A. INTRODUCTION
On November 1, 2011, Canada Revenue
Agency (“CRA”) released a draft Guidance on Arts Organizations and
Charitable Registration (the “Draft Guidance”) for public consultation.
The Draft Guidance is intended to be an interpretation of the applicable common
law and clarifies the position and practice of CRA’s Charities Directorate for
the purpose of determining whether an arts organization is eligible for initial
and on-going registration as a charity. As such, the Draft Guidance is relevant
to arts organizations that are considering charitable registration and existing
charities that are arts organizations. Comments or questions for inclusion in
the Questions and Answers to supplement the Draft Guidance must be submitted to
CRA by January 13, 2012.
Once finalized, the Draft Guidance will
replace CRA’s Summary Policy CSP-A08 and Summary Policy CSP-A24. It should be
noted that the Draft Guidance does not apply to National Arts Service
Organizations. These organizations are non-profit entities that promote arts in Canada on a
nation-wide basis and designated as such by the Minister of Canadian Heritage.
They may also qualify for registration as a Registered National Arts Service
Organization under the Income Tax Act if they meet other criteria
applicable to registered charitable organizations. As well, the Draft
Guidance does not apply to organizations that seek to advance other charitable
purposes through arts programs or activities. An example would be organizations that use art as a therapy to relieve
conditions associated with illness or disability.
B. OVERVIEW OF BASIS FOR CHARITABLE REGISTRATION
Organizations that seek to become
registered charities must have purposes that are considered to be charitable at
law. At common law, it has been established that there are four categories,
known as the four heads of charity, under which an organization’s purpose must
fall, i.e., relief of poverty, advancement of education, advancement of
religion and other purposes beneficial to the community in a way the law
regards as charitable.
The Draft Guidance states that arts organizations
can be registered charities if their purposes fall under the advancement of
education (the second head) or other purposes beneficial to the community in a
way the law regards as charitable (the fourth head). As well, an arts
organization under the fourth head must either advance the public’s
appreciation of the arts or promote the commerce or industry of the arts. In
addition, all arts organizations must also show that they operate for the
public benefit. These requirements are reviewed in more detail below.
C. THE SECOND HEAD: ADVANCEMENT OF EDUCATION
Arts organizations are eligible for charitable status under the second
charitable head of advancing education. Based on the Supreme Court of Canada
decision in Vancouver Society of Immigrant & Visible Minority Women v.
Minister of National Revenue, the Draft Guidance requires that activities that
further the advancement of education must be sufficiently structured. This means that they must contain a teaching or learning
component and involve a legitimate, targeted attempt to educate.
Appendix A of the Draft Guidance sets out
a table summarizing the key characteristics of the main charitable purpose
categories described in the Draft Guidance. According to the table, CRA clarifies
that the focus of an arts organization must be on developing or
increasing the skills of artists through training courses, classes, workshops
etc. While performance may be part of the training process, it cannot be the primary
means of training. As well, organizations must show
sufficiently structured, non-optional programs with a teaching or learning
component. However, simply providing an opportunity for people to educate
themselves by making materials available would not meet this threshold.
To help provide clarity to CRA’s
requirements, examples of acceptable charitable purposes that advance education
are included in Appendix B of the Draft Guidance. Examples include operating a public art schools, providing
scholarships for arts students, operating a resource library for the arts,
conducting research on best practices related to the arts, etc. In addition, the Draft
Guidance also provides additional helpful examples of
acceptable charitable activities, such as organizing and delivering workshops,
seminars, and classroom training or instruction on an art form/style, or on a
related topic such as marketing; providing opportunities for students or young
or emerging artists to exhibit, present, or perform their works or develop
their crafts or skills before the public, as long as they are part of a broader
educational program.
D. THE FOURTH HEAD: OTHER PURPOSES BENEFICIAL TO THE COMMUNITY
The Draft Guidance states that arts
organizations under the fourth head must either advance the public’s
appreciation of the arts or promote the commerce or industry of the arts.
