CRA News

by admin | Aug 25, 2016 | Charity & Not-for-Profit Law

Guidance Issued on the Requirements for Foreign Charities to become Qualified Donees

On June 16, 2016, Canada Revenue Agency (“CRA”) issued CG-023, Qualified donee: Foreign charities that have received a gift from Her Majesty in right of Canada (“Guidance CG-023”), which outlines the new process whereby foreign charities that have received a gift from Her Majesty in right of Canada can, upon application with Canada Revenue Agency, become a qualified donee (“QD”) that has the ability to issue official donation receipts to donors (for Canadian income tax purposes) and receive gifts from Canadian registered charities. In this regard, if an applicant meets the criteria outlined in Guidance CG-023 and the Income Tax Act and has been registered as a QD by CRA (in consultation with the Ministry of Finance), the foreign charity may become a QD for a period of 24 months as of the date on which it received the gift from Her Majesty. It should be noted that the guidance applies as of June 23, 2015 in accordance with the 2012 Federal Budget.

To apply to become a QD an authorized representative or official of the foreign charity that has received a gift from Her Majesty must send a letter to the CRA indicating that the foreign charity is applying for registration as a QD and also explain how its activities meet the applicable criteria listed in CG-023 and the Income Tax Act. The Guideline says that application must also include the following:

• a copy of the charity’s governing document(s);
• a description of all of the charity’s activities;
• a description of, and the scope of, the specific activities that meet the requirements for relief activities in response to a disaster, providing urgent humanitarian aid, or activities in the national interest of Canada;
• a list providing the full name of all the current officials (board members, directors, trustees, officers, and like officials), their contact information, and their position within the charity;
• a copy of the letter or certificate granting charitable status to the charity from the relevant authority in the country in which the charity is established;
• a copy of the charity’s most recent financial statements;
• a copy of correspondence, agreements, or other documents related to the gift from Her Majesty in right of Canada; and
• proof that the gift was made (for example, a copy of the cashed cheque with the deposit stamp, or the bank statement showing the deposit).

The Guideline states, in accordance with the Income Tax Act, that “[t]o be eligible for registration as a qualified donee, a foreign charity must:

• be established or created outside Canada and not be resident in Canada;
• have exclusively charitable purposes and activities in accordance with applicable common law (i.e. court decisions);
• ensure that its income is not payable or otherwise available for the personal benefit of any owner, member, shareholder, trustee, or settlor of the organization;
• be the recipient of a gift from Her Majesty in right of Canada; and
• be undertaking at least one of the following at the time of the application:
  • relief activities in response to a disaster;
  • urgent humanitarian aid;
  • activities in the national interest of Canada.”

For further information regarding the above or to review CG-023 please click here.

New Infographic to assist charities calculate when their T3010 is due each year

All charities are required to file an annual Registered Charity Information Return T3010 within six months of their fiscal year end. Late filing of the T3010 can result in loss of charitable status. To assist charities determine their filing deadline, CRA has published an infographic on its website which outlines the filing deadline for T3010 based on the fiscal year end of an organization. The CRA infographic has been reproduced below.

CRA normally mails the T3010 return and related documents to each charity in the month following the end of the charity’s fiscal period. If a charity does not receive the package of documents in the mail, charities may contact CRA by phone in order to request the same.

To view the new infographic or for further information on where other documents are to be sent reference can be made to the CRA website by clicking here

New Online Questionnaire to Help Potential Charity Registrants

CRA has released a new online questionnaire to guide organizations that may be considering whether or not they should apply for charitable status. The online questionnaire is very brief and general in nature and consists of six simple questions to educate organizations regarding certain basic requirements for charitable status. The questionnaire is intended to provide general information only and does not provide any specific advice.

To view the online questionnaire, please click here.

Length of Retention for Church Offering Envelopes Changes

On July 22, 2016, CRA published a statement outlining CRA’s position on church offering envelopes. Effective as of the year 2016 church offering envelopes are now required to be kept for a period of six years from the end of the tax year to which the envelope relates. It should be noted that the new six year requirement also applies to church offering envelopes for the 2015 tax year.  CRA’s previous position was that church offering envelopes must be kept for two years after the year in which the envelope relates. CRA states that the above change has been made in order to reflect consistency with the provisions of the Income Tax Act which relate to retention of source documents. Further information on CRA requirements for charity books and records can be found here.

