by Dev User | Jan 13, 2020 | Uncategorized
January 2020 Charity & NFP Law Update
On December 5, 2019, the Federal Court of Appeal (“FCA”) released its decision in Markou v Canada, an appeal by four individuals (the “Appellants”) who had previously lost an appeal over tax reassessments in the Tax Court of Canada (“TCC”) case of Markou v The Queen, discussed in the April 2018 Charity & NFP Law Update. The Appellants had participated in a leveraged donation program (the “Program”) that issued donation tax receipts to the Appellants after they had transferred funds to a charity. These funds were mainly funded with a loan obtained from parties related to the program sponsor which, in some cases, were up to 85% of the total amounts transferred to the charity, with the remainder being paid by the participants with their own funds. The donation tax credits had been disallowed by the Minister of National Revenue (“Minister”) because the transferred amounts were not gifts within the meaning of section 118.1 of the ITA.
At the trial level, the TCC had upheld the Minister’s reassessments on the basis that the Applicants lacked the requisite donative intent. In this regard, the TCC also upheld the TCC and FCA decisions in Maréchaux v The Queen (“Maréchaux”), a separate preceding case that also rejected appeals over reassessments under the same Program because the parties lacked donative intent. However, in this appeal, the Appellants argued that the TCC had erred in concluding that no part of the total amount was given with donative intent. In particular, they argued that, in certain cases, a valid gift could be made where the donor received a benefit or consideration from the donee, such as in the case of split gifts. They further argued that “it is possible to make a ‘“profitable” gift’ due to the favourable tax consequences that some gifts provide.”
The FCA found that the decision turned purely on the issue of stare decisis, i.e. the principle that courts must follow previously established legal precedent when deciding on similar cases. In this regard, the FCA did not distinguish between this case and Maréchaux, and therefore found that the TCC in this case was bound by the decision in Maréchaux. As such, it stated that “the Tax Court judge was also bound to hold that ‘no part of [the interconnected transaction] can be considered a gift that the appellant[s] gave in the expectation of no return.’” Further, it could not overrule the Maréchaux decision, as the TCC had not overlooked binding precedents or ignored relevant statutory authority. As such, the FCA held that the TCC was bound to uphold the Minister’s decision concerning the reassessment.
Although the decision turned on the precedent set in Maréchaux, the FCA further discussed gifts in obiter, particularly in light of the Appellants’ argument that “it is possible to make a ‘“profitable” gift’ due to the favourable tax consequences that some gifts provide.” To that point, the FCA stated that the argument was based on an inaccurate reading of The Queen v Friedberg. In that case, Mr. Friedberg had purchased cultural property at a bargain price donated it at its fair market value, and received tax benefits in excess of his original acquisition costs, which the FCA indicated was permissible. The FCA stated that a tax benefit received by a person making a gift, in and of itself, does not invalidate the gift, but where that person anticipates tax benefits in excess of the value of their “gift”, they cannot be said to have made a gift with donative intent, as “impoverishment is an essential element of a gift under both the civil law and the common law.”
This case, along with the lower level decision and Maréchaux, demonstrate that courts and the Minister will not tolerate “gifts” in leveraged donation programs where individuals expect to “profit” off of a donation by receiving tax benefits greater than the donation itself. In such circumstances, what may have been anticipated as a gift may not, in fact, be a gift where the donor is not impoverished and donative intent is lacking.
Read the January 2020 Issue
The CRA’s Guidance on Journalism: Clarifying Tax Credits, QCJOs and RJOs
Advisory Committee on the Charitable Sector Holds December Meetings
Legislation Update
– Provisions of Budget Implementation Act No. 1, 2019 Now In Force
– Proposed Changes to Employee Stock Option Regime Delayed
– 2020 Budget Consultations in Ontario
– Ontario Regulations under the Connecting Care Act, 2019
– Alberta Senate Election Act
– Nova Scotia’s Plastic Bags Reduction Act
– Yukon’s New Liquor Act
Corporate Update
– ONCA Coming into Force Delayed
– Updated Policies on Corrections of Articles or a Certificate for Business and Not-for-Profit Corporations
– Corporations Canada Makes Changes for Online Services to Not-for-Profits
– Certain Amendments to Ontario’s Co-operative Corporations Act in Force
– New Brunswick’s Cooperatives Act Proclaimed in Force
Voluntary Association’s Constitution and By-Laws Found to be Contractual
Tax Court Decision on Split Receipting and Donative Intent Upheld on Appeal
Federal Court of Appeal Holds that Atheism is not a Religion
CRA Technical Interpretation Regarding Loanbacks by a Qualified Donee
CRA Technical Interpretation on Prescribed Rates and Undue Benefits
Termination Clause Found to be Void and Unenforceable by the Court of Appeal
The Federal Court Establishes the Test for a Site-blocking Order
Alberta Court of Appeal Rules that Charter Applies to Freedom of Expression by Students on University Campus
Anti-Terrorism/Money Laundering Update
– Global Fragility Act of 2019
– EU Renews its Terrorist List
– OSFI Ceases Publishing Lists of Designated Persons
Charities Legislation & Commentary, 2020 Edition Now Available
by Dev User | Jan 13, 2020 | Uncategorized
January 2020 Charity & NFP Law Update
Provisions of Budget Implementation Act No. 1, 2019 Now In Force, Receives Royal Assent
As of January 1, 2020, a number of provisions of Budget Implementation Act No. 1, 2019, including amendments to the Income Tax Act (Canada) (“ITA”) dealing with Canadian journalism organizations, have come into force. For more information on the new regime for Canadian journalism organizations, see Charity & NFP Law Bulletin No. 417 and Charity & NFP Law Bulletin No. 459.
