Federal Budget 2022 and Implementation Act No. 1 Introduced
Apr 2022 Charity & NFP Law Update
Federal Budget 2022: Impact on Charities and Not-for-Profits
By Terrance S. Carter, Theresa L.M. Man, Ryan M. Prendergast, Esther Shainblum, Esther S.J. Oh, Jennifer M. Leddy, Sean S. Carter, Adriel N. Clayton and Martin U. Wissmath
Finance Minister Chrystia Freeland tabled the sixth budget of the Liberal federal government (“Budget 2022”) on April 7, 2022. Budget 2022 is comprised of nine chapters and three appendices focussing on a wide range of matters, such as housing affordability, climate change, reconciliation, health care, support for diverse communities, and tax fairness.
This Charity & NFP Law Bulletin provides a summary and commentary on provisions proposed in Budget 2022 that impact the charitable and not-for-profit sector. Budget 2022 includes a number of legislative proposals that will impact the operations of charities, including charities “partnering” with non-qualified donees in a legislative initiative aimed at reflecting the “spirit of Bill S-216”, increasing the disbursement quota for charities with investments above $1 million from 3.5% to 5%, and expanding the scope of Canada’s anti–money-laundering and anti–terrorist-financing (AML/ATF) regime to cover crowdfunding platforms. Additionally, Budget 2022 responds to some of the challenges of the past couple of years by including a number of health-related initiatives, funding for Canada’s Performing Arts and Heritage Sectors, and financial support and funding for Indigenous communities, Black Canadian communities, and various religious communities through different programs and funds.
For the balance of this Bulletin, please see Charity & NFP Law Bulletin No. 510.
Draft Budget Implementation Legislation Tabled in the House of Commons
By Theresa L.M. Man and Terrance S. Carter
Draft legislation for the Budget Implementation Act, 2022, No.1 (“BIA”) was tabled in the House of Commons on April 26, 2022, through a “Notice of Ways and Means Motion to introduce an Act to implement certain provisions of the budget tabled in Parliament on April 7, 2022, and other measures” (the “Motion”). After the Motion is debated at the House of Commons, the Motion will need to be adopted before it is introduced as a bill.
The BIA contains a number of proposed legislative changes relevant to charities. As well, the BIA provides further information about the federal government’s intentions regarding Bill S-216, An Act to amend the Income Tax Act (use of resources of a registered charity), which was recently explained in-depth by The Honourable Senator Ratna Omidvar in her presentation Bill S-216 — ‘Resource Accountability’ and the Vulnerable Sector on February 17, 2022. In this regard, the BIA proposes that if Bill S-216 received royal assent before or on the same day as the BIA, then Bill S-216 would be deemed never to have come into force and would be repealed on the day the BIA came into force.
Key proposed draft changes to the Income Tax Act and Income Tax Regulations contained in the BIA relevant to registered charities include:
- Introducing a new regime permitting registered charities to make “qualifying disbursements” to “grantee organizations” which are newly defined terms in the Income Tax Act;
- Preventing a charitable organization that has gifted 50% of its income in a year to qualified donees from making qualifying disbursements;
- Requiring qualifying disbursements to meet detailed prescribed conditions set out in new Income Tax Regulation 3703;
- Requiring a charity that has made over $5,000 in qualifying disbursements to a grantee organization in a year be reported in its T3010 Registered Charity Information Return under new Income Tax Regulation 3704; and
- Expanding the power of the Minister of National Revenue to revoke the registration of a registered charity if a gift was made “expressly or implicitly conditional” on the charity making a gift to another person, club, society, association or organization other than a qualified donee (a power that is currently limited to registered Canadian amateur athletic associations and registered journalism organizations).
An in-depth commentary of the BIA will follow in a future Charity and NFP Law Bulletin.
Federal Court Interprets Unregistrable Place of Origin Marks Broadly
Apr 2022 Charity & NFP Law Update
Charities and not-for-profits looking to register their trademarks should keep in mind that trademarks which are descriptive of a place of origin of goods or services are unregistrable due to a lack of distinctiveness. In the February 22, 2022 decision of Nia Wine Group Co., Ltd. v North 42 Degrees Estate Winery Inc., the Federal Court found that North 42 Degrees Estate Winery Inc’s (the “Applicant”) trademark contravened section 12(1)(b) of the Trademarks Act (“TMA”) and that therefore its trademark application should be refused in its entirety.
The winery filed an application for the trademark NORTH 42 DEGREES (“proposed trademark”) in Canada in June 2016. In March 2017 Nia Wine Group Co., Ltd. (the “Opponent”) filed a Statement of Opposition (the Opponent operated a winery in the Niagara Region and sold wine in Canada under various brand names, including NORTH 43º). One of the specific grounds of opposition that the Opponent raised was that the proposed trademark “was clearly descriptive of the place of origin of the goods and services as the Applicant’s winery is located at or near the 42nd line of constant latitude in the northern hemisphere” contrary to 12(1)(b) of the TMA.
