by admin | Sep 29, 2016 | Charity & Not-for-Profit Law
Public Consultation on Charities and Political Activities Announced
On September 27, 2016, the Honourable Diane Lebouthillier, Minister of National Revenue (the “Minister”), announced the launching of public consultations to “clarify the rules regarding the involvement of registered charities in political activities.” This announcement comes in light of the January 20, 2016 announcement that Canada Revenue Agency (“CRA”) would be winding down political activities audits and the earlier release of the Minister’s Mandate Letter on November 13, 2015 in which the Prime Minister asked the Minister to clarify the rules concerning political activities by charities.
CRA followed this announcement with its own announcement later the same day detailing the online component of the consultation. The consultation questions are grouped into three categories related to carrying out political activities, CRA’s policy guidance, and future policy development. Specific questions asked by CRA include:
- Are charities generally aware of what the rules are on political activities?
- What issues or challenges do charities encounter with the existing policies on charities’ political activities?
- Do these policies help or hinder charities in advocating for their causes or for the people they serve?
- Is the CRA’s policy guidance on political activities clear, useful, and complete?
- Which formats are the most useful and effective for offering policy guidance on the rules for political activities?; and
- Should changes be made to the rules governing political activities and, if so, what should those changes be?
Comments concerning the online consultation will be received until November 25, 2016. In person consultations will follow at a later date in Halifax, Montréal, Toronto, Winnipeg, Calgary and Vancouver. The Minister also announced the establishment of a consultation panel consisting of five individuals experienced in the regulatory issues facing charities, presumably in the context of political activities.
Appointment of New Director General of Charities Directorate
Tony Manconi assumed the role of Director General of the Charities Directorate with the Canada Revenue Agency (“CRA”) on July 25, 2016. Mr. Manconi began his career in the Public Service in 1988 at the Secretary of State. Prior to joining the Charities Directorate, Mr. Manconi served as the Director General of the Collections Directorate of the CRA. Mr. Manconi holds a Bachelor’s degree from Carleton University with a combined major in Law and Economics.
Finance Canada Reviews Commitment by MasterCard and Visa to Reduce Fees for Charities
A Backgrounder released by the Department of Finance on September 22, 2016 reported on its review of MasterCard and Visa’s voluntary commitments to reduce interchange fees for charities. In November 2014, Visa and MasterCard voluntarily agreed to reduce interchange fees for charities to an average of 1.50% of the transaction value. An interchange fee refers to a charge paid by merchants when they process payments by credit card. These reductions took effect in April 2015 and are to continue for five years following that date.
MasterCard released a report in November 2014 indicating that their new merchant category for charities allows for an almost 40% reduction in interchange fees. This means interchange fees fall to between 1.0% and 1.5%, as compared to previous rates of 1.59% to 2.65%. Visa, rather than creating a completely new merchant category, included charities in its “emerging segments” category according to their report released in November 2014. This means charities’ interchange fees will vary between 0.98% and 1.95%, depending on the Visa card used.
The Department of Finance released its third-party verifications over the 12-month period from May 1, 2015 to April 30, 2016, which verified that both Visa and MasterCard have “met their respective commitments, which include reductions for small and medium-sized enterprises and charities.”
These developments in lower interchange fees significantly benefit charities by lowering administrative costs overall for the charitable sector. For more detailed information concerning the commitments made by both MasterCard and Visa see the November/December 2014 Charity Law Update.
CRA Updates its Website on Charitable Donation Tax Credit Rates
On September 15, 2016, CRA updated its website and charitable donation tax credit rate table to reflect current charitable donation tax credit rates, as well as the related proposed legislation with respect to charitable donation tax credits under subsection 118.1(3) of the Income Tax Act (“ITA”).
In addition to the table, examples are also provided, including examples which incorporate the new top individual income tax rate of 33% under proposed legislation.
