CRA News

by admin | Jun 30, 2016 | Charity & Not-for-Profit Law

Good News for Charities in CRA’s Corporate Business Plan

On March 7, 2016, CRA published its report Summary of the Corporate Business Plan 2016-2017 to 2018-2019 (the “Plan”). In her Message at the beginning of the Plan, the Minister of National Revenue reiterates that one of the government’s priorities is “modernizing the rules for charities” and reaffirms the government’s belief that charities and non-profit organizations make a “valuable contribution to society and to public policy”.

Under Section 2 of the Plan on Programs, CRA acknowledges the important role that charities play in “public debate and public policy” and affirms that it will “review and clarify the rules governing a registered charity’s involvement in political activities, in collaboration with the charitable sector.” CRA also commits to “modernize its information technology systems to reduce the administrative burden on charities” with electronic filing of applications for charitable registration (T2050) and the annual Registered Charity Information Return (T3010) being available by November 2017 and November 2018 respectively.

The Plan also sets out certain performance measurements for responding to charities, such as ensuring that 100% of all scheduled audits are completed, providing timely service for charities by answering 80% of all calls in the agent’s queue within two minutes and responding to 80% of simple applications for registration within two months and to regular applications within six months.

CRA Introduces Two New Webpages

On June 10, 2016, CRA introduced two new webpages. The first, Charities Listing request form, allows the public to request on-line an electronic version of data that is available to the public on the Charities Listings webpage. The information will be sent to the applicant by email or mail. While this data will be interesting to researchers, it will also be valuable to organizations and their advisors who wish to know how many and the kind of organizations in a particular category or subcategory have been registered as a charity or revoked as a charity for failure to file, following an audit, voluntarily or for other reasons.

The second page, Request for registered charity information, allows the public to make a request on-line for information about a charity that is publically available but not in the Charities Listings e.g. application for charitable registration, governing documents, notification of registration, letters regarding grounds for revocation, and financial statements. Authorized agents of a charity can also request electronically information about the charity’s file that is not available to the public. CRA will send the information by email, mail, or fax.

Legislation Update

by admin | Jun 30, 2016 | Charity & Not-for-Profit Law

Federal Budget 2016 Implementation Legislation Passed

On June 22 Bill C-15, Budget Implementation Act 2016, No. 1 (the “Act”) received Royal Assent and implemented a number of measures from Budget 2016: Growing the Middle Class (“Budget 2016”), which had previously been released on March 22, 2016, as discussed in our Charity & NFP Law Bulletin No. 381. Although the Act does not dramatically alter the legal and regulatory landscape for charities and not-for-profits, there are, nonetheless, some significant changes that are important to note.

Part 1 of the Act amends the Income Tax Act (“ITA”) to include consequential amendments necessary to complement changes included in the 2015 Bill C-2 (An Act to amend the Income Tax Act) (“Bill C-2”), if it receives Royal Assent. Bill C-2 proposed to reduce the second personal income tax rate to 20.5% from 22% and introduce a new personal income tax rate of 33% on individual taxable income in excess of $200,000, effective beginning in the 2016 taxation year. Among other things, the potential C-15 amendment will provide a 33% charitable donation tax credit on donations that are above $200 and made after the 2015 taxation year to a trust which is subject to the 33% rate on all of its taxable income. This charitable donation tax credit would also be available for donations by a graduated rate estate that are made during a taxation year that straddles 2015 and 2016.

It also implements a measure, originally announced in Budget 2015, which permits charities and registered Canadian amateur athletic associations (“RCAAAs”) to acquire or hold interests in limited partnerships without “be[ing] considered to carry on any business of the partnership” if certain conditions are met. Specifically, the amendment will only apply if the partnership is a limited partnership, if the charity (or RCAAA), together with all non-arm’s length entities, hold 20% or less of the interest of the limited partnership, and if the charity deals at arm’s length with each general partner.

Part 2 of the Act also enacts two significant charity-related Goods and Services Tax/Harmonized Sales Tax (“GST/HST”) measures that were mentioned in Budget 2016. In the first instance, the Act amends the Excise Tax Act (“ETA”) to clarify that GST/HST will now apply to the supply of purely cosmetic procedures by charities. While charities are generally exempt from GST/HST on supplies, this would exclude from that exemption any “supply of a service rendered to an individual for the purpose of enhancing or otherwise altering the individual’s physical appearance and not for medical or reconstructive purposes or a supply of a right entitling a person to such service”. This measure applies to all such supplies made after March 22, 2016.

