Branding & Copyright for Charities & Non-Profit Organizations, 3rd Edition
Co-Authored by Terrance S. Carter & U. Shen Goh, LexisNexis Butterworths, September 2019.
Anti-Terrorism/Money Laundering Update
Aug 2019 Charity & NFP Law Update
Regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act
On July 10, 2019, the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2019 (the “Regulations”) were published in the Canada Gazette. The Regulations introduce a number of changes to the draft regulations proposed in June 2018, which were discussed in the June 2018 Charity & NFP Law Update, and includes a number of new additions that will be of interest to charities and not-for-profits. The Regulations require financial entities, as defined therein, to verify the identity of each authorized user and keep records regarding every “prepaid payment product account,” such as those tied to prepaid cards programs, and which permit funds or virtual currency that total $1,000.00 or more to be added to the account in a 24-hour period or a balance of funds or virtual currency of $1,000.00 or more to be maintained in the account. However, the Regulations exclude accounts tied to prepaid payment products, which would include disaster relief prepaid cards, used for purposes of humanitarian aid by registered charities.
Public Safety Canada Updates List of Suspected Terrorist Groups
On June 21, 2019, the list of entities believed to be involved in or associated with terrorism, which is a list maintained by the Governor in Council on the recommendation of the Minister of Public Safety and Emergency Preparedness pursuant to section 83.05 of the Criminal Code, was updated to include five new organizations. The new entities are Al-Ashtar Brigades, Fatemiyoun Division (FD), Harakat al-Sabireen (HaS), operating in the Middle East, as well as, for the first time, two neo-Nazi groups, namely, Blood & Honour (B&H) and Combat 18 (C18), operating in Europe and the US.
Charities involved in activities both outside as well as inside Canada should have adequate due diligence procedures in place to reduce the risk of unknowingly providing any kind of support to any of the entities listed by Public Safety Canada as suspected terrorist groups.
FATF Releases Terrorist Financing Risk Assessment Guidance
On July 5, 2019, the Financial Action Task Force (“FATF”), an inter-governmental body founded to set standards and promote policies to combat money laundering and terrorist financing, released its Terrorist Financing Risk Assessment Guidance (the “Guidance”) to assist participants and countries, particularly those with lower capacity to regulate and enforce a counter terrorist financing regime, in assessing terrorist financing risk. The Guidance acknowledges that there is no one-size-fits-all approach for assessing terrorist financing risk, so it provides considerations and examples for different contexts.
Part 4 of the Guidance deals specifically with how to assess the terrorist financing risk associated with non-profit organizations (“NPOs”), as defined by the FATF. In this regard, and relying on Recommendation 8 which was discussed in the Anti-Terrorism and Charity Law Alert No. 46 dated September 29, 2016, the Guidance highlights the experience of the UK in its 2017 domestic review of the NPO sector, which included a review of what information each regulatory body/agency collected to help assess levels of transparency and oversight within the UK NPO sector, as well as any self-regulatory measures and the adequacy of relevant outreach and guidance to the sector. The Guidance also makes reference to the Charity Commission of England and Wales’ review of 2014/15, which led to the amendment of the Charities Act 2011 in 2016 in order to expand the automatic disqualification of certain individuals from holding the position of charity trustee, including individuals convicted of terrorism offences or subject to financial sanctions. Other case studies referred to in the Guidance include Australia, Malaysia, Kosovo and Kyrgyzstan.
Consultation and Proposed Changes to the Tax Treatment of Employee Stock Options
Aug 2019 Charity & NFP Law Updat
On June 17, 2019, the Government of Canada tabled in the House of Commons a Notice of Ways and Means Motion to amend the Income Tax Act (the “NWMM”) to limit the use of the current employee stock option regime for high-income individuals employed at large, long-established, mature firms. The Government also published a Backgrounder document expanding on the commentary provided in Budget 2019, including a short commentary dealing with charitable donations, and launched a public consultation seeking stakeholder input on various aspects of the proposed changes.
Budget 2019 and the Backgrounder state that the preferential personal income tax treatment provided as a “stock option deduction” was intended for smaller and growing companies, such as start-ups, to attract and retain talented employees with a form of remuneration that is linked to the future success of the company.
