by admin | Jan 28, 2016 | Charity & Not-for-Profit Law
On January 20, 2016, the Minister of National Revenue, the Honourable Diane Lebouthillier (the “Minister”), announced that CRA will be winding down the audit program directed at the political activities of charities once the ongoing audits have been finished.
The Minister announced that the audit program is being wound down because it has revealed substantial compliance with the rules that govern political activities. Of the 30 completed audits, only 5 have resulted in decisions to revoke the charities’ registration, and all for reasons that were primarily outside their involvement in political activities. The 24 audits still underway will continue “so that the CRA can address any serious deficiencies, consistent with the approach used in the regular charities audit program.” The six remaining scheduled audits will not proceed as political activities audits.
In her announcement, the Minister affirmed the independence of the Charities Directorate with respect to audits, stating that “the independence of the Charity Directorate’s oversight role for charities is a fundamental principle that must be protected. The Minister of National Revenue does not and will not play a role in the selection of charity audits or in the decisions relating to the outcomes of those audits.”
In keeping with Prime Minister Trudeau’s mandate letter to the Minister, reported in our November 2015 Charity & NFP Law Update, the Minister also reaffirmed the government’s commitment to clarifying the rules governing the involvement of charities in political activities, and announced that details of consultations with stakeholders in the charities sector will be forthcoming.
While the news that CRA is concluding the political activities audits and will be holding consultations with the charitable sector are welcome, charities should be mindful that the rules with respect to political activities are still in place and must be followed. Information about the CRA’s Political Activities Policy Statement can be viewed on their website.
by admin | Jan 28, 2016 | Charity & Not-for-Profit Law
Syria Emergency Relief Fund Deadline Extended
On January 7, 2016, the Minister of International Development and La Francophonie, the Honorable Marie-Claude Bibeau, announced that the deadline for individual charitable donations that will be counted towards the government’s relief fund matching program for Syrian refugee relief will be extended to February 29, 2016.
Launched on September 12, 2015, the government’s commitment is to match dollar for dollar donations made by individuals to registered Canadian charities in support of the Syrian refugee relief efforts up to a total of $100 million. As reported in the September 2015 Charity & NFP Law Update, the fund will be administered by the Federal government to its international and Canadian network of humanitarian organizations.
CRA Publishes Webpage providing Information about Assisting Victims of Syrian Conflict
On January 20, 2016, CRA published a new webpage, Assisting people affected by the conflict in Syria, which provides information in a question-and-answer format for registered charities and donors interested in assisting individuals that have been affected by the Syrian conflict. The webpage describes the requirements that must be met for a charity to be able to devote its resources to aiding the refugees from the Syrian conflict. Charities must understand, for instance, that if they wish to assist refugees, this must be stated in their charitable objects; otherwise they will not be in compliance with the Income Tax Act.
Information is also provided for donors, such as resources for finding organizations that that can issue donation receipts and are providing humanitarian assistance. It also provides details about refugee sponsorship and the processes involved with receiving donation receipts.
CRA Updates the T3010 for the New Reporting Requirements
On January 14, 2016, CRA updated the T3010 Registered Charity Information Return to reflect the Budget 2015 proposal that registered charities could invest in limited partnerships without being considered to carry on a business in light of that holding. In order for this to apply to a registered charity there are three conditions, all of which must be met. First, the registered charity must be a limited partner. Second, the charity holdings have to amount to 20% or less of the fair market value of all interests in the limited partnership. Third, the charity has to deal at arm’s length with each general partner of the partnership.
In light of this proposal, charities must now report all holdings in limited partnerships on the T3010. For more information about the Budget 2015 proposals allowing charities to retain holdings in limited partnerships see Charity & NFP Law Bulletin No. 370.
CRA Publishes HST/GST Guidance for NPO’s and Public Service Bodies
CRA has updated two of its informational guides on GST/HST. RC4034 – GST/HST Public Service Bodies’ Rebate and RC4081 – GST/HST Information for Non-Profit Organizations were updated on January 5, 2016, to reflect proposed rebates for the provincial part of the GST/HST announced by Newfoundland and Labrador in April, 2015.
