by Dev User | May 31, 2018 | Uncategorized
May 2018 Charity & NFP Law Update
Automated Calls from CRA for T3010 Information Returns due June 30, 2018
On May 29, 2018, the Canada Revenue Agency (“CRA”) informed followers of its Twitter account that it is making automated courtesy calls to remind registered charities whose fiscal year-end was December 31, 2017 to file their completed T3010 information return by June 30, 2018. A complete return is due within six months after the end of the charity’s fiscal year. It is possible that, as with last year’s automated calls from the CRA, charities that have already filed their information return may still receive a call. The CRA’s website provides information on the documents that must be included with a charity’s T3010 information return.
In this regard, it is also important to note that the board of directors of a charity is ultimately responsible for the accuracy of the information provided to the CRA in the T30a10. Accordingly, the board should review and formally approve the T3010, as well as indicate who within the charity has the authority to sign the T3010 on its behalf, with such decisions to be properly recorded in the board minutes. Failure to file a complete information return or filing an inaccurate one can result in a suspension of receipting privileges until the required information is provided to the CRA. Even if an incomplete or inaccurate T3010 information return does not result in sanctions by the CRA, the ability of the public to view a T3010 with errors may result in damage to the reputation of a charity with its donors, volunteers and supporters, as well as the general public, including enquiries by the media. To avoid problems in this regard, it may be prudent where a charity is able to do so to ask its legal and accounting professionals to review the T3010 information return for accuracy and, where necessary, advise on technical aspects of the T3010.
Read the May 2018 Charity & NFP Law Update
by Dev User | May 31, 2018 | Uncategorized
May 2018 Charity & NFP Law Update
In the U.S. case of Appalachian Bible College v Foremost Industries, released on April 17, 2018, the United States District Court for the Middle District of Pennsylvania held that a charitable pledge made by a corporate donor, Foremost Industries (“Foremost”), to a non-profit educational institution, Appalachian Bible College (“College”), was binding upon the donor. Since pledges are generally held by courts in Canada to be unenforceable as contracts, it is interesting to note that the law was determined to be the opposite in Pennsylvania.
In 2015, Foremost executed a donor commitment (“Gift Agreement”) to donate $4 million to the College through five annual payments of $800,000 beginning in 2016. The Gift Agreement stated that Foremost’s commitment was legally binding and enforceable against Foremost, its successors and assigns. Foremost subsequently executed a unanimous written consent to ratify the Gift Agreement. Not only did Foremost fail to make its annual payments to the College, it indicated to the College that it did not intend to make any future payments. The College therefore brought an action against Foremost, claiming breach of contract and anticipatory breach of contract.
The court considered whether all elements required under Pennsylvania law were present to find a breach of contract. In this regard, it found that the Gift Agreement contained all essential terms of a contract, and that it indicated both parties’ intent to be legally bound by the agreement and to legally bind successor entities. It further found a breach of duty imposed by the contract when Foremost failed to pay the pledged amount and indicated it did not intend to uphold its pledge at all. Of particular note, the court also found that the Gift Agreement stated that the College “is relying, and shall continue to rely, to its detriment” on the pledge being satisfied, and that the gift would be used as “an inducement” for other donors to make contributions and gifts to the College. The court therefore held that Foremost had breached the Gift Agreement with respect to the past due payments. With respect to its indication that it did not intend to uphold its pledge, Foremost was also found to be in anticipatory breach of contract for the remainder of the pledge, and was ordered to pay the full pledged amount to the College within 90 days.
This case demonstrates a striking difference between American and Canadian law. In Canada, courts have affirmed that charitable pledges are not enforceable as contractual agreements in the absence of consideration, such as the Brantford General Hospital Foundation v Marquis Estate case discussed in Charity Law Bulletin No. 49. In that case, the Ontario Superior Court did not accept the charity’s position that naming a new hospital unit in honour of the donor was sufficient consideration, and held that the charity failed to establish that it had relied on the pledge to its detriment. In Canada, a pledge would only be enforceable if there is sufficient consideration, which would bring into question the nature of the pledged “gift,” which by definition is not accompanied by consideration. As well, a pledge could be held to be enforceable based on the doctrine of estoppel if there is partial performance of the pledge based on a pre-existing legal relationship between the parties which the charity acted to its detriment in reliance on the pledge. As such, charities operating in Canada should continue to operate under the common law principle that a pledge is not an enforceable contract at law unless there is sufficient consideration or the doctrine of estoppel as explained above applies.