However, the Opponent was unsuccessful in opposing the trademark application before the Trademarks Opposition Board (the “Board”). Even though the Board accepted that there was evidence which established that the Applicant’s goods and services came from a farm located along the 42nd parallel, it concluded that “the Mark is neither a geographic name referring to a place of origin nor … the name of a place.” Therefore, while the Board considered the proposed trademark to be a “geographical reference” that alluded to a coordinate for a place, it was not a self-evident description of a place.
The Opponent then appealed the Board’s decision to the Federal Court. After considering some issues regarding evidence and the standard of review, the court directed its analysis to whether the Board erred in concluding the proposed trademark did not contravene 12(1)(b) of the TMA. The undisputed test for the application of 12(1)(b) was set out by the Federal Court of Appeal in MC Imports Inc v AFOD Ltd. Only the first two parts of the test were relevant to the court’s analysis: determining whether the trademark was a geographical name; and whether the place of origin of goods and services is the location of the geographic name. In MC Imports, the Federal Court of Appeal used both the phrase “geographical name” as well as “geographical location” in its analysis under 12(1)(b). Therefore, the court in this case concluded that there was no requirement “that a mark, to be unregistrable under section 12(1)(b), must use a geographical name.” Even if a geographical name was required, “[e]ach line of latitude and longitude has a distinctive designation (in this case, North 42 degrees)” and therefore “does in fact have a name”.
Further, when considering what constituted a “place of origin”, the court concluded that the term should be interpreted as referring “to any geographical designation.” For these reasons, the court found that the proposed trademark NORTH 42 DEGREES contravened section 12(1)(b) of the TMA and that the Applicant’s trademark application was refused in its entirety.
The court’s decision in this case provides charities, not-for-profits, and other organizations with further information about when a location-based trademark application may be unregistrable. While the Canadian Intellectual Property Office’s practice notice about the application of 12(1)(b) refers to “a geographic name” and goods originating from the location of the geographic name, the court’s decision illustrated a somewhat broader understanding and included terms indicative of geographic location, such as latitude and longitude.
April 2022 Charity & NFP Law Update
– Federal Budget 2022 and Implementation Act No. 1 Introduced
– Legislation Update
– Tax Court of Canada Rejects Donation Credit in Banyan Tree Tax Shelter Scheme
– Court Recognizes Importance of Indigenous Traditions in NFP Governance Dispute
– Court Dismisses Class Action Proceeding that Alleged Charity Defrauded Donors
– Employment Update
– Federal Court Interprets Unregistrable Place of Origin Marks Broadly
– Privacy Law Update
– Nine New Sector Members to Begin Terms with ACCS
– Statistics Canada Releases 2021 Fourth Quarter Results for Non-Profit Sector
– New Zealand Report Asks “What Does a World-Leading Framework of Charities Law Look
New Zealand Report Asks “What Does a World-Leading Framework of Charities Law Look Like?”
Apr 2022 Charity & NFP Law Update
A report out of New Zealand, prepared by Sue Barker for the New Zealand Law Foundation (the “Report”), sets out in its title a question that many common law countries have wrestled with: “What Does a World-Leading Framework of Charities Law Look Like?” Published on April 10, 2022, the Report answers this question by setting out draft legislation that would amend New Zealand’s Charities Act 2005. In the course of establishing the basis for the draft legislation as well as providing commentary on 70 recommendations, the Report provides a very helpful review and analysis of the regulation of charities in several common law jurisdictions, including Canada.
There are several interesting aspects that the Report explores in its analysis of the Canadian charitable framework. In a few instances, the Report highlights some of the challenges inherent in Canadian charitable legislation. For example, the Report considers how legislation relating to charities in Canada is largely characterized “by an overemphasis on controlling the extent of a perceived ‘tax expenditure’ through a classic tax regulatory approach of tax audits accompanied by intricate and specific rules.” The Report concludes that this approach is both harmful to charities and creates a never-ending loop of increasingly complex rules. The Report also quotes the Report of the Special Senate Committee on the Charitable Sector, as well as the Advisory Committee on the Charitable Sector (“ACCS”) to illustrate that Canada’s complex rules pertaining to charities’ business activities inhibit rather than enable social enterprise. In light of such complex and inhibitory rules, the Report concludes that New Zealand should “exercise considerable caution” before importing something similar.
The Report, though, also covers some of the strengths of Canada’s charitable framework. While Canada’s historical legislation limited charities’ engagement in so-called “political activities” the law nevertheless evolved. Once Bill C-86 was passed into law in December 2018, revised rules relating to non-partisan political activities of charities allowed them to engage in public policy dialogue and development activities. This change, the Report notes favourably, “brought the law in Canada into line with that of all comparable jurisdictions, with the notable exception of New Zealand”. Additionally, the Report commented favourably on the creation and involvement of the ACCS which “has been heralded as government and sector working together and ‘making progress on some really tough questions’ for the first time in 40 years.”
While the overall focus of the Report is, understandably, on the law of charities as it pertains to New Zealand, it is interesting to see how Canada’s legal system compares with the frameworks which regulate charities in other common law countries such as Australia, England and Wales, Ireland, New Zealand, Northern Ireland, Scotland, and the United States. Charities and others who are curious about “What does a world-leading framework of Charities Law look like?” are encouraged to read this excellent and very thorough report.