by Dev User | Sep 27, 2018 | Uncategorized
Sept 2018 Charity & NFP Law Update
On November 1, 2018, Division 1.1 of the Personal information Protection and Electronic Documents Act (“PIPEDA”), establishing mandatory data breach reporting and recordkeeping requirements, together with the accompanying Breach of Security Safeguards Regulations: SOR/2018-64 (the “Regulations”), which provide additional details about these obligations, will come into force. On that date, organizations subject to PIPEDA, potentially including certain charities and not-for-profits, will be required to comply with the notification, reporting and recordkeeping obligations set out under the new mandatory breach regime. As, in some situations, charities and not-for-profits could be subject to PIPEDA, they should be aware of these new requirements.
For the balance of this Bulletin, please see Charity & NFP Law Bulletin No. 429.
Read the September 2019 Charity & NFP Law Update
by Dev User | Sep 27, 2018 | Uncategorized
Sept 2018 Charity & NFP Law Update
On June 4, 2018, with amended reasons released on August 27, 2018, the Tax Court of Canada (“TCC”) released its decision in Mont-Bruno C.C. Inc. v The Queen. Without deciding on the merits of an exemption claimed by the appellant non-profit organization (“Mont-Bruno”), the TCC held that the CRA pleaded sufficient facts on the basis of which there could be a finding of “misrepresentation attributable to neglect, carelessness or wilful default,” under subparagraph 152(4)(a)(i) of ITA, for purposes of reassessments by the CRA after the normal reassessment period set out in subsection 152(3.1) of ITA.
In 2006, Mont-Bruno, which operates a golf course, realized a gain of $1,742,500 on the disposition of a vacant wooded area adjacent to its golf course (the “Parcel”). Mont-Bruno reported this disposition and gain on its 2006 T1044 Non-Profit Organization Information Return, on annexes to its T2 Corporation Income Tax Return, as well as on its audited financial statements. However, Mont-Bruno alleges that the gain was exempt from taxation because the Parcel was used exclusively and directly for “providing dining, recreational or sporting facilities” to its members in accordance with subparagraph 149(5)(e)(ii) of the ITA, and, accordingly, Mont-Bruno did not report the disposition on its T3 Trust Income Tax and Information Return.
On May 13, 2015, the CRA reassessed Mont-Bruno, claiming that failing to report the disposition and gain of the Parcel on its T3 was a misrepresentation attributable to neglect, carelessness or wilful default under subparagraph 152(4)(a)(i) of the ITA, which allows the CRA to reassess a taxpayer after the normal reassessment period set out in subsection 152(3.1) of the ITA.
Mont-Bruno challenged the CRA’s ability to reassess its 2006 tax filings after the normal reassessment period because the CRA had not met the conditions of subparagraph 152(4)(a)(i) of the ITA by failing to plead facts (as opposed to law or mixed fact and law) that Mont-Bruno would be required to refute. Mont-Bruno further alleged that it did not conceal the disposition of the Parcel, as it reported it as an exempt activity on its T1044, and that the proper characterization of disclosed facts should not be considered a misrepresentation. It argued that a misrepresentation under subparagraph 152(4)(a)(i) does not include a “misrepresentation of the interpretation of the law” and that taxpayers have a right to disagree with the Minister in their interpretation of the ITA without it necessarily being considered a misrepresentation.
However, relying on a number of precedents, the TCC held that “misrepresentations include […] an incorrect amount resulting from an erroneous calculation […] whether innocent or fraudulent […] or made in good faith” and that “even an innocent misrepresentation is attributable to neglect, and this can be the basis of a reassessment under subsection 152(4) of the ITA.”
In its amended pleadings, the CRA had stated that Mont-Bruno’s board of directors were “sophisticated and experienced business people with knowledge of tax matters” and that “[a]ccording to a resolution of [Mont-Bruno’s] board of directors dated April 7, 2005, it was agreed that a professional opinion concerning the potential tax liability from the sale of the [Parcel] should be obtained as soon as possible,” but that no such opinion was obtained. The CRA’s amended pleadings also claimed that the Parcel was not used exclusively for “providing dining, recreational or sporting facilities” to the members of Mont-Bruno, that Mont-Bruno did not organize any activities in the Parcel and that members did not access the Parcel in the course of club activities.
In this regard, the TCC held that the facts pleaded by the CRA regarding the business experience of Mont-Bruno’s directors, their failure to seek a professional opinion on the tax consequences of the disposition of the Parcel, as well as the use Mont-Bruno made of the Parcel, were facts on which the TCC could conclude that the misrepresentation was attributable to neglect.
