A. INTRODUCTION
On June 6, 2011, the 2011 federal Budget (the “Budget”)
was reintroduced by the Minister of Finance and was subsequently passed by the
House of Commons on June 7, 2011. The stated purpose of the Budget is to equip Canada Revenue
Agency (“CRA”) as the administrator of the tax system related to the charitable
sector with “an effective set of compliance tools to safeguard the donation of
Canadian taxpayers and act against any organization that does not follow the
rules.” The original Budget was tabled by the government on March 22,
2011, but it was not adopted as a result of the dissolution of Parliament on
March 26, 2011. The 2011 Budget proposes sweeping changes to the regulatory
regime affecting registered charities and qualified donees, and in particular
Canadian Registered Amateur Athletic Associations (“RCAAAs”). For an overview
of the various proposals contained in the Budget, please refer to Charity
Law Bulletin No. 245 available online at http://www.carters.ca/pub/bulletin/charity/2011/chylb245.pdf.
This Charity Law Bulletin outlines the few differences in the recent Budget
of June 6, 2011 compared to the proposed Budget from March 22, 2011, as well as
providing a brief summary of Canada Revenue Agency’s (“CRA’s”) recent
commentary on the Budget.
B. NEW CHANGES TO THE BUDGET
The Budget remains the same as the
proposed Budget save and accept for the following new changes.
1. Motion 559
The Budget includes Motion 559 which was adopted by the
House of Commons on March 2, 2011. This Motion was sponsored by the Honourable
Peter Braid, the Member of Parliament for Kitchener-Waterloo, and is now being
supported by the government. The Motion calls for the House Standing Committee
on Finance to study charitable donation incentives. The Government will ask the
House Standing Committee on Finance to undertake this study in the first
session of this Parliament. What this review will lead to remains to be seen, but obviously the charitable
sector will want to be actively involved in the ensuing discussion.
2. Date Changes
Under the section of the Budget, “Regulatory Framework
for Registered Canadian Amateur Athletic Associations-Exclusivity of Purpose
and Function,” the final date that stakeholders are invited to provide feedback
on the introduction of an ‘exclusivity of purpose and function’ test for RCAAA’s
has been changed. The final date is now August 31, 2011, instead of June 30,
2011.
Also, the date that certain measures within the Budget
will apply has been changed from ‘on or after Budget Day’ to ‘on or after March
22, 2011.’
C. COMMENTS BY CANADA REVENUE AGENCY
The Charities Directorate of the CRA
recently posted an informational resource for charities and qualified donees
that are affected by the recent changes brought by the Budget. CRA stated that it will
be responding to the Budget changes as quickly as possible and they are
requesting comments from the public. CRA has listed several questions with
answers on their Charities and Giving web pages dealing with the relevant
topics in the Budget affecting charities, and will continue answering questions
from the public through their Client Services Section.
Although there are still many unanswered
questions concerning the Budget, the questions and answers available on the
Charities and Giving web pages provide some clarification with respect to each
of the matters contained in the Budget previously as outlined in Charity Law
Bulletin No. 245 referred to above.
1. Changes to the regulatory regime for qualified
donees
The Budget affects the regulatory regime of certain types of
qualified donees. There is already a public list for prescribed
universities outside Canada (published
in Schedule VIII of the Income Tax Regulations) and charitable organizations outside Canada to which Her Majesty in
right of Canada has made a gift (CRA publishes
a list for these entities). The Budget also requires that
a list be published for other qualified donees, namely municipalities,
municipal or public bodies performing a function of the Government in Canada,
and low-cost housing corporations for the aged. CRA confirmed that each of
these types of qualified donees will be on a publicly available list maintained
by CRA.
CRA also clarified that municipalities, public bodies performing a function of the
Government in Canada and low-cost housing corporations for the aged will not
have to take any action at the present time to be on the public list to be
maintained by CRA. However, CRA will be releasing guidance on how public bodies
performing a function of the Government in Canada and low-cost housing
corporations for the aged can be included in the public list.
Lastly, with respect to low-cost housing corporations for the aged, CRA reminded that under
the Income Tax Act (Canada) (“ITA”), they are also required to be
resident in Canada, be constituted exclusively for the purpose of providing
low-cost housing for the aged, and not to make any part of their income
available to their proprietors, members or shareholders.