CRA Revokes Registration of ACTLAP Children’s Foundation

CRA revoked the charitable status of the ACTLAP Children’s Foundation (“ACF”) effective July 9, 2016 following a CRA audit on the operations of ACF. The revocation was issued on the basis that ACF “operated primarily for the non-charitable purpose of furthering a tax shelter donation arrangement, the Pharma Gifts International Inc. program.” In that regard, CRA found that ACF improperly issued receipts totalling over $64 million. The CRA audit found that “for the period of June 16, 2012 to June 15, 2014, ACF issued donation receipts for purported donations of cash and pharmaceuticals, which were not legitimate gifts and of the $1,724,814 in cash contributions it received, ACF paid $1,289,385 to the promoters of the tax shelter. Of the $62,315,818 million [sic] worth of tax receipts issued for the gifts of pharmaceuticals, CRA determined that the ACF significantly over-reported the value of the property, resulting in grossly inflated tax receipts to participants.” In summary, the CRA audit found that ACF “issued receipts otherwise than in accordance with the Act and its Regulations, did not devote all its resources to charitable activities and failed to maintain proper books and records.” The above case serves as yet another warning in a number of cases that charities should have no involvement with tax shelters and promoters of tax shelters. The full news release issued by CRA on this case can be found here.

Legislation Update

by admin | Aug 25, 2016 | Charity & Not-for-Profit Law

Draft Legislation Released Concerning Assessment of Taxes

On July 29, 2016, draft legislation was released proposing to amend subsection 152(9) of the Income Tax Act (“ITA”) to allow the Minister of Revenue (“Minister”) to advance an alternative basis or argument in support of “all or any portion of the total amount determined on assessment to be payable or remittable by a taxpayer under this Act.” Some qualified donees, non-profit organizations (“NPOs”), and donors who plan to challenge the Minister’s assessment might be affected. According to the Explanatory Notes, the proposed change would allow the Minister to increase or adjust “an amount included in the assessment that is under objection or appeal in respect of a particular source of income, provided that the total amount determined on assessment to be payable or remittable by a taxpayer under this Act does not increase.” Similar amendments are proposed for the Excise Tax Act (“ETA”) and Excise Act, 2001. The Department of Finance is holding public consultations on the amendments until September 27, 2016.

Draft legislation was also posted to amend subsection 225.1(2) of the ETA, which would alter the formula used to determine the net tax for a charity that is a registrant under the ETA. The Explanatory Notes state that the proposed amendment “sets out a streamlined accounting method by which registrants that are charities … calculate their net tax.” Public consultation on this amendment ends on August 31, 2016.

Amendments to the Ontario Lobbyists Registration Act Come into Effect

On July 1, 2016, amendments to the Ontario Lobbyists Registration Act, 1998 (“the Act”)  took effect, pursuant to the  Public Sector and MPP Transparency and Accountability Act, 2014, which received Royal Assent on December 11, 2014. These amendments will also have application to charities and not-for-profits. In the Act, lobbying is defined as a paid individual communicating with a public office holder in order to influence a decision with regards to legislation, policy, programs, decisions of the Executive Council, or financial benefits from the Crown. A “consultant lobbyist” is an individual who, for payment, undertakes to lobby on behalf of a client, whereas “In-house lobbyist” is redefined in the Act to include any employee who spends at least 50 hours a year lobbying as part of their employment. The new threshold for in-house lobbyist is significantly lower than the previous threshold, and corporations who employ someone who meets the threshold must register and file prescribed returns.

A section on Investigations and Penalties is now added to the Act granting the Integrity Commissioner of Ontario investigative powers for matters of suspected non-compliance, penalties for which include: prohibition from lobbying for up to two years and public statements about the violation. Punishment for committing an offence under the Act has changed from a maximum fine of $25,000 for each offence to a fine of not more than $25,000 for the first offence and not more than $100,000 for subsequent offences. A section on prohibited activities has been added, which includes knowingly placing public office holders in a position of conflict of interest, which is defined in the Act, and receiving payment contingent on the degree of success in lobbying.