NOTICE292 of the GST/HST notices on the CRA website offers answers to questions pertaining to the eligibility requirements for respective rebates of charities and NPO’s.
MNR Waives Reporting Requirements of Bill C-37
On December 21, 2015, the Minister of National Revenue, the Honorable Diane Lebouthillier (the “Minister”), exercising authority under s. 220(2.1) of the Income Tax Act, announced that the reporting requirements for labour organizations and labour trusts, which came into effect with Bill C-37 An Act to Amend the Income Tax Act (requirements for labour organizations) (the “Act”), would be waived for fiscal periods starting December 31, 2015 until the end of 2016.
The announcement comes in light of the Federal Government’s intention to repeal the Act, which would have required labour organizations and trusts to develop and retain detailed records of their activities beginning December 31, 2015.
CRA Revokes Charitable Status
On December 4, 2015, CRA announced that it has revoked the charitable status of Le Refuge Des Rescapés, effective December 5, 2015. The CRA’s decision was based on an audit of the charity that revealed that it was devoting its resources to support and promote Foncière AgroTerre Inc., a tax shelter donation arrangement. The audit revealed that the charity accepted gifts of property and acted as a receipting agent for the donation arrangement from June 2012 to November 2013. As a result of this arrangement, the Minister found that the organization had improperly receipted over $2 million, causing the organization to fail to meet the requirements of the ITA necessary to maintain charitable registration.
Charities Administrators Convicted for Tax Evasion
On December 8, 2015, two charity administrators, Taiba Djalal and Marcel Fragé (the “directors”), were conditionally sentenced to prison for 12 and 18 months, and fined $15,000 and $19,632 respectively by a Court of Quebec judge.
At the time of the alleged offence, each of the offenders was a director of the charitable organization Société canadienne de développement durable en faveur des femmes dans les pays en voie de développement. CRA’s investigation revealed that the directors, both former CRA employees, made false or deceptive statements when they made up charitable donations that were falsely receipted by the charity. Those receipts were then used to claim personal tax credits to which the directors were not entitled. The credits claimed by Fragé in the years of 2005-2008 amounted to $82,509, and $68, 024 for Djalal in the years of 2005-2007.
by Dev User | Jan 28, 2016 | Charity & Not-for-Profit Law, Employment Law, Expertise
Charity Law Bulletin No. 376, January 27, 2016
Financial difficulties are a common reason for terminating employees, whether the employer is a not-for-profit or a for-profit business. In Michela v St. Thomas of Villanova Catholic School, a recent decision of the Ontario Court of Appeal, the Court clarified that where an employer is in difficult economic circumstances, those circumstances “do not justify a reduction of the notice period to which an employee is otherwise entitled.” This Charity & NFP Bulletin will review the Michela decision and comment on how charities and not-for-profits may reduce their exposure to liability so that, should financial difficulty arise, such as those that have been reported in the press recently concerning Goodwill Industries in Toronto and other Ontario locations, they will not be faced with unexpected and onerous financial burdens in terminating employees.
To read more, please see Charity & NFP Bulletin No. 376.
by admin | Jan 28, 2016 | Charity & Not-for-Profit Law
The Proof is in the Receipt
On December 1st and 15th, 2015, respectively, the Tax Court of Canada released two decisions that uphold the requirement of the Income Tax Act (“ITA”) for taxpayers to provide proof of the donations they have made to registered charities when claiming charitable tax credits.
In both Iqbal v The Queen and Okeke v The Queen, the taxpayers made cash donations to charities for which they claimed tax credits. In both cases, the credits were denied by the Minister of National Revenue (the “Minister”) upon reassessment. Paragraph 118.1(2)(a) of the ITA provides for a tax credit for taxpayers provided that the making of a gift is proven by filing a receipt with the prescribed information set out at paragraph 3501 of the Income Tax Regulations. Neither of the taxpayers were able to provide receipts with the prescribed information, and the court upheld the decisions of the Minister to deny tax credits in both cases.