1. Advancing the public’s appreciation of the arts
The Draft Guidance indicates that
while it may be difficult for arts organizations that advance the public’s
appreciation of the arts by exhibiting, presenting, or performing artistic
works to fall within the second charitable head, these activities have been
recognized by the courts as falling within the fourth head. In this regard, arts organizations may be eligible for
registration as advancing the public’s appreciation of the arts, if they are focused
on exhibiting, presenting, or performing artistic works in a way that satisfies
the public benefit requirements set out in the Draft Guidance. Helpful examples of
acceptable charitable purposes that advance education are included in Appendix
B of the Draft Guidance. Examples include providing high-quality public performance of
chorale works, providing free performance for an audience that cannot afford
the regular performance, producing public art exhibitions, and curating
exhibitions and managing a public gallery for the display of a particular art
form and style. The Draft Guidance also gives examples
of acceptable activities, such as producing and presenting high-quality
public dance performances, as well as curating and exhibiting high-quality
public art exhibitions.
2. Promoting the commerce or industry of the arts
Arts organizations may also be
eligible for registration as promoting the commerce or industry of the arts if they are focused on enhancing an art form and style within the arts
industry as a whole for the benefit of the public, as opposed to advancing the
interests of those engaged in the industry. The Draft
Guidance defines this to mean striving for improvement
and promoting excellence and, accordingly, preserving
and promoting excellence and high standards are essential
features.
Helpful examples of acceptable charitable
purposes that advance education are included in Appendix B of the Draft
Guidance. Examples include promoting excellence in a particular art
form and style industry in Canada by researching best practices and
disseminating the results of the research to the public, or by establishing and
maintaining best practices and standards of workmanship and design through the
development and institution of an apprenticeship program. The
Draft Guidance also gives examples of acceptable activities, such as offering merit-based awards and prizes for
theatre productions or offering workshop facilities and tools for public use.
E. PUBLIC BENEFIT
In addition to meeting the above
requirements, all arts organizations must show that they operate for the public
benefit. To satisfy the public benefit requirement, a benefit must be delivered
to the public or a sufficient segment of the public. The benefit must be
tangible or objectively measurable and socially useful benefit. The benefit
should generally be delivered to the public as a direct result of the
organization's activities, and therefore must be reasonably attainable, and not
too remote. Therefore, a charity cannot limit its eligible beneficiaries based
on criteria that are not justifiable in relation to the charitable purposes or
provide non-incidental private benefits.
A benefit is a presumed to exist in
relation to the second head, absent evidence to the contrary. There is no such
presumption under the fourth head, and therefore evidence must be shown that a
benefit is delivered to the public.
All fourth head arts organizations must
establish public benefit by meeting two criteria: (i) art form and
style; and (ii) artistic merit. In this regard, an arts
organization that advances the public’s appreciation of the arts must show that
its activities meet both the art form and style criterion and artistic merit
criterion. However, an arts organization that promotes the commerce or industry
of the arts must meet the art form and style criterion outlined in the Draft
Guidance. If the arts organization’s purposes and activities include
exhibitions, presentations, or performances, the organization must also show
that these activities meet the artistic merit criterion outlined in the Draft
Guidance. In all cases, the organization must show that its purpose and
activities enhance the identified art form(s) and style(s) within the arts
industry.
1. Art form and style criterion
To satisfy the art form and style criterion, an arts organization must establish a common or widespread
acceptance of both the form and style of art within the Canadian arts community by providing sufficient information to CRA for this determination. Art form generally refers to the field or the medium in
which an artist works. However, for purposes of the Draft
Guidance, art form refers to the broader categories of
art, such as literature, dance, visual arts, theatre and music. Style
refers to the different disciplines or methods of expression within each art
form. For example, ballet, modern, jazz, and tap are different styles within the art form of dance; classical, choral, chamber, or jazz
are different styles within the art form of music, etc.