Read the May 2018 Charity & NFP Law Update
by Dev User | May 31, 2018 | Uncategorized
May 2018 Charity & NFP Law Update
On April 26, 2018, the Charity Commission for England and Wales (“Charity Commission”) published its research report, Focus on Insider Fraud (“Report”), outlining findings from its 2018 study on how insider fraud affects charities. Insider fraud is committed when individuals within the charity, such as trustees (a term commonly used to describe directors in the United Kingdom), employees or volunteers, commit various forms of fraud from within the organization, including financial fraud, making unauthorized payments, inflating expenses, and stealing information. In this regard, the Report aims to better understand the types of insider fraud occurring in charities, as well as factors that make charities vulnerable to insider fraud, and trends in the charitable sector.
In Phase One of its study, the Charity Commission reviewed 20 sample cases where charities had confirmed insider fraud had occurred at their organizations or where charities were deemed to be at an increased risk to insider fraud. In 19 of the 20 cases that were reviewed, the absence of appropriate controls to prevent fraud was determined to be the primary enabling factor in either allowing the fraud to occur or in making the charity more vulnerable to fraud. While a similar study conducted by the Charity Commission in 2016 indicated that most charities in that study had prevention controls that were inconsistently applied, the Report notes the two studies together suggest that trustees should ensure that fraud prevention controls are in place and also applied consistently within the charity’s operations.
Phase Two of the study involved 54 responses from charities providing requested information concerning insider fraud. In 43% of the cases, the insider fraud was committed by an employee and the stated prime factor for the insider fraud was “excessive trust or responsibility placed on one individual.”
In closing, the Report indicates that it is “vital that charities take appropriate action that is proportionate to their activities, size and financial governance, in order to manage the risk of potential fraud.” The Report also encloses an infographic of “10 top tips for fraud prevention,” together with other recommendations on how charities can avoid insider fraud occurring at their organization. The Charity Commission’s ten top tips are outlined below:
- Aim to develop a counter fraud culture;
- Implement financial controls that everyone signs up to;
- Conduct an annual review of fraud risk and internal controls;
- Consider having a dedicated fraud officer on the board;
- Encourage staff and volunteers to raise concerns;
- Promote fraud awareness and consider training;
- Conduct pre-employment screening and gets reference checks;
- Guard against excessive trust and complacency;
- Don’t be afraid to challenge if you suspect wrongdoing; and
- Report suspected fraud to the Charity Commission and Action Fraud.
Charities and not-for-profits in Canada will find the findings and recommendations of the Charity Commission Report to be a useful resource to help avoid insider fraud occurring within their organizations.
Read the May 2018 Charity & NFP Law Update
by Dev User | May 31, 2018 | Uncategorized
May 2018 Charity & NFP Law Update
On May 10, 2018, the Standing Senate Committee on Social Affairs, Science and Technology (“Standing Committee”) published a report entitled The Federal Role in a Social Finance Fund (the “Report”). The Report follows the Standing Committee’s study of a social finance fund and discussions with the steering group that co-developed a Social Innovation and Social Finance Strategy with the Government of Canada. While the Report was produced in response to an Order of Reference adopted by the Senate on December 14, 2017 authorizing the Standing Committee to “examine and report on issues relating to social affairs, science and technology generally,” it falls in line with the Federal Government’s initiative over the last several years to investigate whether and how to support social finance initiatives in Canada.
The Report describes social finance as “an investment made for the purposes of achieving a beneficial and quantifiable impact on society and/or the environment; and an economic return,” as well as “mobilizing private capital for public good.” While social finance is not a new concept, the Report outlines a more recent phenomenon of social finance being used in the context of social challenges that have been traditionally dealt with by the public sector. In this regard, the Report indicates a need for a financing “ecosystem” to bridge the divide between the need in the charitable and not-for-profit sectors for funds and the supply by impact investors thereof.
The Report also discusses social finance funds in Canada and abroad, and outlines two types of social finance funds. The first model “helps mature social enterprises and charities to expand their programs and to invest in property and real estate or free up equity from real estate or provide subsidies to affordable housing,” and while these are less risky investments, the Report indicates that there are regulatory constraints preventing charities and not-for-profits from investing in them. The second model is the “seed fund model,” which blends philanthropic capital and donations under the assumption that the majority will not grow. However, investors may receive up to 70% of their costs back through a combination of charitable donations and tax credits.
With regard to the role of the government in social finance, the Report states that all witnesses agreed that the government was instrumental in creating, growing and maintaining the sustainability of a social finance market in Canada, both through supporting existing social finance ecosystems and through creating new ones. Witnesses also agreed that the risk for private investors could be reduced through guaranteed government loans.
