by admin | Jun 25, 2015 | Charity & Not-for-Profit Law
Canada Revenue Agency (“CRA”) recently released a CRA View (#2014-0517481E5) that comments on issues related to third-party fundraising. This View was released in response to an inquiry regarding the tax implications to an organizer (i.e., the fundraiser) of a fundraising event, where the organizer as a non-profit organisation intended to give the proceeds of the event to a registered charity.
In response, CRA stated that, generally, fundraising is considered a profit activity, but CRA may allow a non-profit organization, as defined under paragraph 149(1)(l) of the Income Tax Act (“ITA”), to carry out some fundraising activity without jeopardizing its tax exempt status if the scope of the fundraising activities does not escalate to the point where it could be considered a purpose of the organization. However, if the scope of the fundraising does reach this point, then the organization will no longer qualify for tax-exempt status under section 149(1)(l) of the ITA. Consequently, CRA went on to state that “organizations that are established and operated for the sole purpose of raising funds are not considered non-profit organizations even if all the profit from a fundraising activity is donated to a registered charity.” In this particular circumstance, CRA could not determine whether the scope of fundraising activities in relation to other activities was so great as to be considered an organizational purpose.
CRA then went on to review the issue of whether fundraisers are carrying on a business or if amounts that they receive can be considered gifts, an issue that CRA indicated was always a question of fact. In this regard, CRA further indicated that when fundraising generates income from a business, this income should generally be included in calculating income under section 9 of the ITA. In such circumstances, where the fundraised amounts were donated to a registered charity, a donation receipt may be available to the fundraiser, allowing it to reduce either taxable income or taxes payable.
However, CRA is of the opinion that, in many cases, the amounts raised would be considered gifts from the outset and would, therefore, not treated as taxable income. This is because CRA would view the fundraisers as acting as agents for the persons from whom the funds were collected and, therefore, responsible for transferring the property collected from the persons over to the registered charities in question. CRA concluded that “generally, it is the CRA’s view that where fundraisers collect funds from the general public and pay the amounts to a registered charity the fundraisers would not be entitled to a donation receipt.”
It is also noteworthy that, in its response, CRA referenced the fact that in the Federal Budget 2014, the Minister of Finance announced that there would be a public consultation on the income tax framework for non-profit organizations and that “we encourage all interested persons to participate in the consultation process.” To date, it does not appear that the Department of Finance has officially launched this consultation process. Non-profit organizations should keep an eye out for developments in this regard.
by admin | Jun 25, 2015 | Charity & Not-for-Profit Law
In St. Catharines Seniors Apartments Phase Three Inc. v Municipal Property Assessment Corporation et al, a recent endorsement in the Ontario Superior Court released on June 17, 2015, the court addresses an application by a housing charity for exemption from municipal taxation. Specifically, the housing provider sought exemption under paragraph 12(iii) of section 3(1) of the Ontario Assessment Act (the “Act”), which exempts from taxation lands owned by “any charitable, non-profit philanthropic corporation organized for the relief of the poor if the corporation is supported in part by public funds.”
The charity operates a residential apartment building for low income seniors. The issue before the court was whether the residents of the apartment building could be considered “poor” as contemplated by the Act to relieve poverty, or whether it merely provides affordable housing to seniors.
The court clarified that in determining a charity’s purpose, it is the actual operation of the organization rather than its corporate objects that is the determining factor. It was therefore immaterial that the corporate objects of the applicant do not mention “the poor.” The court also held that “poor” is a relative term; it does not mean the very poorest or the completely destitute. Instead, only an element of economic deprivation or need is required.
After comparing the low income cut-off statistic numbers for the community where the building is located with the income of the residents, the court was satisfied that the average annual income of $24,140 and a median annual income of $22,042 of the residents would equate with any common sense notion of “poor” as envisioned by the Act. Even if 5 of the 35 units did not meet the definition of “poor”, the court was satisfied that the remaining 30 units being rented to the “poor” meant that the primary actual purpose of the charity continued to be to provide affordable housing for poor senior citizens.