The timelines and contents of filing a return under the Act have also changed for lobbyists.  Whereas in-house lobbyists working for a person or partnerships used to be required to file returns themselves, the duty is now placed on the senior officer of the in-house lobbyist’s employer. The timeline for filing returns has also changed, and now must be filed within two months of starting as an in-house lobbyist and within 30 days before or after the six-month period after the last return. The list of information required for the return has also changed for both consultant and in-house lobbyists.

Proposed Ontario EHT Regulation Will Affect Registered Charities

On July 18, 2016, the Ministry of Finance released a notice of intention to bring forward a regulation under the Employer Health Tax Act regarding special rules for registered charities. The notice says that the regulation being considered would “provide additional certainty for registered charities by codifying a preferential administrative practice.” While the notice provides little detail of what will be contained in the regulation, the notice does indicate that the regulation would:

• provide one exemption for each qualifying location of a registered charity;
• clarify that registered charities are exempt from the association rules for claiming the exemption; and
• waive the requirement for registered charities to enter into and file an Associated Employers Exemption Allocation Agreement.

The notice also indicates that the regulation would “end the preferential administrative practices that allow multiple exemptions at a single qualifying location.” As well, registered charities would be required to file an annual return for each of its qualifying locations, and in some situations may be required to make monthly instalments of EHT, although this would not affect the amount of tax that a registered charity would pay. The regulation, if it comes into force would be effective as of January 1, 2017. The full text of the notice is available online.

Any comments on the proposed regulation can to be submitted to the Ministry of Finance by October 19, 2016.

Liability for Costs for Taxpayers Involved in Donation Schemes Capped by Tax Court

by admin | Aug 25, 2016 | Charity & Not-for-Profit Law

Following its October 19, 2015 decision in Mariano v The Queen (amended on November 23, 2015), the Tax Court of Canada released an Amended Amended Order and Amended Amended Reasons Respecting Submissions on Costs on August 13, 2016. The facts of the case are described in October 2015’s Charity & NFP Law Update and relate to a charitable donation scheme. The taxpayers who participated in the scheme lost their appeals and the Court awarded costs to the Crown. The specific taxpayers who lost, i.e. the lead cases, five other taxpayers “who agreed to be bound by the decision in this matter” under Rule 146.1 of the Tax Court of Canada Rules (General Procedure) (“Rules”), the promoter of the scheme, and the Crown had “the opportunity to address the issue of costs.”

As the proceedings were under the Court’s General Procedure, the Court reviewed the general principles applicable to awarding costs under Rule 147. The Court also considered the quantum and reasonableness of the legal fees and expert witness fees claimed, who should pay, and how the costs should be allocated. The Court ultimately ordered the Crown’s costs to be set at $491,136.95 minus certain expert witness fees that the Court found to be unnecessarily claimed by the Crown. Liability for costs is to be shared “jointly and severally” between the taxpayers and the promoter, i.e. the Crown has the discretion to pursue one or more of the parties for the entire amount. The Court further ordered that the taxpayers’ liability would be capped, but “[t]here shall be no limit to the Promoter’s liability for costs.” Each taxpayer’s liability “shall be limited to the proportion that their total Charitable Tax Credits claimed in respect of the Program for all years under appeal herein is to total of all Charitable Tax Credits claimed by all of them combined with respect to the Program for such years under appeal.” Accordingly, taxpayers who become involved in similar donation schemes should be forewarned that although their potential liability for costs is not limitless, there is still a significant uncertainty as to the scope of financial risk.

Unfair Proxy Form for Members’ Meeting Revised by Ontario Court

by admin | Aug 25, 2016 | Charity & Not-for-Profit Law

On August 4, 2016, the Ontario Superior Court of Justice released it decision with respect to the Jacobs v Ontario Medical Association (“Jacobs”) case. This case is an interesting reminder to not-for-profit corporations of the Court’s willingness to intervene on procedural or substantive issues involving members’ meetings to enable governance process to proceed in a proper and timely fashion. The case also shows the importance that proxy forms must be carefully drafted in a clear, balance and fair manner, so that it is helpful to members and proxyholders in their consideration of how to cast their votes at the meeting. The Court is also willing to intervene if a proxy would likely compromise the fair conduct of a meeting.