Appendix C of the Draft Guidance
contains a list of art forms and styles that are generally presumed to meet this standard. For all other art forms and styles that are not include in Appendix C, an arts organization
would have to provide CRA with sufficient objective evidence to establish
common or widespread acceptance. Examples of such evidence could include:
· the art form and style is taught or studied at
accredited Canadian institutions of higher learning such as colleges,
universities, or comparable schools, by providing copies of course curricula
and/or syllabi to CRA;
· the art form and style has been recognized (i.e.,
funded or exhibited, presented, or performed) by national or provincial arts
bodies in Canada, such as Canadian Heritage, national or provincial arts
centres, museums or galleries, or national or provincial arts councils by
providing supporting documents to CRA; and
· the art form and style is recognized by
established Canadian academic arts journals or arts publications by providing articles
from these publications to CRA. [However, for a journal or publication to be
considered “established”, CRA requires these criteria be met: a) a production
history of at least one year is necessary; and b) the contributors and editors
must have a relevant background in the arts (educational or professional
experience). A short description of the qualification or experience of the
contributors and editors should accompany the documents submitted.].
2. Artistic merit
Artistic merit refers to the quality of the exhibition, presentation or performance. To satisfy the artistic merit criterion, an arts organization must demonstrate that its exhibition,
presentation or performance are of sufficient quality to be considered to
deliver a charitable benefit.
Depending on the art form and style in
question, the artistic merit criterion may apply to different aspects of
an exhibition, presentation, or performance. To illustrate
this concept, the Draft Guidance gives the following example: in the
case of theatrical performances, an arts organization must select or develop
theatrical works that have artistic merit and those
works must be presented in a way that also meets the artistic merit criterion
test; but no further artistic merit enquiry is
generally necessary in relation to an arts organization that simply exhibits
artistic works such as paintings or photographs that are shown to meet the
artistic merit criterion in their own right.
Due to the subjective nature of artistic merit, CRA would
apply the standard which the courts have referred to as “an accepted canon of
taste” assessed through objective evidence. In the case of In re Pinion, the court stated that it was not qualified
to judge artistic merit and that there was “an accepted canon of taste” that
could be established by expert evidence. In applying this test, the Draft Guidance provides that an arts
organization is expected to provide or be able to provide both of the following
in order to show artistic merit:
· a comprehensive description of the artistic works, and how each
will be exhibited, presented, or performed; and
· objective evidence to show the required quality of each
exhibition, presentation, or performance, unless a common or widespread
acceptance of artistic merit clearly or “obviously” exists.
CRA expects that objective
evidence would normally include both of the following aspects:
· Documents showing that the selection of artistic works and
artists is, and will continue to be, controlled through open, unbiased
adjudication/audition processes, which apply predetermined quality standards.
These documents should be in the form of records of audition or selection
processes, consisting of calls for auditions (where applicable); lists of the
artists or works considered during the process (subject to privacy
legislation); the names and qualifications of decision-makers; and the
standards and procedures that were applied in the process.
· Two or more of the following to demonstrate the
objectivity of the evidence, such as materials from impartial sources,
submissions from independent experts, certification by professional
organizations, etc.
The Draft Guidance states that whether
the evidence submitted is sufficient would be assessed on a case by case basis,
according to the facts of each case, taking into account the arts
organization's location, size, nature, and other relevant circumstances.
F. NO PRIVATE BENEFIT
The public benefit test requires that the
benefit delivered to the public must be reasonably attainable, and not too
remote. Therefore, a charity cannot limit its eligible beneficiaries based on
criteria that are not justifiable in relation to the charitable purposes or provide
non-incidental private benefits.
As such, arts organizations must ensure
that a benefit is delivered to the public at large or a sufficient segment of
the public. Examples of arts organizations that fail to meet this requirement
include limiting a musical performance to employees of a particular
company, or limiting eligible scholarship recipients to art
students who are children of employees of a particular company.