The second measure involves the addition of section 164 to the ETA and will apply to both charities and public institutions. Specifically, it will function by ensuring that when a charity supplies property or services in exchange for a donation, only the value of the property or services supplied is subject to GST/HST. Specifically,

…if a charity or a public institution makes a taxable supply of property or service to another person, if the value of the property or service is included in determining the amount of the advantage in respect of a gift by the other person to the charity or public institution under subsection 248(32) of the Income Tax Act and if a receipt referred to in subsection 110.1(2) or 118.1(2) of that Act may be issued, or could be issued if the other person were an individual, in respect of part of the consideration for the supply, then the value of the consideration for the supply is deemed to be equal to the fair market value of the property or service at the time the supply is made.

This measure will also apply to supplies made after March 22, 2016, though transitional relief may be available in some cases.

Bill C-11 Amending the Copyright Act Receives Royal Assent

On June 22, 2016, Bill C-11, An Act to amend the Copyright Act (access to copyrighted works or other subject-matter for persons with perceptual disabilities) (“Bill C-11”) received Royal Assent. The amendments made by Bill C-11 implemented the Marrakesh Treaty to Facilitate Access to Published Works for Persons Who Are Blind, Visually Impaired, or Otherwise Print Disabled. Under the amended Copyright Act a person with a print disability is defined as:

“[A] disability that prevents or inhibits a person from reading a literary, musical, artistic or dramatic work in its original format and includes such a disability resulting from

(a) severe or total impairment of sight or the inability to focus or move one’s eyes;

(b) the inability to hold or manipulate a book; or

(c) an impairment relating to comprehension.”

The new amendments provide clarity regarding the exemption for making copies of works for persons with perceptual or print disabilities, including non-profits, who act for the benefit of such persons. New section 32.01 clarifies what a not-for-profit is allowed to reproduce. For example a not-for-profit is allowed to reproduce or fix a performer’s performance of a “literary, musical, artistic or dramatic work” in a format specifically for a person with a perceptual disability. One limitation to this exemption includes non-application of the exemption if the work or subject matter is already available in a format designed for persons with a print disability either commercially or through a not-for-profit.

As with the previous version of the Copyright Act, not-for-profits that utilize this exemption will still need to pay royalties to the original author of the work, in accordance with the regulations, when they undertake making copies for persons with perceptual disabilities. Not-for-profits relying on the exemption will also be required to submit reports to an authority in accordance with the regulations on its activities.

Update on Bill C-6, An Act to Amend the Citizenship Act

As of June 17, 2016, Bill C-6, An Act to Amend the Citizenship Act (“Bill C-6”) had passed its first reading in the Senate. As reported in our March 2016 Charity & NFP Law Update, Bill C-6 was introduced on February 25, 2016 by the Liberal government, along with a backgrounder, An Overview of Proposed Changes to the Citizenship Act (the “Backgrounder”). If passed, Bill C-6 will be of interest to charities and not-for-profits that work with refugees, as it will substantially amend the Citizenship Act.

The Backgrounder states that the proposed amendments provide greater flexibility for applicants trying to meet citizenship requirements and would repeal certain provisions that came into effect as part of Bill C-24, which permitted revocation from dual citizens that had engaged in certain acts against national interest, such as terrorism.

Bill C-6 also contains additional changes that are intended to enhance program integrity, including:

• Conditional sentences. Individuals serving conditional sentences will no longer be able to count that time toward the physical presence requirement
• Maintaining requirements for citizenship until Oath-taking. All applicants must continue to meet requirements of citizenship, regardless of when their application was received.
• Ability to seize documents. Citizenship officers will have improved ability to carry out investigations and prevent further use of fraudulent or suspected fraudulent documents.

Parliament Kills Tax Support Bill for Charities

On June 8, 2016, Bill C-239, An Act to Amend the Income Tax Act (Charitable Gifts) (“Bill C-239”), also known as The Fairness in Charitable Gifts Act, was defeated in Parliament by a vote of 209 to 103. As discussed in our April 2016 Charity & NFP Law Update and our March 2016 Charity & NFP Law Update, Bill C-239 was introduced by Conservative Member of Parliament, Ted Falk, as a private member’s bill on February 25, 2016.

On paper, Bill C-239 proposed amendments to the Income Tax Act that would have increased the amount that individual taxpayers would have been able to claim for donations made to charities in the course of a given taxation year. Specifically, it would have increased the maximum tax credit available for charitable donations to match the current tax credit available for political donations. The defeat of Bill C-239 did not come as a surprise to many within the charitable sector.

