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July 31st, 1998
By: Terrance S. Carter, B.A., LL.B. & Trade-mark Agent
A. Overview of Considerations
1. What are the Tax Advantages of a Canadian Registered Charity?
2. What are the Basic Requirements of a Canadian Registered Charity?
3. What is Considered to be "Charitable" at Law?
4. What are the Different Legal Forms Available for a Canadian Registered Charity?
5. What is Required to Obtain Charitable Status?
6. Timing of Charitable Status
7. What are Considered Acceptable Charitable Activities?
8. What Constitutes Acceptable Payments by a Canadian Registered Charity to a U.S. Charity?
9. Establishing a Contractual Relationship Between a Canadian Registered Charity and an Associated U.S. Charity
10. Key Intellectual Property Considerations for U.S. Charities Commencing Operations in Canada
B. What are the Tax Advantages of a
Canadian Registered Charity?
1. A Canadian registered charity is exempt from paying income tax.
2. A registered Canadian charity can issue charitable receipts for donations received that can be used as tax credits in the calculation of income tax by the donor.
3. A registered charity is entitled to a partial refund of GST (Goods and Services Tax).
C. What are the Basic Requirements of a Canadian
Registered Charity?
1. The charity must be created or established in Canada.
2. The charity must be resident in Canada, ie. a majority of the directors must be Canadians.
3. The purposes and activities of the charity must be charitable at law.
4. The charity must carry on its own charitable activities or fund organizations that have been identified in the Income Tax Act as "qualified donees".
5. The charity must maintain control and direction over the use of its resources.
6. The charity must spend a certain amount each year on charitable activities to meet prescribed statutory disbursement requirements.
7. The charity must maintain sufficient books and records in Canada to satisfy the requirements of Revenue Canada.
D. What is Considered to be "Charitable" at Law?
1. There are four heads of charity recognized at common law:
relief of poverty
the advancement of education
the advancement of religion
other purposes that are beneficial to the community as a whole as determined by the courts
2. Charitable purposes and activities must not violate public policy.
3. A registered charity must not engage in political activities that exceed the limitations set out in the Income Tax Act.
4. A registered charity must not generate revenue through unrelated business activities.
E. What are the Different Legal Forms Available for
a Canadian Registered Charity?
1. An unincorporated association:
a group of individuals associated by contract
few formalities required
no limited liability protection for its members
2. A charitable trust:
requires a written declaration of trust
no limited liability protection for its trustees
no perpetual succession of trustees
3. A charitable not-for-profit corporation:
provides limited liability protection for its members
continues in perpetuity
can be incorporated provincially, ie. under the Ontario Corporations Act
can be incorporated federally under the Canada Corporations Act
F. What is Required to Obtain Charitable Status?
1. A completed application form for charitable status.
2. Certified copies of all constitutional documents.
3. A detailed statement of activities.
4. A certified copy of directors and officers.
5. Financial budget for first year of operation.
G. Timing of Charitable Status
1. In general, apply for letters patent, of incorporations, then apply for charitable status.
2. Alternatively, seek preapproval of letters patent from Revenue Canada before incorporating.
3. Processing of application for charitable status by Revenue Canada may take between six to eight months to complete.
4. Effective date for charitable status will generally be backdated to the date of incorporation.
H. What are Considered Acceptable Charitable Activities?
1. Gifts made to qualified donees as defined in the Income Tax Act, which include:
other Canadian registered charities
prescribed foreign universities attended by Canadian students
Federal, Provincial and Municipal governments
the United Nations
other donees prescribed under the Income Tax Act
2. Activities carried out by the charity itself either in Canada or in a foreign county by means of any of the following:
by employees of the charity
by volunteers of the charity
by agents of the charity
by a charitable joint venture in which the charity is a participant (see below)
by a charitable partnership in which the charity is a partner (see below)
I. What Constitutes Acceptable Payments by a Canadian
Registered Charity to a U.S. Charity?
1. A Canadian registered charity cannot "give" or "gift" funds or resources to a U.S. Charity or to any other foreign charity that is not a qualified donee.
