by Dev User | Oct 31, 2019 | Uncategorized
Oct 2019 Charity & NFP Law Update
A On September 25, 2019, the Canada Revenue Agency (“CRA”) released CRA View, Document 2019-0798491C6 (“CRA View”), concerning donations from alter ego trusts to charities following a settlor’s death, as discussed at the 2019 STEP CRA Roundtable on June 7, 2019. As this CRA View is highly
detailed and nuanced, this article only provides a brief summary of the CRA’s position, and those interested should read the full CRA View, which is available via online subscription services.
The CRA View considers various questions concerning a hypothetical alter ego trust and donations made by it following the death of the settlor. In this regard, the question involves an alter ego trust that owns publicly traded securities that have appreciated in value and various scenarios where after the death of the settlor, donations are made to registered charities. In this regard, the CRA View indicates that where the settlor dies, there is a deemed year-end at the end of the day on which the settlor dies pursuant to subsection 104(13.4) of the Income Tax Act (“ITA”). Subsection 104(4) of the ITA indicates that the alter ego trust would also realize a capital gain at that time. The CRA View then looks at different scenarios where the alter ego trust makes donations to registered charities.
In this regard, where the residual beneficiary after the settlor’s death is a registered charity, and a distribution is made to that charity, the CRA View indicates that it is a mixed question of fact and law whether the payment from the trust to the charity is a charitable gift eligible for a subsection 118.1(3) donation tax credit, or a distribution of income or capital to a beneficiary of the trust. This would depend on the specific wording of the trust agreement and the trustee’s intentions in making the payment to the charity. Where the trustee has no discretion regarding whether the payment is made to the charity, the
payment would not qualify as a gift and would therefore not be eligible for the donation tax credit. Conversely, where the trustee is clearly given the discretion to decide how the funds are to be used, the payment to the charity would be voluntary and would be considered a charitable gift eligible for the donation tax credit. The CRA View also indicates that the same principle would apply where the residual beneficiaries are a class of registered charities as determined by the trustees, and where the trustees may make payments over a period of time, to those various registered charities.
Where the donation from the alter ego trust consists of certain publicly-traded securities, subparagraph 38(a.1)(i) of the ITA provides that “a taxpayer’s taxable capital gain for a taxation year from the disposition of a property is equal to zero if the disposition is the making of a gift to a qualified donee” of certain publicly-traded securities. In such circumstances, the CRA View indicates that the taxable capital gain of the trust resulting from the disposition would be equal to zero.
Read the October 2019 Charity & NFP Law Update
by Dev User | Oct 31, 2019 | Uncategorized
Oct 2019 Charity & NFP Law Update
A handout is now available from a presentation given by Terrance S. Carter on the topic of Legal Challenges and Options for Boards of Religious Institutes in Transition at the Association of Treasurers of Religious Institutes 32nd Annual Conference, on September 29, 2019 in Calgary. The handout will be of interest for Catholic and other religious organizations having to deal with the intersection of civil law and canon law, particularly where these areas of law touch on the role of directors in dealing with religious organizations in transition, which may arise in part due to declining membership. The handout identifies legal challenges that boards of religious institutes in transition can face as civil law entities, as well as some options and suggestions to consider in response. The handout can be accessed here: Legal Challenges and Options for Boards of Religious Institutes in Transition.
Read the October 2019 Charity & NFP Law Update
by Dev User | Oct 31, 2019 | Uncategorized
Oct 2019 Charity & NFP Law Update
A On October 15, 2019, the Canadian Council for International Co-operation (the “CCIC”), a national association representing international development and humanitarian organizations, released a policy brief titled “Directed Charities and Controlled Partnerships” (the “Policy Brief”).
The Policy Brief discusses how registered charities that want to operate outside Canada are seriously restricted in effectively working with their partners by (i) the CRA’s requirement that registered charities exercise direction and control over the funds they disburse through third parties that are not registered charities or other types of qualified donees, and (ii) Canada’s onerous anti-terrorism regime. Based on research and interviews with national charity coalitions from six other member countries of the Organization for Economic Cooperation and Development (“OECD”), as well as input from the International Civil Liberties Monitoring Group, the Policy Brief made a number of recommendations concerning how the Government of Canada can improve the legal framework governing the charitable sector.
First, the Policy Brief explains the requirement in the CRA’s Guidance CG-002, Canadian registered charities carrying out activities outside Canada (“Guidance CG-002”) on how Canadian charities may operate outside Canada with the assistance of intermediaries abroad. This may be done by maintaining direction and control over the use of the charity’s resources by the intermediary, with strict conditions imposed on such a “partnership.” Specifically, Guidance CG-002 reflects the CRA’s interpretation of the ITA requirement under paragraph 149.1(1)(a.1) that “all the resources of [a charitable organization be] devoted to charitable activities carried on by the organization itself.” The Policy Brief states that Canadian charities operating internationally are required by the CRA to “assume dominance over their partners […] rather than pursuing equal, respectful, and mutually beneficial relationships,” something contrary to the central tenet of promoting effective international development of promoting local ownership.
As such, the Policy Brief supports the recommendation in the Special Senate Committee on the Charitable Sector’s (the “Special Senate Committee”) final report, discussed in Charity & NFP Law Bulletin No. 451. The Special Senate Committee recommended, among other things, to amend Guidance CG-002 to
replace the direction and control requirement with an expenditure responsibility test that emphasizes careful monitoring of financial expenditures by intermediaries and partners rather than substantive or operational control, and thereby bringing it more in line with the policies in effect in other OECD
countries.
Second, regarding Canada’s anti-terrorism regime, the Policy Brief refers to the powers granted to the Minister of Public Safety and Emergency Preparedness and the Minister of Revenue under the Charities Registration (Security of Information) Act. These Ministers may reject an application for charitable status or revoke such status with respect to a registered charity that they believe has made, makes or will make available any resources, directly or indirectly, to a terrorist entity or an entity engaging in terrorist activities, as defined in the Criminal Code. The Policy Brief states that, although preventing Canadian
charities from being used as a tool to support terrorism is an important policy goal, many humanitarian organizations work in conflict zones where listed non-state armed groups control parts of the territory. Accordingly, the strict prohibition on the flow of any resources to or through such organizations would
often result in certain peoples being denied humanitarian aid. As a result, these provisions work to discourage humanitarian organizations from operating in conflict-affected areas where needs may be most urgent.
In response, the Policy Brief recommends “the repeal or amendment of the Charities Registration (Security of Information) Act in favor of the use of the Criminal Code provisions, where necessary.” It also recommends the adoption of an exemption to the Criminal Code’s anti-terrorism provisions for “impartial humanitarian assistance undertaken with due diligence,” as well as a limitation on the definition of “facilitation” in the Criminal Code to situations where the facilitator knowingly facilitates a terrorist activity.
Overall, the Policy Brief highlights the constraints imposed on the charitable sector working globally because of the current regulatory and legislative provisions relating to direction and control and the antiterrorism legislation. The Policy Brief makes significant recommendations to reform both frameworks and to engage in a broad and systematic consultation and dialogue with Canadian charities.
Read the October 2019 Charity & NFP Law Update
