by admin | Jun 25, 2015 | Charity & Not-for-Profit Law
On June 23, 2015, Imagine Canada released a discussion paper entitled Charities in Canada as an
Economic Sector (the “Paper”) by Brian Emmett, Imagine Canada’s Chief Economist for Canada’s
Charitable and Nonprofit Sector, and Geoffrey Emmett, Research Assistant. It was written to “take a
balanced look at the Canadian charitable sector from an economic point of view.” In doing so, the Paper
emphasizes the important role and scope of the charitable sector in Canada’s economy, discusses
revenue sources for charities, and briefly highlights policy implications stemming from the sector’s role
in the economy. Overall, the authors stress that while charities are not analogous to for-profit businesses,
the impact that they have on the economy is equally strong and is a necessary part of the broader
economic picture.
The Paper begins by highlighting the significant role and scope of the Canadian charitable sector. The
authors define the charitable sector as part of the service sector and emphasize that its growth “reflects
growth in the service sector in general.” For example, the charitable sector’s contribution to Canada’s
GDP and employment is growing faster than many “traditional” sectors, such as construction, and the
charitable sector employs nearly as many people as the manufacturing sector. This section of the Paper
concludes by highlighting the commonalities between charities and small businesses, such as their
relatively small size and the “significant risks to success and continuity” that exist for both sectors.
The Paper then discusses revenue sources for charities. It draws a key distinction between the private
sector, in which customers determine financial success, and the charitable sector, in which “clients are
somewhat passive beneficiaries of funding decisions by governments and donors.” The charitable sector
relies on government transfers, member and donor funds, and the sale of goods and services. It is
interesting to note that the Paper highlights some of the same challenges regarding donations that were
also included in this year’s edition of Statistic Canada’s Spotlight on Canadians: Results from the
General Survey, such as the fact that donors are aging. For more information on the Statistics Canada
report see Charity Law Bulletin No. 362.
The final section of the Paper is a relatively brief overview of associated policy implications. These
include the fact that policy makers should consider the needs of the charitable sector in the same way that they currently consider sectors more traditionally thought of as “economic”. Also, the authors state
that “the full suite of support programs available to small private businesses” should be made available
to the charitable sector. They also emphasize that regulatory and income tax barriers to expanding
earned income and investment opportunities should be addressed and social finance should be expanded.
Finally, the authors argue that the importance of the charitable sector should warrant better data
collection and analysis such as that which supports the small business sector.
Overall, this Paper provides an interesting and needed discussion, which situates the charitable sector as
a key part of the wider Canadian economy. As the Paper highlights, given the fact that the charitable
sector is facing increasing financial challenges, understanding its economic role is an important part of
understanding how the sector can respond and move forward with innovative solutions.
by admin | Jun 25, 2015 | Charity & Not-for-Profit Law
Exploring the Potential of Social Finance in Canada, a Report of the Standing Committee on Human
Resources, Skills and Social Development and the Status of Persons with Disabilities (“Committee”),
was released on June 17, 2015 (the “Report”). The Report is the culmination of the Committee’s study
of “Social Finance’s potential for unlocking new sources of capital to improve social and economic
outcomes for Canadians.” During the consultations for the study, witnesses before the Committee
included representatives from not-for-profits, charities and government departments.
The Report begins by characterizing the phenomenon of social finance or impact investing as “an
approach to mobilizing repayable capital in ways that seek to create positive social impacts” and
proceeds to examine the Canadian social finance market, regulatory framework, potential ways to
measure social impact, different ways to improve knowledge and capacity; and develop the social
finance market.
The Report concludes with a total of nine recommendations being made by the Committee. Of those
recommendations, four make specific reference to the perceived inadequacies of the current regulatory
framework for charities and non-profit organizations (“NPOs”). In particular, the Committee
recommends:
- “[T]he federal government consider legislative and policy measures […] to allow charities greater
flexibility to conduct business activities for the purpose of reinvesting profits back into their
charitable missions.”
- CRA and the Department of Finance (“Finance”) “review current regulations with respect to the
profit-generating activities of non-profit organizations, and consider options to allow some nonprofits with a clear social purpose to generate surplus revenues in some circumstances.”
- CRA and Finance “conduct a review of current policies with respect to program-related investments,
with a view to improving the communication and/or clarity of these measures, as necessary.”
- “Employment and Social Development Canada continue to encourage cross-sector collaboration on
social finance by convening regular meetings of stakeholders from the for-profit and the non-profit
and charitable sectors, in order to encourage partnership development and to share information and
best practices.”