Source of Income Does Not Determine Office of Employment
On November 26, 2015, the Tax Court of Canada released a decision regarding a deduction claimed under paragraph 8(1)(c) of the ITA for clergy residence. While the decision in Moerman v. The Queen bears no precedential weight because it was rendered pursuant to the informal procedure, it offers interesting insights in relation to clergy residence deductions.
Mr. Moerman was a chaplain for the Chinook Health Region in Southern Alberta and was paid an honorarium by Alberta Health Services for his work. Mr. Moerman received additional income through his corporation, John Moerman Enterprises Ltd., which was contracted by a local church to conduct chaplaincy services to the hospitals in the region. In 2012, Mr. Moerman claimed a tax credit for clergy residence under paragraph 8(1)(c) of the ITA for the total income earned between the two sources. The Minister reassessed Mr. Moerman and denied the credit for the portion of income received through the corporation because Mr. Moerman “was not performing the duties of the clergy for the Corporation but was performing this function for the churches and individuals to whom the Corporation contracted its services.”
The Court, however, overturned the Minister’s decision holding that, notwithstanding who is actually paying the remuneration, “that remuneration can still derive from a qualifying employment.” Because Mr. Moerman’s only employment was as a chaplain for the Health Region, the court held that the he was employed in an office for which the credit applied and referred the matter back to the Minister for reassessment.
Misrepresentation and Lack of Donative Intent
In an amended judgement released on January 4, 2016, the Tax Court of Canada in Mattachione v The Queen found that Vincenzina and Roberto Mattachione’s participation in a complex buy low-donate high gifting arrangement either lacked donative intent or knew that the value of the gifts they made was much higher than their costs. The Court therefore dismissed their appeal of the Minister’s reassessment in part.
Through a series of transactions, the Mattachiones purchased goods at a drastically reduced value and sold the goods to an intermediary who then sold the goods to donors at a subsequently marked up value. The goods then received a fair market value appraisal through an appraisal company that was higher than the value for which the goods were purchased. The goods were subsequently donated to a willing charity that would issue charitable receipts at the appraised value. The Mattachiones profited significantly from the transactions and, in 2003, they sought to claim tax credits for charitable donations under the buy low-donate high program. The Minister denied the credits.
Mrs. Mattachione conceded that the value of the donations she made was not more than her cost for the goods, which left the court to deal with the donative intent of Mr. Mattachione. The court held that the tax receipt, which was inflated to 50 times the value of Mr. Mattachione’s costs, was a benefit that nullified his gift to the charity. The Court held this to be the case because the donation was not made in isolation, but was part of a “coincidental transaction that included the provision of a questionable appraisal in circumstances demanding greater scrutiny.” The Court held that Mr. Mattachione did not seek to impoverish himself by the gift and, therefore, did not have donative intent.
by admin | Jan 28, 2016 | Charity & Not-for-Profit Law
Charity Registration Process
On October 9, 2015, Canada Revenue Agency (“CRA”) released French language view 2015-0589001C, which contained general comments made by the Charities Directorate about the charities registration process. On January 6, 2016, a McCarthy Tetrault Analysis (“Analysis”) published its English commentary on the contents of the view. The Analysis clarified that the view addresses several questions concerning charitable registration that had previously been raised during a roundtable discussion at the 2015 Association de Planification Fiscale et Financiere (“APFF”) Conference. Questions focused on the registration process itself and factors which contribute to delays in obtaining charitable status.
Specifically, the Analysis describes CRA’s clarification that the charitable registration process is the same whether the organization is a charity or a foundation. Similarly, legal structure of an organization will not affect the registration process either. The Analysis confirmed CRA’s statement that there is no “fast lane” for processing applications for registration, and that applications are processed on a first-come, first-served basis. The analysis reported that, simple applications can expect answers within two months of submission, while regular applications can be answered within six months. More information about the process, and what may contribute to delays, may be found on CRA’s website.