The Report provides six recommendations concerning what the Federal Government can do to stimulate social investment. These recommendations include that the government: create a pan-Canadian social finance fund operating at arm’s length from the government; seek opportunities to leverage funds from investors when assessing where to invest in the social finance fund; consider using dormant bank accounts as the basis of capital for the social finance fund; target a portion of its social finance fund contribution to intermediary funds used to help marginalized regions and communities; ensure organizations are capable of participating in the social finance ecosystem by supporting institutional capacity building; and make a multi-year commitment to a social finance fund.
While it remains to be seen how the Federal Government will act upon the recommendations, the Report is an encouraging step forward towards creating a more robust social finance model in Canada.
Read the May 2018 Charity & NFP Law Update
by Dev User | May 31, 2018 | Uncategorized
May 2018 Charity & NFP Law Update
Bill C-25 Receives Royal Assent
After being tabled on September 28, 2016, federal Bill C-25, An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profits Corporations Act and the Competition Act (“Bill C-25”) finally received Royal Assent on May 1, 2018. While certain provisions will come into force on a day to be fixed by order of the Governor in Council, the majority of Bill C-25 came into force on Royal Assent. Notwithstanding the breadth of the changes being introduced for Canada Business Corporations Act and co-operative corporations, Bill C-25 includes only minor technical amendments for CNCA corporations. These amendments include a definition of a person who has become “incapable” in subsection 2(1) of the CNCA, and the addition of section 277.1 of the CNCA requiring the Director to publish a notice of any decision made by the Director in respect of applications made under various sections of the CNCA (for example when a corporation is deemed non-soliciting under ss. 2(6), is permitted to delay calling of annual meetings under ss. 160(2), or when the Director relieves the corporation from certain parts of the CNCA under s.173).
New Direct Access to Corporations Canada Examiners for Registered Intermediaries
Corporations Canada announced on May 28, 2018, that registered intermediaries would begin to have better access to Corporations Canada’s examiners. Organizations that frequently file with Corporations Canada on behalf of multiple corporations and that have an established relationship with Corporations Canada can apply to become registered intermediaries. These are usually law firms and corporate service providers. Once registered, they can have increased efficiency in online corporate filing. Starting June 4, 2018, registered intermediaries will have direct access to examiners by phone, via its Contact Centre, for questions that require the specific expertise of an examiner. General inquiries will continue to be handled by the Contact Centre’s information officers.
Read the May 2018 Charity & NFP Law Update
by Dev User | May 31, 2018 | Uncategorized
May 2018 Charity & NFP Law Update
Bill C-59 Amended by Committee
On May 3, 2018, Bill C-59, National Security Act, 2017 (“Bill C-59”), which had been referred to the Standing Committee on Public Safety and National Security (the “Committee”) before second reading, was reported back to the House of Commons with a number of amendments. Bill C-59, introduced on June 20, 2017, was previously discussed in the June 2017 Charity & NFP Law Update. The amendments made by the Committee include the following:
- The introduction of the new Avoiding Complicity in Mistreatment by Foreign Entities Act, regarding “the disclosure of and request for information that would result in a substantial risk of mistreatment of an individual by a foreign entity and the use of information that is likely to have been obtained as the result of mistreatment of an individual by a foreign entity”;
- Amendments to the Communications Security Establishment Act requiring that the Communications Security Establishment, which is created by the same Act, carry out its activities of foreign intelligence, cybersecurity and information assurance in accordance with the Canadian Charter of Rights and Freedoms, including considerations such as the reasonable expectation of privacy that a Canadian or a person in Canada may have with respect to information acquired;
- A number of technical amendments to the National Security and Intelligence Review Agency Act and the Canadian Security Intelligence Service Act;
- Several amendment to the Criminal Code, including the broadening of the scope of certain provisions regarding the promotion or counselling of terrorist activities, specifically:
- 83.221(1) Every person who counsels another person to commit a terrorism offence without identifying a specific terrorism offence is guilty of an indictable offence and is liable to imprisonment for a term of not more than five years.
- (2) An offence may be committed under subsection (1) whether or not a terrorism offence is committed by the person who is counselled.
While Bill C-59 has yet to pass second reading in the House of Commons, charities and not-for-profits, especially those operating internationally, should continue to monitor its progress and how Bill C-59, if enacted, may affect their operations. Proactive due diligence policies which address both anti-money laundering and anti-terrorism legislation are critical for non-profits and charities, whether working internationally or domestically.
Read the May 2018 Charity & NFP Law Update
