by Dev User | Feb 24, 2022 | Uncategorized
Feb 2022 Charity & NFP Law Update
Following the proposal for a public consultation to potentially increase the 3.5% Disbursement Quota (“DQ”) in the April 2021 Federal Budget, there has been much discussion in the charitable sector regarding charitable tax policy as it relates to the DQ, including in our own firm’s submission in Charity & NFP Law Bulletin No. 498. However, what has been overlooked in the discussion is an understanding of the process that charities are required to follow in order to calculate and meet the DQ, whether or not the DQ rate is to be changed.
The DQ is a requirement set out in subsection 149.1(1) of the ITA and is the minimum amount that a charity must spend on its charitable activities or gifts to qualified donees to ensure that its charitable assets are used for charitable purposes and are not simply accumulated indefinitely. The 3.5% DQ obligation applies to property owned by the charity in the preceding 24 months that is not used directly in charitable activities or administration. This Bulletin sets out a brief outline of the steps charities would need to take to comply with the DQ rules, and highlights a few key areas to pay attention to.
For the balance of this Bulletin, please see Charity & NFP Law Bulletin No. 507.
Read the February 2022 Charity & NFP Law Update
by Dev User | Feb 24, 2022 | Uncategorized
Feb 2022 Charity & NFP Law Update
Extension Proposed for Expanded Benefits Under Local Lockdown Program
The federal government is proposing to extend the availability of certain COVID-19 relief, including the Local Lockdown Program which was introduced through Bill C-2, An Act to provide further support in response to COVID-19. As discussed in the January 2022 Charity & NFP Law Update, the Local Lockdown Program allows organizations, such as charities and not-for-profits, to qualify for relief under the Tourism and Hospitality Program even if they are not in the tourism and hospitality sector.
To qualify, organizations must have been affected by a qualifying public health restriction for at least seven days during a claim period, their stopped activities must account for at least 25% of their total eligible revenue during the period prior to the claim period, and they must have had at least a 40% revenue decline for the current claim period compared to the prior reference period.
Eligibility for the Local Lockdown Program had also been expanded from December 19, 2021 to February 12, 2022 to include employers subject to capacity-limiting restrictions of 50% or more, and to reduce the revenue decline threshold from 40% to 25%, with eligible employers receiving wage and rent subsidies between 25% and 75% depending on their degree of revenue loss. However, according to an announcement from the Department of Finance released on February 9, 2022, the federal government intends to extend this expanded access to these benefits for one additional month to March 12, 2022.
Ontario Moves to Next Phase of Reopening
The Government of Ontario is expediting its three-step plan for lifting capacity limits to ease public health measures across the province. As reported in the January 2022 Charity & NFP Law Update, capacity limits were to be increased effective as of February 21, 2022, followed by further easing of limits on March 14, 2022. However, in accordance with a government announcement released on February 14, 2022, capacity limits were eased as of February 17, 2022, with further easing on March 1, 2022.
As February 17, 2022, social gathering limits were increased to 50 people indoors and 100 people outdoors; organizations and facilities that are permitted to “opt-in” to proof of vaccination requirements are now permitted to operate at 100% capacity; and indoor religious services, rites, and ceremonies may accommodate the number of people that can maintain two metres of physical distance (with no capacity limits for those that opt in to require proof of vaccination for all attendees).
As of March 1, 2022, provided that public health and health system indicators continue to improve, capacity limits in all remaining indoor public settings will be lifted. Proof of vaccination requirements for all settings will also be lifted, though “businesses and other settings” will be allowed to continue to require proof of vaccination. However, masking requirements will continue to remain in place, with a specific timeline to lift this measure to be announced later.
Read the February 2022 Charity & NFP Law Update
by Dev User | Feb 24, 2022 | Uncategorized
Feb 2022 Charity & NFP Law Update
Department of Finance Seeks Public Comment on Draft Legislative Proposals to Income Tax Act
The Department of Finance released a set of draft legislative proposals and accompanying explanatory notes on February 4, 2022, to implement certain tax measures previously announced in the Budget 2021, as well as certain additional measures. Of interest to charities and non-profit organizations, are proposed changes regarding the reporting requirements for trusts, including amendments to subsection 104(1) of the ITA, as well as the introduction of new subsections 150(1.2) and (1.3) of the ITA.
The proposed changes are very technical, but generally will require more trusts to file a return of income (“T3”) than what is currently the case. For example, bare trusts will be subject to reporting requirements, as will express trusts (if certain conditions are met). All trusts that are required to file a T3 (except express trusts when certain conditions are met) will have to provide additional personal information (e.g. names, addresses, dates of birth) about trustees, beneficiaries, or settlors of the trust. Failure to comply with the new reporting requirements is addressed in newly added penalty provisions, and could result in a monetary penalty of $2500 or greater.
Other amendments of interest include proposed amendments to subsection 188(1.2) of the ITA concerning revocation rules applicable to charities. Specifically, pursuant to Budget 2021, the ITA has already been amended to “streamline the revocation process of charitable status” to prevent the abuse of charitable registration for terrorist financing purposes by allowing for the immediate revocation of charitable status of an organization listed as a terrorist entity, as set out in greater detail in Charity & NFP Law Bulletin No 492. The new proposed amendments would include coordinating amendments to subsection 188(1.2). This subsection concerns a charity’s winding-up period and applies for the purpose of calculating revocation tax under subsection 188(1.1) with regard to certificates issued under the Charities Registration (Security Information) Act and notices of intention to revoke a charity’s registration. The proposed amendments to subsection 188(1.2) would make these provisions applicable with respect to entities that become a “listed terrorist entity”.