This case involves a governance dispute between the Ontario Medical Association (“OMA”) and some of its members. The matters in dispute in this case were in relation to the conduct of a general members’ meeting of approximately 42,000 OMA members to ratify or reject a Physician Services Agreement (“PSA”) with the Ministry of Health and Long Term Care. The PSA sets out physicians’ fees to be paid by the Ontario Government. The meeting was schedule to be held on August 14, 2016.

The Court disagreed with the Applicant members’ submission that notice of the members’ meeting contravened OMA’ by-laws. The Court also refused the Applicant members’ request to obtain a membership list that would include information about members’ phone numbers including cellular phone numbers because the OMA has no obligation to provide such information. A membership list containing appropriate membership information (names, addresses and email addresses) had already been provided by the OMA. The Court also refused to appoint a neutral chair to preside over the meeting because a strong case for court intervention had not been made.

However, the Court ordered the proxy form circulated for the meeting be revised because it was “unhelpful, unclear, unbalanced, and unfair” and “is a catalyst for a governance meltdown at the upcoming general meeting.” The proxy would likely compromise the fair conduct of the meeting.

The proxy was problematic because it contained one restriction that would compel the proxyholder to vote for or against one of three resolutions (being the resolution to ratify the PSA) that members were asked to vote on at the meeting, and the proxy form contained a highlighted recommendation to vote “For” this resolution. There was no restriction or recommendation for the other two resolutions. The Court found that it was “unfair and confusing if not somewhat sneaky … to make no recommendation about the other matters and to leave it to the member to make instructions about these matters” in light of the following facts:

(a)      the proxyholder has been empowered by the proxy “to vote in accordance with the following direction (or if no directions have been given, as the proxyholder sees fit)”;

(b)      the notes to the proxy indicate that: “if such a direction is not made in respect of any matter and you have not appointed a person other than the persons whose names are printed herein, this proxy will be voted as recommended by OMA Management”; and “this proxy confers discretionary authority in respect of … amendments to matters identified in the Notice of Meeting or other matters that may properly come before the meeting.”

As such, the Court held that it would have been “far fairer” for the proxy to either (a) provide no instructions and no recommendations for the three resolutions to be debated at the meeting; or (b) to provide instructions but no recommendations for the three resolutions to be debated at the meeting.

The Court therefore ordered the proxy be revised by deleting the highlighted recommendation on how to vote on the PSA resolution, providing “for” and “against” options for all three resolutions, adding two directions to make it clear that a vote on one resolution does not preclude a vote on any of the other resolutions; and revising the language so that the proxyholders “are voting on matters of policy and not purporting to make findings of fact, findings of law, or findings of mixed fact and law, which are matters better addressed by a court.”

The Court held that it has jurisdiction to vitiate a proxy (that does not allow a meeting to be fairly conducted) and ordered it be revised pursuant to section 297 the Ontario Corporations Act, which empowers the court to order a members’ meeting and/or section 332 of the Act which provides a process by which members can force a corporation and/or its directors or officers to comply with their obligations under the Act.

The Court explained that “the proxy system is a fundament instrument of shareholder or member participation in the affairs of a corporation, be it a business corporation a not-for-profit organization, a non-governmental organization, or an association like the OMA that plays an extremely important role in civil society.” Further, the Court stated that “the proxy system is particularly important in the immediate case where the exercise of the members…will affect the entire population of Ontario.”

The Court acknowledged that its jurisdiction to intervene to supervise the governance of an association is governed by the Corporations Act. However, the jurisdiction is to be exercised cautiously and that courts are highly reluctant to intervene unless a strong case for intervention is demonstrated. Quoting from an earlier case, the Court stated that the “court’s role is to decide issues of a procedural or substantive nature which need to be determined to enable the process to proceed in a proper and timely fashion, but otherwise to remain apart from the battle.”