This case follows the decisions of previous cases upon which charities in Ontario that provide housing for the “poor” with public funds rely upon exemption from municipal taxes. With the continuing trend of the growth of the senior population in many cities, this tax benefit is especially helpful to those that provide housing to “poor” seniors.
by admin | Jun 25, 2015 | Charity & Not-for-Profit Law
On May 27, 2015, Canada Revenue Agency (“CRA”) released a CRA View (#2014-054279) that addressed the potential tax implications for a non-profit organization, as described in paragraph 149(1)(l) of the Income Tax Act (“ITA”), that derives income from the long-term lease of parking spots to a business owned by one of its board members. In this case, the non-profit organization is an affordable housing provider. The comments provided by CRA considered whether the profit earned was incidental and whether it arose from activities that were connected to the organization’s non-profit objectives.
CRA stated that both of these considerations were questions of fact. In this context, CRA concluded that income from the long-term rental of parking spots to a third-party by an affordable housing provider “will generally not be considered to be directly connected to the objective of providing affordable housing.” That said, CRA also stated that a review of all circumstances could lead to the conclusion that the housing provider “does not have a profit purpose, notwithstanding the lease.” CRA then briefly considered whether the income would be made available for the personal benefit of any member. CRA emphasized that, in general, income cannot be made available, either directly or indirectly, for the personal benefit of any member. However, in this particular circumstance, it could not determine whether the board member in question was also a member of the housing provider.
As an alternative to proceeding under the requirements of paragraph 149(1)(l), this interpretation also highlighting that affordable housing providers can potentially be exempt from tax under a number of less restrictive sections of the ITA including: municipal corporations (paragraph 149(1)(d.5)), limited divided housing companies (paragraph 149(1)(n)), and corporations “constituted exclusively for the purpose of providing low-cost housing accommodation for the aged” (paragraph 149(1)(i)). Many not-for-profits may file their annual corporate returns (T2) with CRA on the basis that they are a non-profit organization under paragraph 149(1)(l), when in fact there may be a tax-exempt category under the ITA that better describes their organization and purpose. Recent CRA Views over the last several years have had the effect of further tightening the types of revenue generating activities non-profit organizations can undertake while being reasonably confident that they are complying with the definition in paragraph 149(1)(l). As such, many not-for-profits that currently file as non-profit organizations under paragraph 149(1)(l) may want to review whether they are better suited as a tax-exempt entity under another paragraph in the ITA.
by admin | Jun 25, 2015 | Charity & Not-for-Profit Law
On May 5, 2015, a decision was released from the Ontario Superior Court of Justice in the matter of
Saskatchewan WTF Taekwondo et al v Taekwondo Canada. The applicants, being the various provincial
bodies of Taekwondo Canada making up its membership, sought a court order calling a meeting of
members under section 168 of the Canada Not-for-profit Corporations Act (“CNCA”).
The members had requisitioned a meeting on February 15, 2015, to be called for the reinstatement of
suspended members and the removal of several of the board of directors. The directors did not call a
meeting on the basis of paragraph 167(3)(c) of the CNCA, which provides that directors need not call a
meeting where it, “clearly appears that the primary purpose of the proposal is to enforce a personal claim
or redress a personal grievance…” As a result, the members attempted to call a meeting on their own
when the directors refused to do so, but required the membership list, which the board did not provide.
The Court was satisfied upon a review of the facts that there was “no basis for characterizing the
motives of the members who requisitioned the meeting as being in the nature of a personal grievance.”
The Court emphasized that use of the word “clearly” in paragraph 166(6)(b) of the CNCA meant that
“only requisitions which are clearly personal grievances are to be rejected.” In addition, the Court also
noted that “the right to call a special meeting is a substantive one and is not lightly to be interfered
with.” In this regard, the board had also sought an exemption from the Director under the CNCA from
the requirement to provide the membership list. However, the Court stated that such requests cannot act
as an injunction to prevent calling a meeting or complying with the CNCA. Moreover, the court did not find the fact that an annual meeting would be forthcoming was a reason for not calling the requisitioned
meeting, particularly when the annual meeting was a year away and no notice had been provided.