Proposed Changes to Employee Stock Option Regime Delayed
On December 19, 2019, the Federal Government issued an Update indicating that the previously proposed changes to the tax treatment of employee stock options under the ITA would be delayed, as the Ministry of Finance continues to review the input received during the consultations that closed on September 16, 2019. As a result, the proposed changes did not come into force on January 1, 2020. The Update also states that more details regarding the proposed changes will be provided in Budget 2020. For more information regarding the proposed changes to the tax treatment of employee stock options and how it may affect donations to qualified donees, see the August 2019 Charity & NFP Law Update.
2020 Budget Consultations in Ontario
On December 18, 2019, the Ontario Government launched its 2020 Budget Consultations, seeking input on “how the government can improve quality of life for people across the province, while also attracting business investment, creating jobs and improving critical public services such as healthcare and education.” The consultations will be open until Feb 11, 2020.
The 2020 Pre-Budget Consultations by the Standing Committee on Finance and Economic Affairs of the Legislative Assembly of Ontario were held between January 17 and 24, 2020.
Ontario Regulations under the Connecting Care Act, 2019
Effective December 2, 2019, new Ontario Regulation 376/19 under the Connecting Care Act, 2019 (“CCA”) came into effect, prescribing the provision by Ontario Health, the new provincial agency created to manage the delivery of healthcare in Ontario, of certain shared services, such as human resource management and finance and administration, to the local health integration networks (or “LHINs”), approved agencies under the Home Care and Community Service Act, 1994, and placement co-ordinators designated under the Long-Term Care Homes Act, 2007. Additional information is available on the Ontario Health website.
Also, effective January 1, 2020, new Ontario Regulation 390/19 under the CCA prescribed Ontario Telemedicine Network as an organization which may be subject to a transfer order pursuant to subsection 40(1) of the CAA. Additional information about transfer orders issued by Ontario Health is also available on the Ontario Health website. .
Alberta Senate Election Act
Bill 13, Alberta Senate Election Act, which received Royal Assent on July 18, 2019, amended the Election Finances and Contributions Disclosure Act by introducing new provisions dealing with restrictions on advertising contributions and expenses, including a prohibition on registered charities from making senatorial selection advertising contributions. The amendments also provide restrictions on the disposition of advertising account funds and require that funds remaining in an advertising account, as defined under the Act, either be donated to a registered charity, returned to the third party contributors if they can be identified or, as applicable, paid to the Chief Electoral Officer for deposit into the General Revenue Fund.
Nova Scotia’s Plastic Bags Reduction Act
On October 30, 2019, Nova Scotia’s Plastic Bags Reduction Act received Royal Assent and will come into force one year from that date. This legislation prohibits businesses from providing plastic checkout bags. The definition of “business” under the Act provides that it “does not include a charity.” The regulations under this Act will prescribe the amount of the fines payable by any person who contravenes the Act or the regulations.
Yukon’s New Liquor Act
On November 27, 2019, Yukon’s New Liquor Act received Royal Assent. Part 5 of this new Act contains a number of special provisions for how registered charities and not-for-profits may apply for the different classes of permits for the sale of liquor or the sale of tickets that may be exchanged for liquor. On the date set by proclamation of the Commissioner in Executive Council, this legislation will repeal the current Liquor Act, RSY 2002, c 140.
Read the January 2020 Issue
The CRA’s Guidance on Journalism: Clarifying Tax Credits, QCJOs and RJOs
Advisory Committee on the Charitable Sector Holds December Meetings
Legislation Update
– Provisions of Budget Implementation Act No. 1, 2019 Now In Force
– Proposed Changes to Employee Stock Option Regime Delayed
– 2020 Budget Consultations in Ontario
– Ontario Regulations under the Connecting Care Act, 2019
– Alberta Senate Election Act
– Nova Scotia’s Plastic Bags Reduction Act
– Yukon’s New Liquor Act
Corporate Update
– ONCA Coming into Force Delayed
– Updated Policies on Corrections of Articles or a Certificate for Business and Not-for-Profit Corporations
– Corporations Canada Makes Changes for Online Services to Not-for-Profits
– Certain Amendments to Ontario’s Co-operative Corporations Act in Force
– New Brunswick’s Cooperatives Act Proclaimed in Force
Voluntary Association’s Constitution and By-Laws Found to be Contractual
Tax Court Decision on Split Receipting and Donative Intent Upheld on Appeal
Federal Court of Appeal Holds that Atheism is not a Religion
CRA Technical Interpretation Regarding Loanbacks by a Qualified Donee
CRA Technical Interpretation on Prescribed Rates and Undue Benefits
Termination Clause Found to be Void and Unenforceable by the Court of Appeal
The Federal Court Establishes the Test for a Site-blocking Order
Alberta Court of Appeal Rules that Charter Applies to Freedom of Expression by Students on University Campus
Anti-Terrorism/Money Laundering Update
– Global Fragility Act of 2019
– EU Renews its Terrorist List
– OSFI Ceases Publishing Lists of Designated Persons
Charities Legislation & Commentary, 2020 Edition Now Available