2. Eligibility requirements for individuals who are
directors and officers for charities and RCAAAs
With respect to
how CRA will be applying its administrative discretion to the application of
the new eligibility rules for directors, trustees, officers, like officials, or
those who manage or control a charity, CRA states that they will be providing
detailed guidance on this new requirement.
With regards to what
would constitute a “relevant criminal offence” or “relevant offence” for the
purposes of determining this new eligibility requirement, CRA states that in
more limited cases the offence might not involve financial dishonesty, but is
nonetheless relevant to the operation of the charity or RCAAA (e.g., an offence
which if repeated by the individual could inflict harm on the organization or
its beneficiaries). CRA also clarified that although charities and RCAAAs
should be conducting criminal records checks on prospective directors, officers
and employees as a matter of good governance, the ITA will not require that
these organizations do so.
CRA also indicated that it may refuse an application for registration by a charity or RCAAA
if it involves any ineligible individuals as directors, trustees, officers,
like officials, or those who manage or control the organization.
In addition, CRA provided clarification
on how it will administer this new requirement. Specifically, if CRA has
concerns involving an ineligible individual having control over the financial
management of the organization, and whether reasonable safeguards had been put
in place to prevent abuse, CRA will first explain its concerns to the organization
in question. The organization will be given an opportunity to respond to CRA’s
concerns. A charity or RCAAA that fails to adequately address CRA’s concerns
will risk being sanctioned or having their registration revoked.
3. New requirements for RCAAAs
In addition to the new eligibility rules
for individuals who are directors, trustees, officers or like officials or who manage
or controls RCAAAs explained above, CRA indicated that it will provide the
public with further information concerning the governing documents, names of
directors, and notifications of registration or revocation for RCAAAs, as is
currently done with registered charities.
The Budget proposes that
RCAAAs be required to have the promotion of amateur athletics in Canada on a nation-wide
basis as their exclusive purpose and exclusive function, rather than
their primary purpose and primary function. As such,
CRA recommends that RCAAAs review their purposes and activities to determine if
they are functioning exclusively to promote amateur athletics in Canada on a
nation-wide basis. CRA indicated that it will also allow additional time after
the effective date of this new requirement to allow an RCAAA to change its formal
purposes, provided that the RCAAA is able to demonstrate that it is taking
reasonable steps to become compliant.
Where RCAAAs are unable to conform to
the new requirements, CRA stated that they may seek voluntary revocation from
CRA and they might operate as tax-exempt non-profit organizations under
paragraph 149(1)(l) of the ITA if they meet the applicable requirements for
non-profit organizations. If so, then the organizations will be able to retain
their assets.
4. New rules regarding tax assistance for returned
property
CRA indicates that replacement receipts
for returned property should be filed with the Audit Section, Compliance Division of CRA’s Charities Directorate. CRA also confirmed that
the ITA provisions concerning the funding of non-qualified donees have not
changed and that a charity that returns charitable property may be found to
have done so in contravention of the ITA by giving charitable property to a
non-qualified donee.
5. Technical amendments
CRA reminded charities of the anti-avoidance
rules in the Budget concerning non-qualifying securities (“NQS’s”) .Where a
qualified donee has received a gift of an NQS, no receipt may be issued unless
and until the NQS has been disposed of in exchange for property that is not
another NQS of any party not circumvented in order that the rules concerning
NQSs are not circumvented.
With regard to the granting of options
to qualified donees, the questions and answers provide little in the way of new information, other than to confirm that no official donation
receipt may be issued until such time as the qualified donee receives value for
the option.
Lastly, the same comment can be made
concerning donations of publicly-listed flow through shares, in that CRA
confirmed that the change introduced by the Budget in that exemption from
capital gains tax on donations of publicly listed securities available in
respect of subsequent donations will only remain to the extent that the capital
gain exceeds the threshold amount. In this regard, the threshold amount will be
considered by CRA to be the amount paid by the donor to acquire the security
under the arrangement.
For more information on how to submit
questions or comments to CRA with respect to the new measures, please visit http://www.cra-arc.gc.ca/chrts-gvng/chrts/bdgts/2011/menu-eng.html.
D. CONCLUSION
The Budget remains in essence the same as
the proposed budget from March 22, 2011. All of the proposals from the original Budget have reappeared in the current Budget, with
slight modifications. These changes will have a broad impact on the charitable
sector and bring sweeping changes to the regulatory regime affecting registered
charities, qualified donees and RCAAAs in the future.