As the CNCA remains relatively new legislation, it can be assumed that membership rights will continue
to be enforced through the courts, and specifically the courts will be asked how the various provisions of
the CNCA are to be interpreted in the not-for-profit context. It is important to note that the court looked
to case law concerning similar provisions of the Canada Business Corporations Act, on which a
substantive portion of the CNCA is based. This trend is likely to continue as the CNCA continues to be
interpreted through litigation.
by admin | Jun 25, 2015 | Charity & Not-for-Profit Law, Counter Terrorism Law
The Standing Senate Committee on National Security and Defence met on June 1, 2015 to consider Budget 2015, as contained in Bill C-59, and to study and report on security threats facing Canada. This meeting included an appearance by Cathy Hawara, Director General of the Charities Directorate of Canada Revenue Agency, and Alastair Bland, Director, Review and Analysis Division of the Charities Directorate. Among the issues discussed with the Senate Committee concerning the Charities Directorate were terrorist recruitment and financing, and terrorist operations and prosecutions. Specific reference was made to CRA’s Review and Analysis Division, which, among other roles, audits registered charities based on the potential risk of terrorist financing abuse that is posed to the charitablesector and Canadian society as a whole in accordance with international standards set by the Financial Action Task Force.
Following the coming into force of Bill C-51, Ms. Hawara clarified that two separate thresholds would need to be met before the information it possesses could legally be shared. The first threshold would be under the Income Tax Act. CRA would need reasonable grounds to suspect that the information would be relevant to an investigation of a threat to the security of Canada under the CSIS Act or to an investigation of a terrorism offence under the Criminal Code. If this was the case, then CRA would have to consider the second threshold, which is laid out in the Security of Canada Information Sharing Act, as found in Bill C-51, which will come into force on a day to be fixed by order of the Governor in Council. This Act requires that the information also be relevant to the responsibilities of the organization receiving or requesting the information. Ms. Hawara, however, indicated that even if these thresholds are met, CRA would retain discretion over how it will share information in all circumstances.
The Senators in the meeting were intent on learning the processes of CRA, as well as the importance of oversight following the coming into force of Bill C-51, emphasizing that it is crucial to have regular oversight of the employees of the Charities Directorate who are assessing whether information can be shared, as well as the regulator as a whole, in order to function in a way that simultaneously addresses terrorism and retains charitable organizations’ privacy.
by admin | Jun 25, 2015 | Charity & Not-for-Profit Law
On June 3, 2015, the Ontario government introduced Bill 113, the Police Record Checks Reform Act, 2015. If passed, the Act would implement a new statutory regime in Ontario governing police checks, which generally describe searches of the Canadian Police Information Centre (“CPIC”) and other applicable police databases to screen an individual for employment, volunteer or other purposes. Changes arising from Bill 113 would include the following:
- Standardization of the police checks that can be requested by individuals, as well as standardization of the information authorized for disclosure for each type of police check. The three types of police checks described in Bill 113 are: criminal record checks, criminal record and judicial matters checks, and vulnerable sector checks. At the present time, police checks are not standardized across Ontario and are instead governed by different procedures established by each respective regional police service.
- Restrictions placed on the release of non-conviction records and mental health information. Non-conviction information would only be disclosed in the context of vulnerable sector checks where individuals are applying to work or volunteer with vulnerable individuals as described in Bill 113. An individual would also be able to request reconsideration of the release of non-criminal/non-conviction records as outlined in Bill 113.
- Police record checks will always be sent to the individual for review before any disclosure of the check to an employer or other organization that requested the police check. After receiving the results of the police check on himself/herself an individual may provide written consent allowing the disclosure of the police check results to another person or individual.
- Authorization to third-party background screening companies to conduct certain types of police checks.
- Bill 113 is modeled on the Ontario Association of the Chiefs of Police’s LEARN Guideline for Police Record Checks, an initiative to standardize the procedures that apply to obtain police checks. The LEARN Guidelines were first introduced in March 2011 and updated in June 2014.
