by admin | Feb 25, 2016 | Charity & Not-for-Profit Law
On February 10, 2016, the Federal Court of Appeal (“FCA”) delivered from the Bench a summary decision in Al Uloom Al Islamiyyah Ontario v The Queen. The FCA confirmed a decision of the Minister of National Revenue (the “Minister”), acting through the Canada Revenue Agency Charities Directorate (the “Charities Directorate”), to issue a Notice of Intent to Revoke (“NIR”) the charitable status of Jaamiah Al Uloom Al Islamiyyah Ontario (the “Charity”).
The NIR resulted from an audit by Canada Revenue Agency (“CRA”) of the Charity for its 2007 and 2008 taxation years. The NIR was issued on the basis that the Charity failed to maintain adequate books and records in accordance with the Income Tax Act (“ITA”), issued receipts for gifts otherwise than in accordance with the ITA and the Income Tax Regulations (the “Regulations”), and failed to file information returns when required. The Canada Revenue Agency Appeals Branch confirmed the decision by the Charities Directorate to issue the NIR.
In its appeal to the FCA, the Charity did not deny that it had been non-compliant with the requirements of the ITA and the Regulations. Rather, the Charity asserted that it understood why its actions were not in compliance, that they would not occur again, and that it had already hired experienced accountants to address the deficiencies. The Charity asserted that the sanction of revocation was too extreme under the circumstances and failed to address the remedial steps that the Charity had taken.
In its analysis, the FCA stated that the privilege of issuing charitable donation receipts is one that comes with important responsibilities, one of which is to maintain proper books and records. The FCA went on to say that the absence of proper books and records prevented the Minister from fulfilling her obligation to verify the accuracy and validity of the charitable donation receipts that the Charity has issued. As a result, the failure by the Charity to maintain adequate books and records was considered by the FCA to be serious and justified the Minister’s conclusion that the penalty of revocation was warranted.
This decision underscores the importance of a charity maintaining proper books and records in accordance with CRA requirements under the ITA and Regulations. This decision is also important in demonstrating that even if remedial actions are taken, charitable status may still be revoked if CRA is of the opinion that the incidents of non-compliance are either “serious” or “aggravated” under the circumstances.
by admin | Feb 25, 2016 | Charity & Not-for-Profit Law
On February 10, 2016, Canada Revenue Agency (“CRA”) released technical interpretation 2013-0496461E5, which addresses whether non-resident individuals are required to file Canadian tax returns for years in which they elect under subsection 118.1(6) of the Income Tax Act (“ITA”) to make donations of taxable Canadian property (“TCP”), particularly donations of undeveloped land, to qualified donees. The technical interpretation states that, in such a situation, the ITA would generally require the non-resident to file a tax return.
Pursuant to subsections 116(1) and 116(3) of the ITA, non-residents that dispose of TCP are required to notify CRA and submit prescribed information to CRA within 10 days of the said disposition by way of Form T2062 Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property. There are though, exceptions to this rule, such as if the property is described in subsection 116(5.2) or if it is otherwise defined as “excluded property” in subsection 116(6). In this particular case though, undeveloped land is addressed in paragraph 248(1)(a) of the definition of “taxable Canadian property” in the ITA and, therefore, does not fall within these exceptions and is TCP.
Additionally, if a non-resident wishes to make a designation under subsection 118.1(6) of the ITA with respect to such a disposition, the non-resident must also file a statement of intent to make the said designation as well as a letter from the charity or prescribed donee to confirm that the property is to be donated. Such a designation can only be made by attaching the supporting documentation to the non-resident’s income tax return. Where this designation is not properly filed with CRA, tax will be assessed by CRA in relation to the disposition of the property in question.