This case serves as a reminder to charities and not-for-profits that tax reporting must be carefully reviewed before filing and that failing to obtain a professional opinion regarding a potential tax liability after the board has already deemed it to be necessary may give the CRA grounds to reassess the organization’s tax filings long past the normal reassessment period.
Read the September 2019 Charity & NFP Law Update
by Dev User | Sep 27, 2018 | Uncategorized
Sept 2018 Charity & NFP Law Update
Several partners of Carters Professional Corporation were recognized as leaders in the areas of Charity and Not-for-Profit Law, in Canada by The Canadian Legal Lexpert® Directory 2018. Terrance S. Carter, has been recognized as one of the most frequently recommended practitioners in the area of charities and not-for-profits in Canada since 2004. Theresa L.M. Man has been recognized as consistently recommended practitioners in charity & not-for-profit law since 2011, and Jacqueline M. Demczur and Esther S.J. Oh have been recognized as repeatedly recommended practitioners, also since 2011.
Read the September 2019 Charity & NFP Law Update
by Dev User | Sep 27, 2018 | Uncategorized
Sept 2018 Charity & NFP Law Update
On May 18, 2018, the CRA released GST/HST Interpretation 183321 (“Interpretation”), which reviews a number of questions involving the application of the goods and services tax (“GST”) and harmonized sales tax (“HST”) to reimbursements and allowances that a charity pays to its volunteers. Specifically, in the Interpretation, the CRA addresses questions regarding whether a registered charity can claim a public service bodies’ rebate (“PSB Rebate”), (being a rebate of a portion of GST/HST paid on eligible purchases and expenses by charities, qualifying non-profit organizations, and other organizations, including school authorities, hospital authorities, public colleges and universities), in the following contexts: (1) when the charity reimburses a volunteer for their expenses; (2) when the charity pays an allowance to a volunteer (such as an allowance for mileage travelled); (3) when a charity pays a reimbursement or an allowance to a volunteer, but the volunteer later returns the payment to the charity (for example, by exchange of cheques); and (4) when a volunteer donates their expenses to the charity (which would be as a gift-in-kind) rather than receiving a reimbursement, and the charity issues an official donation receipt. For further general information regarding GST/HST issues for charities, reference can be made to The ABC’s of GST/HST for Charities & NPOs, as well as the CRA’s RC4082(E), GST/HST Information for Charities.
With respect to question #1 concerning whether a charity can claim a PSB Rebate when the charity reimburses a volunteer for their expenses, the CRA stated that section 175 of the Excise Tax Act (“ETA”) permits a charity to claim a PSB Rebate in relation to a reimbursement where three conditions have been met: (1) the charity reimbursed a volunteer who provided services to the charity; (2) the property or service acquired, imported, or brought into a participating province by the volunteer was for “consumption or use in relation to the charity’s activities”; and (3) the volunteer paid GST/HST on the acquisition of property or services. Where these conditions are met, the charity may claim the PSB Rebate for the reimbursed expense. However, where the volunteer was acting as an agent for the charity, section 175 would not apply. The charity would instead be considered a recipient of the supply, and what the CRA referred to as the “usual routes” for determining the charity’s eligibility for the PSB Rebate would apply.
With respect to question #2, the CRA noted that section 174 of the ETA applies to allowances paid to volunteers, such as mileage allowances for the volunteer’s use of their car. To meet the requirements of section 174, a charity must pay an allowance to a volunteer who provides services to the charity. The allowance can only be paid for “supplies of property or services all or substantially (90% or more) of which are taxable supplies […] acquired in Canada by the volunteer in relation to the charity’s activities” or for a mileage allowance that is reasonable for income tax purposes and that is in relation to the charity’s activities.
The allowance amount must also be deductible by the charity for income tax purposes, or otherwise deductible if the charity were a taxpayer under the ITA and if the activity was considered a business. Where available, a PSB Rebate could be claimed to the extent as if the charity had incurred that expense directly.
In relation to question #3, the CRA confirmed that when a charity reimburses or pays an allowance to a volunteer, and the volunteer later returns the payment to the charity, the CRA considers this to be two separate transactions for GST/HST purposes. In such instances, and where the conditions for allowances or reimbursements under sections 174 or 175 of the ETA have been met, the charity would be eligible to claim the PSB Rebate for the reimbursement or allowance. The volunteer’s subsequent donation would not impact the charity’s entitlement to the PSB Rebate.