Amendments to Ontario’s Personal Health Information Law include Increased Penalties

Ontario’s Health Information Protection Act, 2016 (“HIPA”), received Royal Assent on May 18, 2016, which amends the Personal Health Information Protection Act (“PHIPA”). PHIPA generally applies to the use, collection and disclosure of personal health information by “health information custodians” (such as doctors or hospitals) and agents working on behalf of health information custodians (such as a foundations fundraising on behalf of a health information custodian). The amendments provide for more comprehensive protection of health information in Ontario, including greater accountability and transparency in the health system about privacy breaches and critical incidents.

The following changes contained in HIPA will be of significance to charities and not-for-profits that handle personal health information, or act as agents of health information custodians:

• A revised definition of “use” with respect to personal health information which states “to view, handle, or otherwise deal with the information”.
• Mandatory privacy breach reporting to the Information and Privacy Commissioner and, to relevant regulatory colleges, in certain circumstances;
• Eliminates the requirement under PHIPA that prosecutions must be commenced within six months of the occurrence of the alleged offence, which allows for a broader range of liability;
• Doubling the maximum fines for privacy offences from $50,000 to $100,000 for individuals and from $250,000 to $500,000 for organizations.

The amendments will come into force on a date set by the government.

Saskatchewan Budget 2016-2017

On June 1, 2016, the government of Saskatchewan released Keep Saskatchewan Strong: Provincial Budget 2016-17 (the “Budget”). Of interest to charities and not-for-profits is that the Budget proposes an elimination of the Active Families Benefit (“AFB”) – a refundable income tax credit that is currently available to assist qualifying families in providing cultural, recreational and sporting activities to their children.

Introduced in 2009, the AFB has been available in the amount of $150 per child in each taxation year to families with a combined income of less than $60,000 per taxation year. The Budget states that this proposed elimination is a result of better support being available to these families through community level programs. The Budget also references the similar federal tax credit: The Children’s Fitness and Arts Tax Credit, which was eliminated by the Federal Budget.

House of Commons Standing Committee on Finance Announces Pre-Budget Consultations

On June 3, 2016, the House of Commons Standing Committee on Finance (the “Committee”) made a news release that it was launching its pre-budget consultation process and invited Canadian to participate by providing suggestions. Suggestions, as well as a report by the Committee on the consultation process, will be considered by the Minister of Finance in preparation of the 2017 Federal Budget.

Anyone who is interested in providing a written submission should be informed that the Committee has set a hard deadline of August 5, 2016. Submissions should include an executive summary and will not be considered if they exceed 2,000 words. Submissions may be sent to [email protected].

In September, this process will be followed by invitations for selected groups or individuals to provide testimony during pre-budget hearings. Upon approval by the House of Commons, the Committee will issue another press release with further details.

Tax Court Cases of Interest to Charities

by admin | Jun 30, 2016 | Charity & Not-for-Profit Law

No Tax Credit Without Proper Receipts

On May 25, 2016, the Tax Court of Canada released a decision in the case of Shahbazi v. The Queen. While this case was by way of informal procedure and has no precedential value, it adds to a substantial body of case law regarding proper receipting of charitable donations. The case involved an appeal of two notices of assessment issued by the Minister of National Revenue (the “Minister”), which disallowed charitable tax credits that were claimed by the taxpayer for donations of gifts in-kind consisting of household goods forfeited from rental units owned by the taxpayer.

The taxpayer claimed the tax credits for the 2006 and 2007 taxation years in the amounts of $20,000 and $15,000; amounts for which receipts were issued by registered charities. However, the receipt for the first donation did not indicate whether the donation was property or cash, and the second receipt indicated that the donation was received during January to December of 2007 but did not indicate the particular date upon which the donation was made.

The Court, following the Federal Court of Appeal decision in The Queen v Castro, dismissed the appeal since the receipts for the donations did not comply with the prescribed information necessary for the tax credits to be claimed under subsection 118.1(2) of the Income Tax Act (“ITA”) and subsection 3501(1) of the Income Tax Regulations. Since the receipts did not contain descriptions of the goods, the date on which they were donated, or whether the donations were property or cash, the Court ruled that they failed to comply with the necessary requirements and dismissed the appeal.

Misrepresentation

On June 1, 2016, the Tax Court of Canada released a decision in the case of Omoruan v. The Queen which was also brought by way of informal procedure. Of particular interest in this case was the matter of misrepresentation that lead the Minister to rely on subsection 152(4) of the ITA to assess the taxpayer beyond the normal reassessment period for the 2003 tax year.