Information Circular IC72-17R6, Procedures concerning the disposition of taxable Canadian property by non-residents of Canada – Section 116 states that non-resident vendors may not have to file a Canadian tax return under certain circumstances. One of these is when a non-resident has no Part I tax payable for the taxation year. Although an election made under section 118.1(6) of the ITA may result in a non-resident having no Part I tax payable, it is important to note that such a designation may only be made by including the above-referenced Form T2062 and statement of intent as attachments to the non-resident individual’s income tax return for the taxation year in which the donation was made. Therefore, the filing of the underlying tax return by the non-resident is a necessary part of the process.
by admin | Feb 25, 2016 | Charity & Not-for-Profit Law
On July 17 2015, Canada Revenue Agency’s (“CRA”) Income Tax Rulings Directorate (“ITRD”) provided CRA’s Charities Directorate with its comments on whether a taxpayer continued to qualify as a “municipal or public body performing a function of government for purposes of 149(1)(c) of the [Income Tax Act] and the definition of a qualified donee in subsection 149.1(1).” The comments were publicly released on February 10, 2016 and confirm that CRA has not made any significant changes to its previously published positions.
CRA’s Charities Directorate is responsible for granting qualified donee status to organizations that meet the definition of a municipal or public body under paragraph 149(1)(c) of the Income Tax Act. Once approved by the Charities Directorate, such organizations are eligible to issue receipts for official donations and subject to additional books and record keeping requirements.
In this situation, the Charities Directorate had contacted the ITRD to verify whether changes to “the manner in which the [the taxpayer’s] Board of Directors is appointed” would impact the taxpayer’s status as a public body. The ITRD confirmed that public body status continued:
- to “be determined on a case-by-case basis”;
- to require that incorporated taxpayers be subject to “some specific control over the actions and operation of the corporation” by the federal, provincial, or territorial government or public that it serves;
- to mean that the taxpayer must be accountable “to the residents of the region over which it has jurisdiction”; and
- to mean that a taxpayer must “have the ability and powers to govern, tax, pass bay-laws and/or provide municipal-or-provincial-type services to its members or citizens.”
by admin | Feb 25, 2016 | Charity & Not-for-Profit Law
Following the enactment of the new British Columbia Societies Act on May 14, 2015, the Lieutenant Governor in Council issued Order No. 673 on November 23, 2016, stating that a majority of the provisions in the new Act will come into force on November 28, 2016 (sections 1 to 263, 265 to 268, 270 to 274, 276, 279, 281 to 288, 291 to 295, 297 to 299, 301 to 322, 324, 325, 327 to 338, 340 to 349, 351 to 354 and 356 to 365).
The Order also introduced a new Societies Regulation, effective November 23, 2016, repealing the Society Act Regulations, B.C. Reg. 4/78. The new Regulation address various issues referred to in the new Act, including a new model by-law for societies; the maximum fees that may be charged in various scenarios; how reporting on remuneration of directors, employees and contractors in the financial statements are to be made; when a person who is 16 or 17 years old may be a director or senior manager of a society; the funding threshold for member-funded societies; and reporting society provisions.
A pre-existing society must transition under the new Act within two years of it coming into force by filing a constitution, by-laws (consolidated into a single set of bylaws) and a statement of directors and registered office of the society.
by admin | Feb 25, 2016 | Charity & Not-for-Profit Law
On July 10, 2015, the Ontario Superior Court of Justice released its decision in Creppin v The University of Ottawa and Allan Rock, in which it dealt with a motion to dismiss a claim on the basis that it did not disclose a reasonable cause of action pursuant to Rule 21.01(1)(b) of the Rules of Civil Procedure. In the statement of claim, which was brought under the Class Proceedings Act, the plaintiffs, through Mr. Creppin as the lead plaintiff (the “Plaintiffs”), alleged that the University of Ottawa and its president, Allan Rock (the “Defendants”), mishandled allegations of sexual assault against two members of the university hockey team. Specifically, the plaintiffs allege that publicly announcing a suspension of the entire team unfairly cast suspicion and guilt on the entire team and breached their duties to the plaintiffs in several ways.
For a motion to strike a pleading to be successful, it must be plain and obvious that it does not disclose a reasonable cause of action. Courts must approach this analysis in a generous manner and remain open to allowing novel but arguable claims to proceed. In response to the Plaintiffs’ various accusations, the Defendants argued:
- the Defendants, as university leaders have broad discretion and even if unfair there is no cause of action having to do with a breach of natural justice,
- the Plaintiffs did not plead sufficient facts to make out a claim for negligence on part of the Defendants,
- the university president did not have a fiduciary duty to the students in this case, and
- there is not a cause of action against Mr. Rock for misfeasance in public office
In response to the first ground, Justice Phillips found that although the Defendants do enjoy broad discretion, their actions could be construed as disciplinary against students that were not involved with the sexual assault allegations. Discretion, albeit broad, is not unlimited and the court, therefore, found that it was not plain and obvious that the actions were within the Defendants’ discretion.