- It will be interesting to see if any of the Committee’s recommendations have an immediate impact on
CRA’s current policy positions with regard to the profit-generating activities of NPOs and charities, as
the Committee’s recommendations seem to focus on policy rather than legislative measures to address
social finance issues.
by admin | Jun 25, 2015 | Charity & Not-for-Profit Law, Privacy Law & Anti-Spam
Charities and not-for-profits often publish privacy policies on their websites as a way to inform the
public of their practices regarding the handling of personal information. It is important that charities and
not-for-profits properly implement their privacy policies and ensure that all individuals within the
organization are familiar with the privacy policy, in order to avoid the exposure to liability, as was the
case in Albayate v Bank of Montreal (“Albayate”).
In this case, the Bank of Montreal (the “Bank”) changed Ms. Albayate’s address without her consent,
which resulted in letters being mistakenly sent to her ex-husband, as well as inaccurately reported Ms.
Albayate’s address to two credit reporting agencies. Although the British Columbia Supreme Court did
not accept all of Ms. Albayate’s claims, the Court did conclude that the Bank breached Ms. Albayate’s
privacy rights under British Columbia’s Privacy Act when it released her information to the credit
bureaus, and also breached its privacy policy, which formed part of the contract between Ms. Albayate
and the Bank.
Although Ms. Albayate was unable to prove any damages, the Court awarded her nominal compensation
in the amount of $2000, which was based on case law before the Court in which compensation had been awarded for breach of privacy or contract where applicants had not established they suffered a pecuniary
loss. It is important to note that the case law also established that such awards can often be much
greater, in some cases up to $20,000, despite the ability to prove any damages.
Prior to advancing the current claims, Ms. Albayate had filed two complaints, based on the current facts,
with the Office of the Privacy Commissioner of Canada. In each case, the Privacy Commissioner
conducted a complaint review. It determined that in the first complaint the Bank had contravened the
principles of PIPEDA related to collecting personal information and that the second complaint was wellfounded and the issue had been sufficiently resolved.
Although this case relied upon British Columbia’s Privacy Act, for jurisdictions in Canada which have
not adopted a cause of action by statute for breach of privacy, some provincial jurisdictions provide
recourse at the common law for a cause of action concerning breach of privacy. For example, in Ontario,
the Court of Appeal recently recognized a cause of action identified as “intrusion upon seclusion” (for
more information on this newly recognized tort, see Charity Law Bulletin No. 277).
Despite the relatively low damage award in this case, charities and not-for-profits should be aware that
breaching an individual’s privacy can result in various causes of action, complaints to the Office of the
Privacy Commissioner of Canada, loss of reputation to the organization, and legal costs. As Albayate
illustrates, simply enacting a privacy policy without allocating sufficient resources to properly
implement the privacy policy will render it meaningless and may expose charities and not-for-profits to
the sanctions and penalties available under various laws. Accordingly, charities and not-for-profits
should take steps to appropriately implement the terms of their privacy policies at the operational level,
and ensure that employees, staff and volunteers know how to recognize potential privacy issues.
by admin | Jun 25, 2015 | Charity & Not-for-Profit Law
On April 17, 2015, the Ontario Superior Court of Justice released its decision in the matter of Vaughan Community Health Centre Corporation v Annibale (“Vaughan”). In contrast to the decision in Saskatchewan WTF Taekwondo et al v Taekwondo Canada, discussed earlier in this Charity Law Update the Court in Vaughan declared that the subject matter of a proposed resolution that the members of a not-for-profit corporation governed by the Corporations Act (Ontario) (the “OCA”) wanted to pass was inconsistent with the OCA and the corporation’s by-laws, and also stated that the resolution was not consistent with the role of corporate members.
In this regard, a portion of the corporate membership of Vaughan Community Health Centre Corporation attempted to requisition a meeting to remove certain directors, and make amendments to the by-laws of the corporation concerning the qualifications and number of directors.
After a review of the facts, the Court determined that the members are not entitled to unilaterally make amendments to the by-laws of a not-for-profit corporation under the OCA. In this regard, the OCA provides that the ability to pass by-laws, subject to confirmation or rejection by the members, rests solely with the directors, which was mirrored in the by-laws of the corporation. In addition, with respect to the changes concerning directors, the OCA requires a special resolution to increase or decrease the number of directors, which by definition first requires a resolution to be passed by the directors, then confirmed by the members. In addition, while the OCA provides for the ability for the membership to remove directors if the by-laws so provide, in this case, the by-laws required that reasons for removal be given and that the directors be allowed to respond. Since that did not occur in this instance, the Court found that such removal would not comply with the by-laws.