The Department of Finance is seeking public comment on the draft legislative proposals, and has indicated that any responses to its consultation should be submitted no later than March 7, 2022.
Federal Government Declares Public Order Emergency under Emergencies Act
In response to the recent “Freedom Convoy” protests in Canada, the Government of Canada declared a “public order emergency” under Part II of the Emergencies Act (the “Act”) on February 14, 2022. This was followed by the filing of Emergency Measures Regulations (the “Regulations”), and an Emergency Economic Measures Order (the “Order”) under the Act on February 15, 2022. However, on February 23, 2022, the government revoked the Emergencies Act.
Of note, the declaration of a public order emergency allowed the federal government to strengthen anti–money-laundering controls, which may affect fundraising platforms used by charities. For further details, see the ATF/AML Update, below.
Read the February 2022 Charity & NFP Law Update
by Dev User | Feb 24, 2022 | Charity & Not-for-Profit Law
Feb 2022 Charity & NFP Law Update
An update on the Taxpayer Ombudsperson’s review of audits of Muslim charities in Canada has raised concerns from the International Civil Liberties Monitoring Group (ICLMG). After reports of systemic anti-Islamic bias in the CRA, the Minister of National Revenue tasked the Office of the Taxpayers’ Ombudsperson to examine complaints by Muslim-led charities about their experiences, which the Ombudsperson began in August 2021. The Ombudsperson published an update (the “Update”) on February 9, 2022 about its examination of the fairness of the CRA’s Charities Directorate’s audit process. In response, the ICLMG expressed surprise and disappointment in a press release about the apparently limited scope of the examination.
According to the Update, the Taxpayers’ Ombudsperson created a Special Ombudsperson Response Team (SORT) to sort out:
- how the CRA selects registered charities for audit, and if the process is designed and applied fairly
- if there are areas in the audit process that may be inequitable
- the impact the audit process has on registered charities
The Update lists the following questions the Ombudsperson intends to answer in the examination:
- Are charities selected for audit fairly?
- How are audits carried out?
- Is the audit process equitable?
Meetings with the CRA officials and various stakeholders, including charities “to understand concerns and identify issues, if any” are going and will continue in 2022, the Update reports. While “some stakeholders have said that they were comfortable with the CRA’s processes,” according to the Update, others raised concerns:
- the CRA’s charity audit process can sometimes last for years
- audit results and compliance approaches may not be provided in a timely manner
- compliance approaches are not consistent
- some charities feel they are being unfairly or arbitrarily treated by the CRA
As its examination continues, the Taxpayers’ Ombudsperson has published a webpage to “keep Canadians informed of the examination’s progress.” The webpage includes an online questionnaire for the charitable sector to provide feedback about their experiences with the CRA’s Charities Directorate by no later than March 31, 2022.
In its February 9, 2022 press release, the ICLMG called on the Taxpayers’ Ombudsperson to expand the scope of the examination to include “missing elements” and to include a focus on the CRA’s Review and Analysis Division (RAD) rather than only on the CRA Charities Directorate in general. The Taxpayer Ombudsperson should include an examination into whether current practices have created a “presumption that Canadian Muslim charities must be monitored, and possibly audited, to verify no terrorist financing risks exist.” The RAD’s activities should be immediately suspended, the ICLMG stated, and the government should “commit to reforming its National Risk Assessment on terrorist financing in order to ensure fairness and eliminate unintended consequences on Muslim-led charities in particular, and the charity sector overall.”
Read the February 2022 Charity & NFP Law Update
by Dev User | Feb 24, 2022 | Uncategorized
Feb 2022 Charity & NFP Law Update
State-Sponsored Cyber Criminals Cause Privacy Risks for Canadian Networks: Cyber Centre
Warnings from the federal government about Russian state-sponsored hackers highlights the need for organizations to comply with privacy law and protect sensitive data. The Canadian Centre for Cyber Security (“Cyber Centre”) published a “Cyber threat bulletin” on January 26, 2022 that “urges Canadian critical infrastructure operators to raise awareness and take mitigations against known Russian-backed cyber threat activity.” The Cyber Centre joined the United States’ Cybersecurity & Infrastructure Security Agency, along with the United Kingdom’s National Cyber Security Centre, in “recommending proactive network monitoring and mitigations.” Russian backed cyber threat actors are targeting Canadian critical infrastructure network operations, their operational and information technology, the Cyber Centre reported. The warning, though intended for “critical infrastructure network defenders” should remind charities and not-for-profit organizations across the country to increase their efforts to protect sensitive personal information in accordance with Canadian privacy law and best practices. The Cyber threat bulletin was published a week after a January 19 cyber attack on Global Affairs Canada amid fears of an escalating Russia–Ukraine conflict.
Under the Canada Not-for-Profit Corporations Act, directors of charities and not-for-profits have a duty to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. They could face potential personal liability if the organization suffers a loss because they have failed to take appropriate steps to identify, manage and mitigate privacy and cybersecurity risks. However, courts will not second-guess directors who act prudently in good faith, on a reasonably informed basis — a common law doctrine known as the “Business Judgment Rule.” In order to avoid potential liability, directors must be able to demonstrate that they obtained and considered information on cyber security and privacy issues and risks, that they took appropriate steps to make the organization compliant with privacy laws and best practices, and to put appropriate safeguards in place to protect personal information and to prepare for, and respond to, privacy breaches or cyber attacks. Directors should obtain regular reports from management on cybersecurity and privacy issues, as well as obtain adequate insurance to cover the risks involved. The Office of the Privacy Commissioner of Canada recommends that charities and NFPs follow the principles set out in Schedule 1 of the Personal Information Protection and Electronic Documents Act.
Read the February 2022 Charity & NFP Law Update