For additional information on tax rates and the amendments to the donation tax credit, see our January 2016 Charity Law Update.
by admin | Sep 29, 2016 | Charity & Not-for-Profit Law
On August 19, 2016, the Tax Court of Canada (the “Court”) released reasons for judgement in the case of Guobadia v R. The Court’s informal procedure in this matter dealt with an appeal of a notice of reassessment issued to a taxpayer by the Minister of National Revenue (the “Minister”). The taxpayer in question was reassessed outside of the normal assessment period pursuant to subsection 152(4) of the Income Tax Act (“ITA”) and the taxpayer’s claims for charitable donations in certain earlier years were disallowed. Subsection 152(4) of the ITA allows the Minister to reassess when the taxpayer “made a misrepresentation attributable to neglect, carelessness, willful default or has committed fraud.”
The Minister’s basis for the disallowance in this case was that the charitable donations in question had not actually been made by the taxpayer, as well as that the related charitable donation receipts did not contain the information required by the Income Tax Regulations, section 3501. At paragraph 32 of the decision, the Court stated that even if a charitable donation receipt contains all of the information required by law, it may not be accepted by CRA if it does not accurately reflect the donation to which it relates. The Court then indicated, at paragraph 33, that the reverse is also true. That is, even if the receipt accurately reflects a true donation, the lack of required information being set out in the receipt may mean that it will also not be found to be acceptable.
In this decision, the Court assessed the credibility of the taxpayer herself in relation to the donations under review and found her testimony to be “vague and contradictory”, as well as her evidence “improbable” that she attended two churches where she tithed, donating 10% of her income to each one. On this issue, the Court found that the taxpayer had no evidence to support that the donations were made and that the related donation receipts were invalid as a result. For these reasons, the Court dismissed the appeal. Although this is an informal procedure, and thus without precedential value, this case is potentially persuasive insofar as it confirms that donation receipts may be disallowed where all of the required information is not set out on the receipts or where they inaccurately reflect the value of the underlying donation.
by admin | Sep 29, 2016 | Charity & Not-for-Profit Law
Canada Revenue Agency (“CRA”) recently released two almost identical interpretations on whether certain supplies of alcoholic beverages supplied by charities pursuant to a catering contract were exempt from GST/HST and whether the GST/HST paid on purchases of alcoholic beverages by the charity were eligible to be claimed under the Public Service Bodies’ Rebate (“PSB”). Although GST/HST interpretations are fact specific and not binding on CRA, they can help charities that make supplies of alcoholic beverages in the context of providing catering services determine if they need to review how they are currently accounting for GST/HST.
GST/HST interpretation documents numbered 8483r and 6372r were released on September 6, 2016. Both interpretations specify the charity’s catering contract should contain terms which indicate the sale of alcoholic beverages is required “at the direction of the client and all or a portion of the consideration payable for the beverages must be billed to the catering client as part of the invoice for the catering supply.” Where the catering contract contains such terms and the charity sells the beverages through “a host bar (that is, total amount for the beverages is charged to the catering client) or a 50/50 bar (that is, only 50% of the total amount for the beverages is charged to the catering client and the remaining 50% is charged to the guests),” the supply of alcoholic beverages will generally be exempt. Supplies of alcoholic beverages made by the charity directly to guests, i.e. through a 100% cash bar, would generally be taxable.
Concerning whether charities can claim a PSB rebate for GST/HST paid on purchases of alcoholic beverages, the interpretations clarify that charities would generally “not be entitled to claim a PSB rebate in respect of the GST/HST paid or payable on purchases of alcoholic beverages that the charity supplies independent of a meal where it is not required to collect the GST/HST on those supplies.” On the other hand, it may be possible for charities who make taxable supplies of alcoholic beverages to claim a PSB rebate for GST/HST paid on those purchases of alcoholic beverages.
by Dev User | Sep 29, 2016 | Charity & Not-for-Profit Law, Employment Law, Expertise
A decision, released on July 13, 2016, of the Ontario Superior Court of Justice in Arif v Li again highlights the importance of liability waivers as an effective liability shield. Mr. Arif (the “plaintiff”) suffered injuries while rock climbing and sued several parties he alleged were legally responsible. On a motion for summary judgment brought by the defendants, they relied on signed liability waivers as a full defence to the lawsuit. The defendants in this case were Zen Climb, its president Mr. Xiaoping Li, and the Halton Region Conservation Authority, which owned the property where the climb took place. The court upheld the executed liability waivers, granting summary judgment dismissing the action against all defendants.
For charities and not-for-profits, an important part of risk management in relation to programs, events and activities is the consistent use of liability waivers. A well-drafted waiver may provide a complete defence to injury or property damage claims.