While this case does not provide any new interpretations of significance concerning the OCA, the detailed review of both the OCA and by-laws by the court in relation to the resolution that the members wished to pass indicates that a not-for-profit corporation will not always be provided any latitude with respect to compliance with its governing documents. As such, it is important to confirm that corporate decisions taken by a not-for-profit corporation, whether under the OCA or other not-for-profit legislation, will not be off-side either the statutory provisions or the by-laws.
by admin | Jun 25, 2015 | Charity & Not-for-Profit Law
In Kamloops-Cariboo Regional Immigrants Society v Herman, the plaintiffs, including Kamloops-Cariboo Regional Immigrants Society (the “Society”) and one of the Society’s directors, alleged that Wanda Herman, the former executive director of the Society, had committed a number of torts against them. The Society is a not-for-profit society incorporated under the British Columbia Society Act with charitable status and a mandate to assist immigrants and visible minorities integrate into Canadian society. Prior to the case being brought to court, several employees of the Society, including Ms. Herman, had a tumultuous relationship with the Society’s Board, resulting in some employees taking medical leave for stress, as well as accusations of mistreatment and harassment from Board members that in a few cases resulted in human rights complaints.
The plaintiffs brought the action against Ms. Herman on a number of grounds, including allegations of (1) breach of confidentiality, (2) breach of fiduciary duties, and (3) conspiracy to injure the Society. The plaintiffs alleged that Ms. Herman breached her duty of confidentiality to the Society by sharing information concerning internal efforts to resolve the Society’s employment disputes to the press and with the human rights tribunal (“HRT”). The plaintiffs alleged that Ms. Herman breached her fiduciary duties when she established a committee that had the intention of replacing the Board, and filing complaints with the HRT, among other things. The Board’s allegations involving Ms. Herman’s conspiracy to injure the Society included Ms. Herman’s attempt to arrange a meeting of members to replace the Board, as well as filing complaints with the HRT against the Society and its board.
In dismissing all of the causes of action, the court found that Ms. Herman did owe a fiduciary duty to the Society, as an officer of the Society, and that she had acted in compliance with her duty to the Society. The court stated that the Plaintiffs had not demonstrated that the complaints to the HRT were unfounded and that Ms. Herman’s actions were not done in malice. Instead, the court found that Ms. Herman’s actions were taken based on her perception that the Board’s actions were putting the Society at risk. With respect to the allegations of breaches of confidentiality, the court found there was no evidence Ms. Herman directly made statements to the press concerning the Society (the comments were attributed to other Committee members); and the information concerning employment disputes were not subject to confidentiality since that information was obtained through other employees who contacted Ms. Herman while Ms. Herman was on sick leave (i.e., not during Ms. Herman’s term as executive director).
The court further found that the tort of conspiracy to injure the Society should fail because Ms. Herman’s actions were lawful, and she did not act in a way that would imply intent to injure the Society. Instead, the court found Ms. Herman had genuine concerns with the function and role of the Board, as did many other Society members, and that Ms. Herman’s actions were taken to remediate what the judge described as the Society’s “chronic dysfunction.”
by admin | Jun 25, 2015 | Charity & Not-for-Profit Law
In a recently issued technical interpretation (#2014-0548841E5), Canada Revenue Agency (“CRA”) commented on the required retention periods for books and records of corporations and unincorporated entities under the Income Tax Act (“ITA”) and the Income Tax Regulations (the “Regulations”). In particular, a taxpayer had sought clarity on the “interaction between the general requirements with respect to the retention of books and records outlined under subsection 230(4) of the Act and the specific requirements in section 5800 of the Regulations.” The analysis of CRA’s Income Tax Rulings Directorate appears to introduce a novel distinction between records it identifies as permanent and those it identifies as non-permanent. Although the technical interpretation is silent on the books and records of incorporated and unincorporated qualified donees and non-profit organizations, presumably the distinction would also apply to these entities where the ITA and Regulations parallel.
Paragraph 230(4)(a) of the ITA stipulates that certain books and records along with “every account and voucher necessary to verify the information contained therein” must be retained for a prescribed period. Subsection 5800(1) of the Regulations sets out the prescribed periods “[f]or the purposes of paragraph 230(4)(a) of the Act.” More specifically, paragraph 5800(1)(a) of the Regulations sets out the prescribed period for certain books and records relating to corporations such as a general ledger or other books of final entry and certain meeting minutes. Paragraph 5800(1)(c) establishes the prescribed period for similar records held by unincorporated businesses. The technical interpretation refers to these paragraph 5800(1)(a) and (c) records as “permanent records,” which must be kept from the time of incorporation until two years after corporate dissolution or six years after the end of an unincorporated business’ taxation year when it ceases to operate.
Paragraph 230(4)(b) of the ITA establishes that “all other records and books of account referred to in this section, together with every account and voucher necessary to verify the information contained therein” must be retained for six years from the end of the tax year to which they relate. The technical interpretation refers to both paragraph 230(4)(b) records and the additional corporate records prescribed in paragraph 5800(1)(b) of the Regulations as “non-permanent” records.
Interestingly, this distinction between permanent and non-permanent records does not appear to have been previously made in other CRA guides and publications related to records. However, because the text of the taxpayer’s enquiry was not included in the technical interpretation, it is unclear whether the distinction was generated by CRA or the taxpayer.