The conditions of this “stock option deduction” are described in paragraph 110(1)(d) of the ITA, which effectively results in the employee stock option benefit being taxed at a rate equal to one-half of the normal rate of personal taxation – the same rate as capital gains. The employee may be eligible for an “additional deduction” equal to one-half of the employee stock option benefit if the employee donates to a qualified donee, such as a registered charity, publicly listed shares acquired under an employee stock option agreement within 30 days of the exercise of the option, or the cash proceeds from the sale of such publicly listed shares, pursuant to paragraph 110(1)(d.01) and subsection 110(2.1) of the ITA. As a result, where both the stock option deduction and the additional deduction for a donation to a qualified donee are available, the entire employee stock option benefit is effectively excluded from income.
However, Budget 2019 and the Backgrounder state that the employee stock option deduction claims are disproportionately benefiting a very small number of high-income individuals employed at large, mature companies. As such, the NWMM proposes that, starting on January 1, 2020, the employee stock options granted by certain employers be subject to a $200,000.00 annual vesting limit determined by the fair market value of the underlying securities on the date that stock option is granted. Where the fair market value of the underlying securities in any given vesting year exceeds the $200,000.00 annual vesting limit, such securities above the annual vesting limit will be deemed to be non-qualified securities in computing the stock option deduction under paragraph 110(1)(d) of the ITA. Since the additional deduction for charitable donations requires that the taxpayer be entitled to the stock option deduction pursuant to the condition in subparagraph 110(1)(d.01)(iv) of the ITA, the direct consequence of the new rules would be to disallow the additional deduction for charitable donations of securities acquired under an employee stock option agreement above the vesting limit of $200,000.00. The Backgrounder explains that any capital gain that has accrued since the shares were acquired under the stock option agreement would continue to be eligible for exemption from capital gains tax, subject to existing rules for donations of publicly listed securities. For those in the sector who wish to comment on the proposed amendments contained in the NWMM, the last day on which to make a submission to Finance is September 16, 2019.
Lobbying and Elections Legislation in Canada: An Introduction for Charities and Not-for-Profits
Aug 2019 Charity & NFP Law Update
Recent legislative changes to the Income Tax Act (Canada) (“ITA”) have opened the door for registered charities and registered Canadian amateur athletic associations (“RCAAAs”) to engage in “public policy dialogue and development activities” (“PPDDAs”). These changes, which were introduced through Bill C-86, Budget Implementation Act, 2018, No. 2 and received Royal Assent on December 13, 2018, removed all reference to “political activities,” and now permit charities (and RCAAAs) to engage in PPDDAs to the extent that PPDDAs further their charitable purpose. To this end, charities and RCAAAs may devote 100% of their resources to PPDDAs, which may include lobbying, as opposed to the previous 10% limit on permitted political activities.
With the upcoming Federal election, and recent amendments to the Canada Elections Act, which are meant “to increase transparency regarding the participation of third parties in the electoral process,” it is important that charities, RCAAAs, as well as other not-for-profits (“NFPs”) intending to carry out lobbying activities understand the legislation for which these activities are subject. In this regard, the lobbying activities carried out by charities and RCAAAs are subject to restrictions under the ITA. In addition, charities, RCAAAs, and other NFPs are subject to federal, provincial, and municipal elections and lobbying legislation. This Bulletin provides a very brief introduction to the federal and provincial lobbying legislation (collectively, “Lobbying Legislation”) and its impact on charities, RCAAAs and NFPs. This Bulletin also provides a very brief introduction to the recent legislative changes to the Canada Elections Act. As Lobbying Legislation is complicated in nature, it is beyond the scope of this Bulletin to discuss lobbying legislation as it applies to municipalities (including municipal by-laws), or to provide an in-depth analysis of Lobbying Legislation. As such, this Bulletin does not provide a detailed explanation of the law in this regard and the reader will therefore want to refer to the resources cited herein for further details.
For the balance of this Bulletin, please see Charity & NFP Law Bulletin No. 453.
Lobbying and Elections Legislation in Canada: An Introduction for Charities and Not-For-Profits
Inclusion in Best Lawyers in Canada 2020
Aug 2019 Charity & NFP Law Update
Theresa L.M. Man, Jacqueline M. Demczur and Terrance S. Carter of Carters Professional Corporation were once again recognized as leaders in the area of Trusts and Estates Law in the Charity and Not-For-Profit Law subspecialty by The Best Lawyers in Canada. Terrance S. Carter has been recognized since 2006, Theresa L.M. Man has been recognized since 2012, and Jacqueline M. Demczur has been recognized since 2014.