2. A Canadian registered charity can generally make payments to a U.S. charity pursuant to any of the following arrangements:
a contract for service
a contract for goods
an agency agreement (see below)
a joint venture agreement (see below)
a cooperative partnership agreement (see below)
limited payments in accordance with membership, license or royalty fees
(see below)
3. General requirement for acceptable payments by a Canadian registered charity to a U.S. charity:
the arrangement must be in writing
the arrangement must further the charitable purposes of the Canadian charity
the Canadian charity must provide periodic and specific instructions on the application of its funds
the Canadian charity must regularly monitor the payments on the project or the program being undertaken
the arrangement must provide for regular written progress reports to the Canadian charity
the Canadian charity must have the right to inspect the applicable projects or sites
adequate records must be maintained at the charitiess address in Canada
4. Additional requirements that apply to an Agency Agreement:
the U.S. charity in acting as agent for the Canadian charity must segregate the monies that it receives from the Canadian charity from that of its own funds
the U.S. charity in acting as agent for the Canadian charity must keep separate books and records concerning the receipt and expenditure of agency funds received
5. Additional requirements that apply to a joint venture agreement:
Revenue Canada will review the agreement and activities to determine whether there is ongoing control by the Canadian charity in the operations of the joint venture
indicia of ongoing control would include the following:
the presence of Canadians on the governing body of the joint venture proportionate to monetary contributions
the presence of Canadians on the project or the program
the input of the Canadians into the hiring and firing of personnel
the input of Canadians into the initiation and follow through of the project or program
the requirement of Canadian signatures on contracts and agreements
the review by the Canadian charity of the budget and financial statements of the joint venture
Canadian authorship of manuals, standards, guidelines and materials utilizing the joint venture
the identification of the project or program as a joint venture involving the Canadian charity
6. Limitations on payments by royalty, license and membership fees:
Revenue Canada will permit a payment of the lesser of five percent of the total expenditures of the Canadian charity in the year to a maximum of $5,000.00 (in Canadian funds)
alternatively the Canadian charity will be required to document the fair market value of the goods and services that are received for the fees paid
J. Establishing a Contractual Relationship Between a
Canadian Registered Charity and an Associated U.S. Charity
1. A Canadian charity is an independent and autonomous legal entity that cannot be "owned" or "controlled" as a subsidiary of a U.S. charity or any other foreign charity.
2. A Canadian charity can enter into contractual arrangements that set out the relationship that between a U.S. and a Canadian charity and the expeditions of each.
3. Examples of possible contractual arrangement would include the following:
an association agreement as a form of "franchise agreement" to document the contractual expectations between the two charities concerning operations in Canada and elsewhere
a trade-mark license agreement whereby the owner of a trade-mark licenses the use of the trade-mark in Canada or in another country
a copyright license agreement whereby the owner of the copyright licenses the use of the copyright in Canada or in another country
K. Key Intellectual Property Considerations for U.S. Charities
Commencing Operations in Canada
1. Trade-mark considerations:
the U.S. charity needs to register all applicable trade-marks and logos in Canada
the trade-marks can be registered as "proposed use" or "actual use" applications
the U.S. charity can also register trade-marks as "official marks" for enhanced protection and then obtain total prohibition on its use by others in Canada in the future
the U.S. charity needs to license trade-marks pursuant to a written trade-mark license agreement
2. Internet domain name considerations:
the U.S. charity should reserve applicable Internet domain names, preferably using trade-marks, together with the internet first level name of ".ca", ".com", ".org" or ".edu"
consider registering domain names as trade-marks in Canada
3. Copyright considerations:
U.S. Charities should register all copyrights in Canada
need to reserve separate copyright entitlement obtained by tape producers
need to reserve copyright entitlement involving employees and contractors
need to license copyright with Canadian charities by copyright license agreement
Note: More information about charities in Canada is available at our Web site at "www.wardlaw.on.ca"
DISCLAIMER: This summary of "Key Considerations for U.S. Charities Commencing Operations in Canada" is distributed with the understanding that it does not constitute legal advice or establish the solicitor/client relationship by way of any information contained herein. The contents are intended for general information purposes only and under no circumstances can be relied upon for legal decision making without first consulting with a lawyer and obtaining a written opinion concerning the specifics of your particular situation.
tsc\handouts\keyconsiderationuscharities
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DISCLAIMER: This web site does not constitute legal advice or establish the solicitor/client relationship by way of any information contained herein. The contents are intended for general information purposes only and under no circumstances can be relied upon for legal decision making without first consulting with a lawyer and obtaining a written opinion concerning the specifics of your particular situation.