Arts organizations are also prohibited from providing non-incidental private benefit. In this regard, a private benefit is a benefit that is
provided to a non- charitable beneficiary or to a charitable beneficiary that
exceeds the bounds of the charity. Usually, an unacceptable private benefit
will be one that is not incidental to achieving a charitable purpose (i.e., the private benefit is not necessary, reasonable or proportionate to the public benefit achieved). Examples of non-incidental private benefit are given in the Draft Guidance to provide clarity.
G. USE OF INTERMEDIARIES
The Draft Guidance also provides helpful
comments on how arts organizations may utilize intermediary organization in
conducting their activities. In this regard, the Draft Guidance states that in
these situations, arts organization must maintain direction and control over
its resources (including its funds), and over the activities conducted with its
resources, using intermediaries requires appropriately structured and
documented arrangements. It also stresses the importance of compliance with the
application CRA guidance: Guidance CG-002, Canadian Registered Charities
Carrying Out Activities Outside Canada and Guidance CG-004, on Using an
Intermediary to Carry out a Charity's Activities within Canada. Helpful
examples of acceptable and unacceptable use of intermediaries are also given in
the Draft Guidance.
H. SPECIFIC ARTS ORGANIZATIONS
Specific comments on the application of
the Draft Guidance on a few types of arts organization are also mentioned in
the Draft Guidance. These include cultural organizations, arts councils,
museums, art galleries, and performance venues.
I. CONCLUSION
The Draft Guidance is in general a
helpful tool for arts organizations that are considering seeking charitable
registration, and arts organizations that are currently registered to ensure
that their charitable registration is not jeopardized. The comparison table on
the key characteristics set out in Appendix A is also very helpful. Examples of
charitable objects set out in Appendix B is helping in providing better
clarification of the requirements set out in the Draft Guidance. Once the Draft
Guidance has been finalized, it would be helpful for these sample objects be
cross referenced in CRA’s model objects as well. Other examples given in the
Draft Guidance also help provide better understanding of the requirements of
the Draft Guidance.
However, it is anticipated that a number
of the requirements and comments in the Draft Guidance would be of concern to the
arts sector. The level of evidence required to demonstrate artistic merit
appears to be extensive and may be overwhelming and prohibitive for small
start-up arts organizations. Although the Draft Guidance states that art forms
or styles not contained in the table in Appendix C may also be eligible for
registration, subject to the provision of sufficient evidence to establish
a common or widespread acceptance of both the form and style of art within the
Canadian arts community, again the level of evidence required
may be too onerous for small arts organizations to meet. What evidence would be
“sufficient” is a very subjective determination and more clarity is needed from
CRA.
Furthermore, artistic art form and style
in the creative realm of the arts sector is fluid and is constantly evolving,
and therefore listing the “acceptable” art forms and styles in a table in
Appendix C may at times be counter-productive, thus leading to a general
unwillingness to accept new art forms and/or styles. As well, the requirement
that art forms and styles must have a common or widespread acceptance
within the Canadian arts community may make it very difficult
for new art forms and styles of arts to be recognized and performed by arts
organizations in Canada. This requirement may also make it very difficult for
art forms and styles with an ethnic origin to break into the Canadian arts
scene, because arts organizations that want to seek or maintain charitable
registration would be reluctant to showcase them since they are not charitable
by virtue of the lack of common or widespread acceptance within the
Canadian arts community.
It will remain to be seen if the Draft
Guidance will be revised before it is finalized, and whether any of these
concerns will be addressed. However, both existing and potential
registered charities that engage the arts are encouraged to review the Draft
Guidance and provide CRA with feedback before the submission deadline. It is
important that arts organization charities and their
advisors become familiar with the Draft Guidance in
order to ensure compliance once the Guidance has been
finalized.