In response to the second ground, the Court again found that it was not plain and obvious that a claim for negligence could not be made out. A duty of care has been judicially recognized to arise within the relationship between a university and its students. Failing to become informed of all the facts before reprimanding uninvolved students could be seen to have created foreseeable harm.
In contrast, the Court found that it was plain and obvious that a claim for breach of fiduciary duty could not succeed. The court found that the Plaintiffs, as paying students, represent a vulnerable class of persons, and they had substantial practical interests that were negatively affected by the Defendants’ actions. However, the Court reviewed the objects and purposes in the University of Ottawa Act and determined that “the objects and purposes of the University are to look out for its various constituent elements as a whole.” As a result, the Defendants were obligated to consider all of these elements in making a decision and the Court therefore struck the claim of breach of fiduciary duty.
Finally, the Court also found that it was plain and obvious that misfeasance in public office was not a reasonable cause of action. As the Court stated, this tort involves bad faith and/or dishonesty and, as an intentional tort, the Defendants must have been aware that such conduct would cause harm. While the actions of the Defendants may well have been negligent, Justice Phillips stated that the deliberate moral turpitude was not present to meet the misfeasance claim and accordingly struck this allegation from the pleadings.
Since the motion to strike the statement of claim by the Defendants was not successful, the claim that the Defendants acted negligently may be determined in a further court decision. As a result, universities, but also other charities and not-for-profits that are involved in disciplining their students, members, or other beneficiaries, should follow this case to determine how the outcome of the claim may impact their discipline process.
by admin | Feb 25, 2016 | Charity & Not-for-Profit Law
On December 2, 2015, the Supreme Court of British Columbia released its decision in R. v. Raza, in which it convicted three individuals for defrauding the provincial and federal governments of tax revenue by way of a false charitable donation scheme. The three accused, Fareed Raza, Saheem Raza (collectively the “Razas”) and Faiz Kahn (with all three being the “Accused”) were convicted under section 380(1)(a) of the Criminal Code for defrauding the federal and provincial governments for amounts exceeding $5,000 for the periods of December 31, 2002 to June 24, 2011 for the Razas, and June 31, 2008 to June 24, 2011 for Mr. Kahn, respectively,.
The Razas were both directors in an accounting corporation where tax returns were prepared for clients who approached them on a referral basis hoping to receive better tax refunds for their respective businesses. The evidence provided by police and former client witnesses revealed that clients were told by the Accused that they would be able to collect refunds if they made donations to a registered charity named Mehfuz Children Welfare Trust (“Mehfuz”). In most cases, clients were told to donate $500 to Mehfuz, though amounts ranged from a few hundred dollars to several thousand. The said clients would then provide the Accused with these cash donations for each tax year and, in return, their tax returns were prepared reflecting charitable donations to Mehfuz that grossly exaggerated the amounts actually donated. The Razas also attached receipts from Mehfuz to their clients’ tax returns that they were not authorized to issue on behalf of Mehfuz.
The number of alleged false tax returns prepared by the Razas during the period in question was over 1,700. The total of false donations set out on the said fraudulent returns amounted to $11.4 million, and amounted to $4.909 million in lost revenue for the Crown. By comparison, the total amount of donation revenue reported by Mehfuz during the same period of time was $815,000.
The court found that the evidence against the Accused was sufficient to prove beyond a reasonable doubt that all of them were guilty of the charges. The Razas were convicted of fraud over $5,000 for generating false documentation that deprived the Crown of tax revenue. Since there was only evidence that Mr. Kahn prepared one false return, he was convicted of the lesser charge of attempted fraud under $5,000 for his role. Since he was not a director of the company and did not have his name on an office, he was not found to be implicated in the broader scheme, as with the case with the Razas.
This case serves as a reminder for organizations that proper records of cash donations to registered charities need to be maintained in order to avoid becoming an unwitting victim of charitable tax fraud schemes.