For the balance of this Bulletin, please see Charity & NFP Law Bulletin No. 391.
by admin | Sep 29, 2016 | Charity & Not-for-Profit Law
On August 17, 2016, Canada Revenue Agency (“CRA”) released a technical interpretation 2016-064795, concerning CRA’s comments on subparagraph 94(1)(d)(ii) of the Income Tax Act’s (“ITA”) definition of “exempt foreign trusts”. Section 94 of the ITA deems certain non-resident trusts to be resident in Canada for income tax purposes. In this regard, subparagraph 94(1)(d)(ii) dealing with foreign exempt trusts which are excepted from section 94, requires a non-resident trust to be “created exclusively for charitable purposes and has been operated throughout the particular period exclusively for charitable purposes”.
CRA provided its comments concerning its interpretation of “charitable purposes” and “created exclusively for charitable purposes” in a manner consistent with existing Canadian case law as it applies to domestic charities. As such, CRA relied on the interpretation of charitable purposes as determined by Canadian common law. That is, the purpose must fall within the four categories of charitable purposes established at common law recognized in Canada and “benefit the community or an appreciably important class of the community.”
With regard to CRA’s interpretation of “created exclusively for charitable purposes”, CRA stated that if charitable activities are carried out through an intermediary, the activities and resources of the foreign exempt trust used by the intermediary must be subject to the “direction and control of the trust.” Moreover, CRA’s interpretation of “exclusively for charitable purposes” in the context of subparagraph 94(1)(d)(ii) means that an exempt foreign trust may conduct incidental commercial or investment activities if they serve as a means to further the exclusive charitable purpose, but not to the extent they become a collateral non-charitable purpose of the trust. As well, CRA stated that funds held by an exempt foreign trust must also be used exclusively for charitable purposes. CRA reiterates that “the determination of whether a trust is operated throughout a particular period exclusively for charitable purposes constitutes a question of fact that must be determined on an ongoing basis.”
These comments will be of assistance to non-resident trusts with charitable purposes operating in Canada in determining how the Income Tax Act (Canada) may apply to them.
by admin | Sep 29, 2016 | Charity & Not-for-Profit Law
On July 5, 2016, arbitrator Robert D. Howe issued an arbitral award (the “Award”) dealing with the use of social media, particularly Twitter, following a long arbitration process between the Amalgamated Transit, Union Local 113 (“Local 113”) and the Toronto Transit Commission (“TTC”). Local 113 was grieving TTC’s use of social media “to publish personal information about Local 113 members, to receive and make complaints about Local 113 members, and to solicit public comment with respect to Local 113 members.” Local 113 raised particular concerns about tweets with: derogatory language, violence/threats, pictures of employees, employee badge numbers, false information, requests from TTC for more information, customer complaints, complaints about employees taking breaks, and tweets which make the discipline process public. The Award contains a list of derogatory language directed at TTC employees through social media, as well as a large number of examples from the exhibits presented during arbitration.
The Award concluded that TTC failed to take all reasonable and practical measures to protect Local 113 members from harassment embodied in the social media commentary. The arbitrator says that TTC should, among other recommendations, “not only indicate that the TTC does not condone abusive, profane, derogatory or offensive comments, but should go on to request the tweeters to immediately delete the offensive tweets and to advise them that if they do not do so they will be blocked.” The arbitrator continued that TTC should follow through on this promise. The arbitrator said that TTC should follow similar procedures for tweeters posting photos of employees. The Award also said that TTC tweets should avoid editorialising when answering customer concerns. The Award acknowledged that even if TTC were not on Twitter, there would still be posts about TTC employees and services. Although TTC was not required to shut down its social media accounts, and in particular the @TTCHelps account as requested by Local 113, they were asked to confer with Local 113 about possible steps to be taken in light of the Award.
A social media account is increasingly becoming an important component of the image of a charity or not-for-profit. As such, the comments in the Award with regard to providing a safe work environment for employees should also be considered where employees, including volunteers, are responsible for monitoring a social media account. Moreover, the Award demonstrates that a clear and well implemented social media policy is also important for organizations that present themselves to the public, donors, or their members through a social media account.