Finally, with respect to question #4, the CRA considered whether a charity would be eligible for the PSB Rebate where a volunteer foregoes a reimbursement, and chooses instead to donate their expenses as a gift-in-kind to the charity, and the charity provides a donation receipt to the volunteer. Section 175 of the ETA requires an “amount” to be paid to the volunteer as a reimbursement. As such, the CRA states that section 175 would not apply and the charity could not claim the PSB Rebate in such a situation, as “the volunteer donates their right to reimbursement to the charity as a gift-in-kind.” However, where the volunteer acquired a taxable supply as the charity’s agent, the charity would be considered the recipient of the supply and may be eligible to claim the PSB Rebate of the GST/HST paid or payable on that supply in accordance with the usual rules.
Read the September 2019 Charity & NFP Law Update
by Dev User | Sep 27, 2018 | Uncategorized
Sept 2018 Charity & NFP Law Update
On September 4, 2018, the Social Innovation and Social Finance Strategy Co-Creation Steering Group, appointed by the Federal Government in 2017 to develop a Canadian social innovation and social finance strategy, released its Recommendations Report (the “Report”). The Report is a comprehensive document that is extensive in its scope and innovative in its recommendations. The Report follows after the report of the Standing Senate Committee on Social Affairs, Science and Technology released on May 10, 2018, which recommended the creation of a Social Finance Fund, and which was discussed in the May 2018 Charity & NFP Law Update.
The Report states that in order to address the many complex and pressing social problems that Canadians are facing (such as housing insecurity, the opioid crisis and climate change), it is essential that the contribution by charities, “non-profits” and co-operatives to the overall economic growth of Canada is recognized. Along with the different ways in which private companies, individuals and other actors in society are contributing to address these social problems, the Report recognizes that charities and non-profits are investing in research and development as well as creating sustainable businesses models in order to grow the impact of their work.
The focus of the Report is on the following twelve recommendations (divided in seven areas of action), to be implemented by the Government of Canada:
I. Governance and public service infrastructure
Recommendation 1: Anchor commitment and long-term policy action toward social innovation and social finance in Canada through legislation.
Recommendation 2: Establish and fund a permanent multi-sectoral Social Innovation Council to advise the federal government.
Recommendation 3: Create a permanent Office for Social Innovation.
II. Capacity and skills
Recommendation 4: Improve social purpose organizations’ access to federal innovation, business development and skills training programs.
Recommendation 5: Establish a multi-departmental Social Innovation Ecosystem Program.
III. Funding and capital
Recommendation 6: Create a Social Finance Fund.
Recommendation 7: Ensure federal funding practices support and enable social innovation.
IV. Market access
Recommendation 8: Incorporate social procurement guidelines, tools and training opportunities into the Government’s focus on a cohesive sustainable procurement plan.
V. Policy and regulatory environment
Recommendation 9: Address the legal and regulatory issues impeding charities and non-profits from engaging in social innovation, social finance, and social enterprise.
Recommendation 10: Initiate a series of controlled regulatory experiments, or “sandboxes,” to explore and experiment with new regulatory models.
VI. Evidence and knowledge sharing
Recommendation 11: Establish a Social Innovation Evidence Development and Knowledge Sharing Initiative.
VII. Awareness and mobilization
Recommendation 12: Coordinate a national social innovation and social finance awareness campaign.
The Report further explains that these recommendations are to be implemented together in order for Canada to be on track to achieve the 17 Sustainable Development Goals of the United Nations’ 2030 Agenda for Sustainable Development, which include ending poverty in all its forms everywhere and ensuring inclusive and equitable quality education, amongst others.
Recommendation 9 of the Report is of particular interest to charities and not-for-profits in Canada, as it proposes amendments to the unrelated business rules in the ITA for charities to facilitate the use of social enterprises by charities and not-for-profits, recognizing that these organizations “create value beyond the cost of the tax benefits they receive.” Recommendation 9 also refers to and endorses the recommendations of the Consultation Panel on the Political Activities of Charities from 2017 with regard to a new “regulatory approach that focuses on charities’ purposes rather than activities” including a list of charitable purposes that better reflects contemporary social and environmental issues and values. In this regard, the Report suggests that revocations of charitable status should be suspended until a “complete range of issues areas affecting registered charities are addressed, in close consultation with stakeholders.”
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