In cases of misrepresentation, credibility of the taxpayer plays a central role in the analysis, and in this case the taxpayer claimed tax credits for a number of charitable donations made in the form of cash and in-kind gifts for the tax years of 2003 to 2006 which totalled $9,533, $15,700, $12,360, and $8,033 respectively. At trial, the taxpayer could not supply bank statements and she could not provide details on the in-kind gifts donated by her and her husband. In short, the Court did not believe the credibility of the taxpayer and her husband for the following reasons:

• Their defensive and evasive attitude in answering question on cross-examination;
• The discrepancy between the years in question and the years before and after vis-à-vis the amounts of the donations;
• The suggestion that Ms. Omoruan donated 100 pairs of used shoes in two years;
• The significant amount of the alleged donations compared to her income;
• The lack of an independent appraisal for the alleged goods donated;
• The lack of bank records (from which was drawn a negative inference that any such records would have helped the Omoruans);
• The different story Ms. Omoruan raised at trial compared to in the previous letter regarding why she left Redemption Power International Ministry;
• The inability to recall a pastor’s name;
• The inability to describe the toys donated;
• The large donation by Ms. Omoruan to a church of which she was not a member, when she testified that on one hand she did not attend the church regularly and on the other hand donations were made in smaller amounts throughout the year.

In light of the foregoing, the Court held that there was a misrepresentation, since the taxpayer “claimed donations for amounts she did not donate” and “ she knew or certainly ought to have known that $9,500 in 2003 was far in excess of any cash donation actually made, if at all.” As a result, the Court ruled that the Minister was entitled to rely on subsection 152(4) and dismissed the appeal.

Clarity Still Needed on Impact of OECD Common Reporting Standards on the Sector

by admin | Jun 30, 2016 | Charity & Not-for-Profit Law

As mentioned in our May 2016 Charity & NFP Update, the draft legislative proposals to amend the Income Tax Act (“ITA”) and Income Tax Regulations (“Regulations”) to implement the Organisation for Economic Co-operation and Development’s (“OECD”) common reporting standards (“CRS”) were released on April 15, 2016 for consultation until July 15, 2016. Although the legislative proposals are extensive and contain a number of interconnected definitions, the potential impact on charities and non-profit organizations (“NPOs”) will depend on whether an entity is caught by the broad definition of “financial institution,” as currently drafted. An entity that is characterized as a “financial institution” will be required to report certain information about its non-resident account holders, as also defined in the draft provisions, to the CRA and CRA would then report that information to its counterpart in the non-resident’s jurisdiction and vice versa.

The definition of “financial institution” in proposed subsection 270(1) is four-pronged, but a charity or NPO would likely only be caught by the sub-definition of “investment entity”, also defined in subsection 270(1). Essentially, an investment entity is defined as an entity “that primarily carries on as a business one or more of the following activities or operations…trading in money market instruments…individual and collective portfolio management, or otherwise investing, administering or managing financial assets or money on behalf of other persons.” Proposed subsection 270(3) further clarifies that an entity will be “considered to be primarily carrying on as a business…if the entity’s gross income attributable to the relevant activities equals or exceeds 50% of the entity’s gross income” during a specified period. As well, the definition of “financial asset” in subsection 270(1) includes “a partnership interest,” which has the potential to raise some interesting questions considering that the recent passing of Bill C-15 has greenlit the participation of certain charitable entities in holding interests in limited partnerships. In this regard, sophisticated foundations, charitable trusts, and other large organizations that manage and generate more than 50% of their own income from investment activities may be caught by the financial institution definition and should consult their legal and accounting advisors to help determine whether they will have reporting obligations once CRS is fully implemented.

At this consultative stage of the implementation process it is not clear how CRA plans to administer these new provisions once implemented. On May 16, 2015, Canada Revenue Agency (“CRA”) published some questions and answers on its website to “give more information and tax administration perspectives about the” CRS and promised to “continue to inform the public of tax changes through its website, forms and publications, phone enquiries services and other communication channels.” The OECD itself also released “CRS-related Frequently Asked Questions” this month on its website, but neither the CRA nor OECD releases provide clear guidance on how charities and NPOs will be affected.

It is also interesting to note that the implementation of CRS has garnered significantly more attention in the United Kingdom (“UK”) than in Canada. In fact, the UK’s HM Revenue & Customs has recently released guidance on how CRS will impact charities in the UK. It remains to be seen whether the UK perspective on CRS will change following the recent referendum in support of leaving the European Union (“EU”), given that its implementation was the result of a directive from the EU. In any event, regardless of what happens internationally, the sector looks forward to seeing how CRA will administer the proposed amendments.