Transfer of NPO Assets to a Municipal Authority
On August 6, 2015, Canada Revenue Agency (“CRA”) released a French language technical interpretation that addressed the issue of whether an entity that is a non-profit organization pursuant to paragraph 149(1)(l) of the Income Tax Act (“ITA”) will lose tax-exempt status if its constitution provides that all of its assets are to be transferred to a municipal authority within the meaning of paragraph 149(1)(c) in the event of the winding-up, amalgamation, or dissolution. A municipal authority is defined at paragraph 149(1)(c) of the ITA as “a municipality in Canada, or a municipal or public body performing a function of government in Canada.”
On January 11, 2016, Taxnet Pro, published its comments on the technical interpretation and indicated that CRA maintains that it is first necessary to determine if the municipal authority is a member of the non-profit. This is necessary since, to maintain tax-exempt status, no part of a non-profit organization’s income may be payable or available for the personal benefit of any member. Accordingly, the analysis reported that if the municipal authority is not a member of the organization, tax-exempt status, pursuant to paragraph 149(1)(l), would not be lost provided that the other requirements of that paragraph had been met.
by admin | Jan 28, 2016 | Intellectual Property Law
On November 26, 2015, the Supreme Court of Canada delivered its ruling in the matter of Canadian Broadcasting Corp. v SODRAC 2003 Inc. The Canada Broadcasting Corporation (“CBC”) is a producer of works, and also a broadcaster. In the course of preparing for a broadcast, the CBC makes copies of musical works, including copies for synchronizing music and audio visual work, as well as creating copies for internal uses, such as copying to a digital content management system. These copies, which have become common practice in the industry, are called “broadcast-incidental copies” and current broadcasting technology renders them necessary in the production of a program which will be broadcasted to the public.
The main issue in this case was whether these broadcast-incidental copies, which current broadcasting technology requires, are protected by copyright, and whether broadcasters should be required to pay royalties for these incidental copies. In other words, would creating these broadcast-incidental copies constitute an infringement of copyright by the broadcaster if they were made without consent of the copyright owner, thus requiring the broadcaster to obtain a separate license to create them, or, in the alternative, would these copies already be covered by a standard license that CBC would already have with content owners.
In this case, the Court invoked the principle of “technological neutrality” which it stated as being “recognition that, absent parliamentary intent to the contrary, the Copyright Act should not be interpreted or applied to favour or discriminate against any particular form of technology” (Canadian Broadcasting Corp. v SODRAC 2003 Inc., at paragraph 66). The principle is derived from balancing the rights of users and copyright owners, i.e., encouraging public interest in the production and dissemination of creative works and intellect, while providing a just reward for the creator. The SCC stated that this long standing balance between authors and users, which the Copyright Act aims to achieve, must be maintained across all technological contexts and continue to be preserved in the digital environment. Further, regulators may not forgo this principle, and it should be used to guide their analysis when deciding the valuation of royalties or licenses.
The CBC argued that the principle of technological neutrality would render the incidental copies unprotected by copyright since they are part of the broadcasting process, which means that it should not pay for the incidental copies since it already pays for the use of the work which it broadcasts. The incidental copies do not generate any revenue and are only created to assist in the use of the music which is already paid for through a separate copyright license.
On the other hand, The Society for Reproduction Rights of Authors, Composers and Publishers in Canada (“SODRAC”) argued that that incidental copies and broadcast reproductions are distinct, and require separate licenses and thus separate royalties.
The SCC held that incidental copies are protected by copyright, and are subject to a royalty payment separate from those covering the broadcast itself. The Court also underscored the importance of technological neutrality and ruled that it is necessary to take this principle into account when setting the royalty structure, noting that the idea that “more copies mean more value and thus, more royalties” is out of step with the principles of technological neutrality that are meant to balance the interests of the user and copyright holder. The SCC sent the case back to the Copyright Board on the issue of determining the royalty structure, for a reconsideration of valuation of the license that takes into account the principles of technological neutrality and balance between user and right‑holder interests.
This decision will likely have implications that reach far beyond the broadcast issues that are discussed, and will potentially be given significant weight by the courts when addressing issues related to copies of works that are reproduced through non-traditional methods including through the internet. Charities and not-for-profits working in the digital arena should consult legal counsel before signing any agreements, or when negotiating copyright licenses, to ensure that their interests are properly represented in light of this decision.
