at a target organization. The Fact Campaign also identifies key phrases frequently used. When the representatives of an organization have been trained to recognize these warning signs, the organization is much less likely to be victimized. Certain factors make organizations more vulnerable to mass marketing fraud. Organizations that experience regular staffing changes are susceptible, as are particularly busy or understaffed organizations that may not have time to closely scrutinize suspicious calls, invoices and orders. In particular, organizations with no established anti-fraud policies are more likely to fall victim to a mass marketing scam. The Bureau recommends a number of policies and practices, which will reduce the likelihood of an organization being defrauded. These policies include:
Reporting Fraud The Bureau estimates that 95% of mass marketing fraud goes unreported. The Competition Bureau has jurisdiction to prosecute these forms of mass marketing fraud under the provisions of the Competition Act. Private parties may also bring civil actions to recover damages sustained as a result of deceptive marketing practices. Organizations who believe they may have been a victim of mass marketing fraud may file a complaint either online through the Bureau's website, by phone at 1-800-348-5358, or by mail to the address provided on the website All personal information collected by the Bureau will be kept confidential under the provisions of the Privacy Act. * Andrew Valentine, Articling Student, Toronto, (416) 595-2980. |
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Canada Revenue Agency Notes
Marni Whitaker*
Registered Charities Newsletters The Canada Revenue Agency has issued Registered Charities Newsletter number 29 dated Winter 2008. The newsletter announces the appointment of Mr. Terry deMarch as the Director General of the Charities Directorate. Mr. deMarch is well-known to members of the charities bar and is well informed about issues of concern to the charities sector. The newsletter also promotes subscribing to the electronic mailing list which provides for email notification of the addition of new information to the website of the Charities Directorate. In accordance with the transition to more electronic information, beginning January 2009, the newsletter reports that the Charities Directorate will no longer mail out the Guide T4033, Completing the Registered Charity Information Return. The electronic version of the guide will be available on the CRA’s website. However, the newsletter reports that the T3010A, Registered Charity Information Return, will continue to be printed and mailed out. The newsletter’s Court News section deals with the appeals in AYSA and in ICAN. In the newsletter’s Education section, there are discussions on tax shelter gifting arrangements, charities and GST/HST, and valuing donations. There are also helpful hints about completing the annual information return and some questions and answers about fiscal periods. Charitable Work and Ethnocultural Groups – Information on Registering as a Charity The Canada Revenue Agency has issued a guide dated January 30, 2008 which is intended to help ethnocultural organizations which want to apply for charitable status. The guide is 11 pages long and deals with topics such as the definition of ethnocultural, the steps in applying for charitable status, public benefit, and charitable purposes. In the section entitled “Other Rules that Affect Ethnocultural Groups”, the guide discusses groups that promote multiculturalism, social or cultural events, a limitation on who receives services, charitable work outside Canada, operational capacity, and political activities and social advocacy. The guide is a very useful outline for anyone assisting ethnocultural organizations which carry out charitable activities. Advance Income Tax Ruling dealing with Flow-Through Shares The Canada Revenue Agency has published an advance income tax ruling document number 2007-0242361R3 dealing with the question of whether a donation of flow-through shares constitutes a gift for income tax purposes. The conclusion is that it does constitute a gift. The document contains the following summary of the reasons: “Based on the facts and having regard to the caveats provided in the Ruling, it is our view that the donation would constitute a gift for income tax purposes and that the CEE and the investment tax credit renounced to the donor pursuant to the flow-through share financing will not constitute an advantage under the draft split-receipting rules”. Federal Court of Appeal – Animal Rescue Missions of Canada Inc The application to the Federal Court of Appeal to appeal the decision of the Minister National Revenue refusing to reregister the appellant was dismissed with costs. The refusal to reregister was biased primarily on the failure of the appellant to remedy its past failures to comply with the requirement to file returns. It appears from the very brief judgment that this failure had not been remedied by the time of the court hearing, at which the appellant was not represented. Revised publication T4118-Auditing Charities A revised version of this guide is now available on the CRA website at www.cra-arc.gc.ca\E\pub\tg\t4118\README.html. It contains a useful outline about the reasons for audits of charities, what triggers a charity audit, the procedure for the conduct of an audit, what happens when the audit report is completed, and the objection and appeal process. Excess Corporate Holdings Worksheet A new CRA form T2081 entitled “Excess Corporate Holdings Worksheet for Private Foundations” is now available on the CRA website. There is also a two page guide to completing the worksheet. This form will be required to show how private foundations comply with the excess corporate holdings requirements. New Charities and Giving Website CRA has substantially changed its charities website. The new website is intended to be “a more efficient and navigable gateway to the policies, procedures, and legislation that affect the charitable sector.” * Marni Whitaker of Lang Michener LLP, (416) 307-4061. |
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Message from the Chair Bill Pashby*
We all know the old expression “the only constant is change”. Remember the one that states “the more things change, the more they are the same”. Oddly enough, the practice of law for lawyers advising not-for-profit organizations and charities satisfies both of these quotations. A great majority of the not-for-profit organizations and charities operating in Ontario are incorporated either under the Canada Corporations Act or the Ontario Corporations Act. A few years ago there was a great flurry of activity with respect to proposed major amendments to the Canada Corporations Act. In my opinion, due to continuing minority governments these changes have gone nowhere. In the last year, the Government of Ontario has been moving forward with respect to major amendments to the corporate law applicable to companies incorporated under the Ontario Corporations Act. Hopefully, with the majority government in place in our Province, we will see some new legislation within the next year or so. Income tax as it applies to charities has been a real challenge in the last four or five years. There have been a series of announcements in Federal Budgets, in publications from Canada Revenue Agency and in actual legislation which have had a substantial impact on charities. The OBA and the CBA have been working diligently to obtain clarification to, and in some instances changes to, government policy and legislation. Another statute which is relevant to many of associations and professional groups is the Competition Act. If you have an interest in this area please speak to me. We want to provide articles in our newsletters, and speakers at our luncheon programs in areas of law of interest to all the members of our Section. On April 1st, we were fortunate to have Peter Broder, a former active member of your Section Executive, and Neil Cochrane of the Charities Directorate in Ottawa, make a presentation on the CRA’s new Draft Fundraising Policy. This Draft Policy deals with the allocation of expenditures for activities involving fundraising in the T3010 Annual Return, provides guidance on prohibited conduct, provides a grid for initial evaluation of the ratio of fundraising costs to fundraising revenues, provides guidance on types of conduct that increase the risk of an activity being considered to be unacceptable fundraising and gives guidance of other circumstances that Canada Revenue Agency may review, in considering whether fundraising operations are acceptable. Finally, on June 3rd, we will be having the Annual Dinner and presentation of the AMS/John Hodgson Award at the OBA Conference Centre on Toronto Street. I hope that everyone will be in attendance at this traditional end of year dinner. We have an interesting program and Don Bourgeois, a respected author of books and articles about corporate law and good governance will be presented with the AMS/John Hodgson Award. I invite your thoughts and comments with respect to how your Section could provide better services and information to assist you as you advise clients in the charity and not-for-profit sector. * Bill Pashby, Borden Ladner Gervais, (416) 367-6249. |
Hello Section Members and Other Friends: