|
1
|
- Current Legal Issues in Charity Law
|
|
2
|
- Corporate Update
- Highlights of Federal Budget 2012
- Highlights of Federal Budget 2011
- Highlights of Recent CRA Publications
- Recent Case Law
|
|
3
|
- New Canada Not-for-Profit Corporations Act (“CNCA”)
- Canada Corporations Act (“CCA”) has not been substantively amended since
1917
- On June 23, 2009 Canada Not-for-Profit Corporations Act (“CNCA”)
received Royal Assent
- CNCA was proclaimed into force on October 17, 2011
- The new rules do not apply automatically to CCA corporations
- Existing CCA corporations will have until October 17, 2014 to continue
under the CNCA or face dissolution
- See various Charity Law Bulletins on “Countdown to the Canada
Not-For-Profit Corporations Act - Practice Tips #1-9” at http://www.carters.ca/nfp/index.htm
|
|
4
|
- Key considerations on continuance under the CNCA
- Need to review current corporate documents to see what needs to be
changed
- Corporate objects
- General operating bylaw and amendments
- Special resolutions
- Need to compare existing corporate documents to the provisions of the
CNCA, and its regulations in order to determine what options are
available
- Need to determine if multiple membership classes are desirable and/or
should be maintained, including non-voting members
|
|
5
|
- May need to eliminate non-voting members and other membership classes
prior to continuance in order to avoid them having class veto rights
over the continuance process, as well as future fundamental changes and
changes to membership classes
- May need to establish alternative terminology for non-voting members,
such as “supporters”, “constituents”, “associates”, “adherents”
- If current bylaws are badly out of date, may need to consider updating
bylaw prior to continuance
- If the corporation is a charity, any changes to the charitable objects
would require CRA approval
- Application for articles of continuance will need to be approved by both
the board of directors and by the members
|
|
6
|
- The Ontario Corporations Act (“OCA”) has not been substantively amended
since 1953
- ONCA introduced on May 12, 2010 and received Royal Assent on October 25,
2010
- Now expected to be proclaimed in force on January 1, 2013
- It is expected that an outline of the proposed regulations will be
released shortly
- See Charity Law Bulletin No.262 “The Nuts and Bolts of the Ontario
Not-for-Profit Corporations Act, 2010 at http://www.carters.ca/pub/bulletin/charity/2011/chylb262.pdf
|
|
7
|
- Ontario corporations under the OCA will have three years from the date
of proclamation to complete their transition under the ONCA, as it will
apply to all corporations on proclamation
- However, unlike the CNCA, an Ontario corporation under the OCA will not
automatically be dissolved after the expiration of the three-year time
frame
- Instead, its letters patent and general operating bylaw will be deemed
to be amended to comply with the provisions of the ONCA after three
years
- However, since deemed compliance would create considerable confusion, it
will be important for Ontario corporations to transition under the ONCA
within the three-year time limit
|
|
8
|
- Budget 2012 was introduced on March 29, 2012 (Budget 2012) and is
available online at http://www.budget.gc.ca/2012/plan/toc-tdm-eng.html
- Bill C-38, An Act to Implement Certain Provisions of the Budget Tabled
in Parliament on March 29, 2012 and Other Measures received Royal Assent
on June 29, 2012 http://www.parl.gc.ca/HousePublications/Publication.aspx?Language=E&Mode=1&DocId=5524772
- Budget 2012 does not include any new donation tax incentives, such as
the charitable donation tax credit proposed by Imagine Canada
- Budget 2012 focuses the perceived lack of transparency and
accountability concerning political activities, as well as a number of
other ad hoc charity issues
|
|
9
|
- Putting The Budget 2012 In Context
- In the last six months, there have been numerous allegations made
against environmental charities, including:
- Politicians questioning the appropriateness of foreign funding of
environmental charities
- Government “Strategy on Counter-Terrorism” equating environmentalism
with white supremacy and the terrorist activities in Oklahoma City in
1995 and Norway in 2011
- This has had the unfortunate effect of creating a chill for charities
becoming involved in political activities
|
|
10
|
- Notwithstanding these concerns, Budget 2012 could have been worse for
charities concerning political activities
- No significant changes to rules permitting political activities under
the ITA
- No changes to the current CRA Policy on Political Activities
- As such, the changes in Budget 2012 discussed below do not stop
charities from becoming involved in political activities
- However, charities will need to carefully understand the rules that do
apply and be careful in documenting their involvement in political
activities
- It is therefore essential to first understand what the rules are
concerning political activities before discussing the impact of Budget
2012
|
|
11
|
- Key CRA Policies, Income Tax Act (“ITA”) Provisions And Resource
Materials
- CRA Policy Statement (CPS – 022) “Political Activities” dated September
2, 2003
- CRA Advisory on Partisan Political Activities
- CRA Policy Commentary, Political Party Use of Charity Premises (CPC-0070)
- Speech by the Director General of the Charities Directorate on May 4,
2012
- These documents are available on the CRA website http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/menu-eng.html
and provide information for registered charities on political activity
and allowable limits under the ITA, as well as the common law
|
|
12
|
- Three Categories of Activities
- Currently, politically related activities undertaken by a registered
charity can be separated into three categories:
- (1) Charitable activities (permitted without limits)
- A charitable activity is an activity undertaken to achieve a charitable
purpose
- If an activity is considered by CRA to be charitable, then it is
permitted without limits
- Under certain circumstances, communication with a public official or the
public can be a charitable activity (e.g. submission to a public
official on a law or policy provided that it relates to and is
subordinate to the charity’s charitable purpose, is well reasoned, and
does not contain information that is false, inaccurate or misleading)
|
|
13
|
- (2) Political Activities (Permitted Up To Prescribed Limits)
- An activity is presumed to be political if a charity
- Explicitly communicates a call to political action, or to the public
that the law, policy or decision of any level of government in Canada
or a foreign country should be retained, opposed or changed, or
- Explicitly indicates in its material that its activity is intended to
incite, organize or pressure governments to retain, oppose or change
the law, policy or decision of a government
- Political activities are permitted if they are: non-partisan, connected
to and subordinate to charity's purpose, and falls within 10% of
resource spending limit
- However, how resources (i.e., funds, property and people) is to be
calculated is not clear
|
|
14
|
- (3) Prohibited Activities
- Prohibited activities are either illegal or involve partisan political
activities and therefore are not permitted at all
- “Partisan political activity” involves the “direct or indirect support
of, or opposition to, any political party or candidate for public
office”
- CRA Advisory contains examples of prohibited partisan political
activity, such as
- Gifting charity funds to a political party that supports the charity’s
views on a given matter
- Making public statements (written or oral) that endorse or denounce a
candidate or political party
|
|
15
|
- Impact of Budget 2012 on Political Activities
- Budget 2012 impacts charities and RCAAAs with regards to political
activities in three ways
- First, Budget 2012 expands the definition of political activities to
include certain gifts to qualified donees
- Budget 2012 expands the definition of “political activities” under
subsection 149.1(1), to “include the making of a gift to a qualified
donee if it can reasonably be considered that a purpose of the gift is
to support the political activities of the qualified donee” (“QDs”)
- The focus is on the intent of the donor charity, not the intent of the
recipient QD
- This change would result in a double count of political activities,
once by the donor charity and once by the recipient QD
|
|
16
|
- Three possible scenarios in determining “can reasonably be considered”
- Written designation to use the gift for the political activities of
the QD
- Written designation to not use the gift for the political activities
of the QD
- No written designation, then look at other circumstances to see if
there was “a purpose”
- Likely best to avoid multi-purpose gifts, because Budget 2012 simply
refers to “a purpose” so any political purpose for any part of the gift
may taint the whole gift
|
|
17
|
- Funding charities that are caught by the new inclusion rules will have
to track and report political activities the same way as charities
directly involved in political activities
- As a result, funding charities that do not want to have to track
political activities in their T3010 should designate in writing those
gifts that are not to be used for political activities by the recipient
QD
|
|
18
|
- Second, Budget 2012 introduces new intermediate sanctions
- Where a registered charity exceeds the limits in the ITA for political
contributions (generally 10% of its total resources a year), CRA can
impose a one year suspension of tax receipting privileges (in addition
to revocation)
- Where a registered charity fails to report any information (not just
political activities) that is required to be included on a T3010 annual
return, CRA can suspend its tax receipting privileges until CRA
notifies the charity that it has received the required information
|
|
19
|
- This second sanction emphasizes the importance of having the board, as
well as having legal and accounting professionals, review and approve
the T3010 annual return before filing it with CRA
- $8 million committed to enforcement by CRA in Budget 2012, including educational
initiatives and webinars
|
|
20
|
- Third, Budget 2012 states there
will be more disclosure required concerning political activities
- More information about political activities will be required in the
T3010, (including foreign donors) although details of what that
involves were not addressed in Budget 2012
- Focus is on disclosure of funding of political activities by foreign
donor
- Such funding does not have to be counted towards the 10% resource limit
until it is actually expended on political activities
- Director General’s Speech in May 2012 explores the type of disclosure
about political activities that will be required in the T3010 in the
future
|
|
21
|
- Charities involved in political activities will need to complete a new
political activities schedule (revised from the 2002 version)
- Will need to indicate the type of political activity that a charity
has devoted resources to (financial, property or human)
- Charity will need to explain the relationship between such political
activities and its charitable purpose
- Charities will need to indicate the amount received from foreign
sources for political activities
- However, there will be no need to identify the name of the foreign
donor
- The revised T3010 should be available in early 2013
|
|
22
|
- Practical Implications for Charities
- Know the rules before becoming involved in political activities
- Ensure that activities are either “charitable activities” or are
“permitted political activities”
- The decision to become involved in permitted political activities should
be authorized by the board of directors of the charity
- Ensure that any permitted political activities undertaken fall within
expenditure limit (i.e., generally within the 10% resource limit)
|
|
23
|
- It is essential to keep careful books and records and do appropriate
allocations of all expenditures with respect to permitted political
activities
- Avoid any prohibited partisan political activities
- Gifts to QDs should generally include a written designation which states
that the gift should not be used for the political activities of the
recipient QD
- Have the board of directors, as well as accounting and legal professionals, review and
approve the T3010 prior to filing, due to the imposition of new
intermediate sanctions and greater public scrutiny
- For more information, see Charity Law Bulletin No. 286, “Playing By the
Rules: Political Activities Fair Game for Charities”
|
|
24
|
- Certain foreign charitable organizations that have received a gift from
the Government of Canada in the previous 24 months are currently deemed
to be QDs under the ITA, and may therefore issue donation receipts to
Canadian donors and receive gifts from registered charities
- There are currently only 5 of these foreign charitable organizations,
including The Rhodes Trust and Council for Canadian American Relations
- Budget 2012 provides that the Minister may register, in consultation
with the Minister of Finance, a foreign organization for a 24-month
period that includes the time at which Her Majesty in right of Canada
has made a gift to the foreign organization, if:
|
|
25
|
- (i) The foreign organization is
a charitable organization that is not resident in Canada; and
- (ii) The Minister is satisfied
that the organization is
- Carrying on relief activities in response to a disaster;
- Providing urgent humanitarian aid; or
- Carrying on activities in the national interest of Canada
- Qualified donee status will be made public and will be granted for a 24
month period of time
- Measures will apply to registrations made after January 1, 2013
|
|
26
|
- The 2011 Federal Budget (“Budget 2011”) was originally introduced on
March 22, 2011 and was reintroduced in almost the identical form on June
6, 2011
- Bill C-13, which implements Budget 2011, received Royal Assent on
December 15, 2011
- Budget 2011 contained significant changes to the regulation of charities
and other qualified donees, and introduced the concept of “ineligible
persons”
- CRA comment on Budget 2011 http://www.cra-arc.gc.ca/chrts-gvng/chrts/bdgts/2011/menu-eng.html
- For more information on the Budget see Charity Law Bulletin Nos.245 and
253 at www.charitylaw.ca
|
|
27
|
- The 2011 Federal Budget introduced the concept of “ineligible
individuals”, which has become a new de facto eligibility requirement
for directors of registered charities under the ITA but rules do not
apply to NPOs
- CRA had been concerned that applications for charitable status were
being submitted by individuals who had been involved with other
charities and Registered Canadian Amateur Athletic Associations (RCAAA)
that had their status revoked for serious non-compliance
- In the past, CRA could not refuse to register or revoke the status of a
registered charity or RCAAA based on these concerns
|
|
28
|
- Budget 2011 now permits CRA to refuse or revoke the registration of a
charity or a RCAAA or suspend its ability to issue official donation
receipts, if a member of the board of directors, a trustee, officer or
equivalent official, or any individual who otherwise controls or manages
the operation of the charity or RCAAA is an “ineligible individual”
- An “ineligible individual” is a person who
- Has a “relevant criminal offence” – convicted of a criminal offence in
Canada or similar offence outside of Canada relating to financial
dishonesty (including tax evasion, theft or fraud), or any other
criminal offence that is relevant to the operation of the organization,
for which he or she has not received a pardon
|
|
29
|
- Has a “relevant offence” – convicted of an offence in Canada in the
past five years (other than a relevant criminal offence), or similar
offence committed outside Canada within the past five years relating to
financial dishonesty or any other offence that is relevant to the
operation of the charity or RCAAA
- Includes offences under charitable fundraising legislation,
convictions for misrepresentation under consumer protection
legislation or convictions under securities legislation
|
|
30
|
- Has been a member of the board of directors, a trustee, officer or
equivalent official, or an individual who otherwise controlled or
managed the operation of a charity or RCAAA during a period in which
the organization engaged in serious non-compliance for which its
registration has been revoked within the past five years
- Has been at any time a promoter of a gifting arrangement or other tax
shelter in which a charity or RCAAA participated and the registration
of the charity or RCAAA has been revoked within the past five years for
reasons that included or were related to its participation
|
|
31
|
- Why charities and RCAAAs should be concerned
- CRA has yet to make clear what the effect of having an “ineligible
individual” on the board will be, but revocation is a statutory right
of CRA
- CRA has so far stated that they
- Will look at the particular circumstances of a charity or RCAAA
- Will take into account whether appropriate safeguards have been
instituted to address any potential concerns
- Unfortunately, CRA has not stated what those circumstances are and no
explanation of what the safeguards might be has been given
|
|
32
|
- Charities need to be concerned about the due diligence required to
ensure that an “ineligible individual” does not become involved or
continue to be involved in the oversight or management of the charity
- Budget 2011 states that a charity will not be required to conduct
background checks, but even if the charity wanted to review the
information required to independently assess whether an individual is
ineligible, it may not be publicly or easily available
- Possible to search for relevant criminal offences in Canada, but
abroad?
- Many relevant offences (e.g.,
Securities Act convictions) are not tracked in publicly available
databases in Canada, or unlikely abroad
|
|
33
|
- Names of directors and like officials of revoked charities are not
maintained in a single publicly available database
- Not likely that an individual who otherwise controlled or managed the
operation of a charity would be identified in publicly available
documents – likely information solely in CRA’s control
- Onus is now shifted to charities to comply in a situation where it is
impossible to ensure 100% compliance because the necessary information
is not available
- This new cause for revocation is similar to a strict liability offence –
no due diligence defence is available in the legislation
- Charities will be required to undertake other forms of due diligence and
hope CRA will excuse any inadvertent non-compliance
|
|
34
|
- Charities must find a way to deal with a director that is an ineligible
individual (generally only the members can remove a director)
- Bylaws will now need to include a new requirement that the directors
must not be an “ineligible individual” as defined under the ITA at the
time that they become a director and during their tenure
- Removal of management staff that are “ineligible individuals” could have
important employment law ramifications
- For existing staff it may difficult to remove them
- For new management staff it will be important to include this in an
employment contract
|
|
35
|
- Concerns about privacy
- If CRA alleges that a person is an “ineligible individual”, who is to
receive such information and how is the information to be protected
once received?
- Should the alleged “ineligible individual” be given an opportunity to
rebut the allegation or is it to be left up to the charity to do so on
the individual’s behalf
- If so, what personal information can be used to rebut the allegation?
|
|
36
|
- Budget 2011 clarified the effect of a charity returning a donation with
respect to the ITA
- CRA can now reassess a taxpayer outside the normal reassessment period
and disallow a taxpayer’s claim for a credit or deduction when gifted
property is returned to a donor
- If a charity has issued an official donation receipt for the donation
and subsequently returns the gift to the donor, if the fair market value
of the returned property is greater than $50, the charity must file an
information return (e.g. a letter) with CRA and provide a copy to the
donor within 90 days after the return of the gift
- Effective for gifts returned on or after March 22, 2011
- Budget does not address the issue of whether or not a gift can be
returned to the donor at common law
- Legal advice should be sought
|
|
37
|
- Introduction
- From the media’s perspective this is the number one compliance issue for
charities
- Revised Fundraising Guidance released in March 2012
- The new Guidance is a significant improvement but is a longer document
at 39 pages compared to 31 pages
- Although much improved, the new Guidance is still a complex document and
will therefore require careful reading
- The Guidance will have impact on current CRA audits, not just future
audits
- The Guidance will apply to all registered charities and to both
receipted and non-receipted fundraising
|
|
38
|
- The Guidance is more directive than previous versions of the Guidance
- Charities must still meet their other obligations, including the 3.5%
disbursement quota
- An organization carrying out unacceptable fundraising may result in
denial of charitable registration or, for registered charities,
sanctions or even revocation of charitable status
- The fundraising ratio referenced in this Guidance forms part of a
charity’s T3010 that is made available to the public on the web
- It is therefore important for the board of a charity to review and
approve the T3010 for a charity before it is filed with CRA
|
|
39
|
- What is Fundraising?
- In general, fundraising is any activity that includes solicitation of
present or future donations of cash or gifts in kind, or the sale of
goods or services to raise funds, whether explicit or implied
- For the purpose of the Guidance, fundraising does not include (i.e. to
be excluded from revenue and expenses)
- Seeking grants, gifts, contributions, or other funding from other
charities or government
- Recruiting volunteers (except for fundraising volunteers)
- Related business activities
|
|
40
|
- Examples of fundraising activities
- The sale of goods or services
- Donor stewardship
- Membership programs
- Cause-related marketing/social marketing ventures
- Planning or researching fundraising activities
- Donor recognition
- When is Fundraising not Acceptable?
- The following conduct will be prohibited and will be grounds for
revocation of a registered charity’s status, imposition of sanctions or
other compliance actions, or denial of charitable registration
|
|
41
|
- Fundraising that is a purpose of the charity (a collateral
non-charitable purpose)
- Fundraising that delivers more than an incidental private benefit
- Fundraising that is illegal or contrary to public policy
- Fundraising that is deceptive
- Fundraising that is an unrelated business
- Allocating Fundraising Expenditures
- Registered charities must report fundraising expenditures (all costs
related to any fundraising activity) on their annual T3010
- Where some fundraising activities include content that is not related to
fundraising, some of these costs may be able to be allocated to
charitable activities, management or administrative activities, or
political activities
|
|
42
|
- Onus is on the charity to explain and justify the allocation
- The following are CRA’s guidelines for allocation
- 100% allocation to fundraising
- No allocation of costs to fundraising
- Pro-rated allocation of costs
- Evaluating a Charity’s Fundraising
- Resources devoted to fundraising are disproportionate to resources
devoted to charitable activities
- Fundraising without an identifiable use or need for the proceeds
- Inappropriate purchasing or staffing practices
- Fundraising activities where most of the gross revenues go to contracted
third parties
|
|
43
|
- Commission-based fundraiser remuneration or payment of fundraisers based
on amount or number of donations
- Misrepresentations in fundraising solicitations or disclosure about
fundraising costs, revenues, or practices
- Fundraising initiatives or arrangements that are not well documented
- High fundraising expense ratio
- It is important to note that a charity’s fundraising ratio can serve as
a general self-assessment tool, although its not determinative on its
own
- The fundraising ratio is the ratio of fundraising costs to fundraising
revenue calculated on an annual basis
- It is a global calculation for a fiscal period
|
|
44
|
- However, a high fundraising ratio for an individual event may be an
indicator of unacceptable fundraising
- It is totally distinct from the 3.5% disbursement quota, although
elements of it overlap in the ratio
- Fundraising revenues include amounts reported in the T3010 on line 4500
(receipted donations, regardless of whether these amounts can be traced
to fundraising activity) and line 4630 (all amounts for which a tax
receipt was not issued and that were generated as a direct result of
fundraising expenses)
- Fundraising expenditures will include all amounts reported on line 5020
as fundraising expenses in accordance with the Guidance
|
|
45
|
- The fundraising ratio will place a charity into one of three categories
- Under 35%: unlikely to generate questions or concerns by CRA
- 35% and above: CRA will examine the average ratio over recent years to
determine if there is a trend of high fundraising costs requiring a
more detailed assessment of expenditures
- Above 70%: this level will raise concerns with CRA. The charity must
be able to provide an explanation and rationale for this level of
expenditure, otherwise it will not be acceptable
- See logic chart on next page (not by CRA)
|
|
46
|
|
|
47
|
- Factors that May Influence CRA’s Evaluation of a Charity’s Fundraising
- CRA recognizes that the charitable sector is very diverse and
fundraising efforts will vary between organizations
- CRA will look at a number of factors to evaluate a charitable
fundraising activity that involves high fundraising costs
- Examples of relevant case-specific factors
- The size of the charity, which may have an impact on fundraising
efficiency (i.e. revenues under $100,000)
- Causes with limited appeal which could create particular fundraising
challenges
|
|
48
|
- Donor development programs where fundraising activities could result in
financial returns only being realized in future years (long-term
investments)
- Gaming activities, such as lotteries or bingos, where it’s commonly
considered acceptable to have cost to revenue ratios of 70% or higher
- Best Practices for Managing Fundraising
- Adopting best practices may decrease the risk of CRA finding that a
charity is engaging in unacceptable fundraising
- The Guidance describes the following best practices in further detail
- Prudent planning processes
- Adequate evaluation processes
|
|
49
|
- Appropriate procurement and staffing processes
- Managing risks associated with hiring contracted (third party)
fundraisers
- Ongoing management and supervision of fundraising
- Keeping complete and detailed records relating to fundraising
activities
- Providing disclosures about fundraising costs, revenues, practices and
arrangements
- Maintain a reserve fund policy and ensuring that fundraising is for an
identified use or need
|
|
50
|
- On July 26, 2012, the Charities Directorate (CD) released Guidance
CG-014, Community Economic Development Activities and Charitable
Registration
- This replaced Guide RC4143, Registered Charities: Community Economic
Development Programs, which had operated since December 23, 1999
- The new Guidance relaxes some of the requirements on specific forms of
CED. This will make it easier for charities to engage in CED that the CD
will consider “charitable”
|
|
51
|
- Definition
- Generally, CED involves improving the economic opportunities and social
conditions of an identified community
- CED activities are often referred to as “community capacity building”,
“social enterprise” and “social finance”
- Common forms of CED include:
- Activities that relieve unemployment
- Grants and loans
- Program-related investments
- Social businesses for individuals with disabilities
- Community land trusts
|
|
52
|
- Requirements of “Charitable” CEDs
- The law in Canada does not recognize CED as a charitable purpose in and
of itself
- Therefore, in order to be considered “charitable”, CED activities must
directly further one of the four heads of charity
- Also, a CED activity must not provide any private benefit that is more
than incidental if it is to be considered “charitable”
- This means any private benefit must be necessary, reasonable, and not
disproportionate to the public benefit
|
|
53
|
- Types of CED Include:
- (1) Activities that Relieve Unemployment
- These activities are only charitable if they further a head of charity
- To pass the public benefit test, the emphasis of these activities must
be helping beneficiaries find employment, not helping employers recruit
employees
- On-the-job training programs must focus on providing training, not
indefinite employment
- (2) Social Businesses for Individuals with Disabilities
- Social businesses employ people with disabilities or support people with
disabilities who are self-employed. They seek to provide permanent
employment for such individuals
|
|
54
|
- (3) Program-Related Investments (PRIs)
- (i) Definition
- A PRI is an investment that is undertaken to further a charitable
purpose. It may or may not involve the return of capital and interest
- PRIs can take the form of:
- Loans,
- Loan guarantees,
- Share purchases and
- Leases of land or buildings
- The new Guidance greatly expands opportunities for charities to engage
in PRIs
|
|
55
|
- (ii) Non-qualified donees may now be recipients
- The Guidance no longer prohibits a charity from making a PRI with a
non-qualified donee
- However, a charity that makes a PRI with a non-qualified donee must
“maintain direction and control over the activity” in which it has
invested
- In essence, the recipient is merely the intermediary and the activity
is that of the investor charity
- If the charity cannot maintain direction and control, it could invest
in the activity as a conventional investment, provided it receives
market rates and the investment meets the charity’s conventional
investment requirements
|
|
56
|
- (iii) When making a PRI, a charity must:
- Have a policy that stipulates the criteria it applies to PRI related
decisions and explains how each PRI furthers its charitable purpose
- Include an exit mechanism that allows the charity to withdraw from the
PRI or convert it to a regular investment in case the PRI no longer
furthers the charitable purpose or the charity loses control over the
activity of a non-qualified donee
- Ensure that its PRIs meet all applicable trust, corporate or other
legal or regulatory requirements
- Maintain records that establish its direction and control over any PRIs
with non-qualified donees
|
|
57
|
- (iv) Commentary on PRIs
- A charity may only make a PRI with an arm’s length corporation
- Although a charity is not required to include the value of its PRIs in
calculating its 3.5% disbursement quota, a charity is not permitted to
include the PRI as a charitable expenditure
- All types of charities can make PRIs in the form of share purchases,
but public and private charitable foundations cannot acquire a
controlling interest in a company
- Furthermore, if a private foundation acquires more than 20% of any
class of shares in a company, it may trigger divestment obligations
and sanctions
|
|
58
|
- This type of CED can be charitable if it benefits the public or a
sufficient section of the public, and not just members of the industry.
Unlike other type of charitable CED, it is not required to benefit a
specific eligible beneficiary
- Examples of purposes that may be acceptable are:
- Promoting greater efficiency within an industry
- Promoting the achievement or preservation of high standards of practice
within an industry
- Organizations that conduct these types of activities and wish to obtain
charitable status will require independent and objective expert opinions
stating their activities benefit the public
|
|
59
|
- CED may be charitable if it improves socio-economic conditions for the
public benefit in deprived areas
- The prohibition on private benefits that are more than incidental is
relaxed for a CED in deprived areas. For example, a charity could
provide job training for a specific employer to keep it from closing its
factory
- “Deprived areas” have rates at least1.5% higher than the national
average in one of the following:
- Unemployment (for at least 2 consecutive years)
- Crime, including family violence
- Health problems, e.g. mental health and addiction
- Children and youth taken into care or dropping out of school
|
|
60
|
- Victoria Order of Nurses for Canada v. Greater Hamilton Wellness
Foundation, 2011 ONSC 5684 (CanLII) (September 27, 2011)
- A parallel foundation unilaterally amended its objects so that it could
disburse both existing and current funds to charities other than its
operating charity
- Prior to doing so, the foundation had fundraised from the public on the
basis that said funds would go to the operating charity’s programs
- Confirmed that charitable property raised for the benefit of a
particular charitable purpose cannot be unilaterally applied for a
different charitable purpose by simply amending charity’s objects
through supplementary letters patent
- Above funds were to be held in trust for operating charity
|
|
61
|
- To change the charitable purpose of funds, charities must seek the
approval of the Ontario Public Guardian and Trustee (“OPGT”) under the Charities
Accounting Act, not “self-help” remedies
- Supplemental reasons were issued on March 7, 2012 (2012 ONSC 1527
(CanLII))
- The Court awarded the claimed costs of $454,686.19 to the charity and
$24,853.95 to the OPGT on a substantial indemnity cost basis
- The foundation’s unsubstantiated and unproven allegations of dishonesty
and deceit on the part of the charity, misrepresentations and refusal
of two offers to settle justified the said costs
- The OPGT has the right to claim against the directors for their role in
the litigation
|
|
62
|
- St. John’s Evangelical Lutheran Church of Toronto v. Steers, 2011 ONSC
6308 (CanLII) (October 24, 2011)
- There was a series of disputes between the leaders and members of the
congregation and the defendants (The English District Lutheran Church
Missouri Synod (Canada) and The English District Lutheran Church
Missouri Synod (U.S.A.)) regarding the ownership, autonomy, and
operation of a church and its property
- A motion for certification of a class proceeding under the Class
Proceedings Act (“CPA”) was
ultimately brought
- The parties ultimately settled their disputes, but the CPA requires a
proceeding commenced or certified as a class proceeding under it to be
discontinued or abandoned only with the approval of the court
|
|
63
|
- Therefore, the class proceeding was certified on the basis of a number
of common issues including: breach of fiduciary duty; negligent
misrepresentation (regarding the defendants’ authority and legal status
to install their own church council without the approval of the members
and to appropriate church property); and conspiracy (to disband and
disenfranchise the class members)
- Under terms of court approved settlement, the defendants agreed to
release their claim to the church’s property and the church agreed to
resign from the denomination
- The introduction of a class action into a church dispute may be the
first in Ontario, if not Canada
- Decision could have broader application
|
|
64
|
- The Ontario Superior Court certified a class action involving a
charitable donation tax scheme
- In summary, a donor’s original donation of $2,500 was purportedly
increased to $7,500 through the exchange of sub-trust units between the
various trusts involved, therefore making the original donation seem
larger than it actually was
- The recipient charities agreed to return 99% of the donations to the
promoters to use a software program
- CRA disallowed donors’ tax deductions because donations were not gifts
and charged interest on outstanding taxes owing due to the disallowance
|
|
65
|
- Ontario Superior court approved an $11 million settlement of the class
action relating to the “Banyan Tree” tax shelter
- Small donations by donors were purportedly increased through a “loan” to
donors
- CRA disallowed donors’ tax credits because the “donations” were not
gifts
- The defendant was a law firm which provided a legal opinion that the tax
shelter complied with applicable tax legislation and that the tax
receipts issued by the tax shelter should be recognized by CRA
|
|
66
|
|
Notes
