11/11/2014 ONTARIO NOT FOR PROFIT ACT. Not-for-Profit Update The growing complexity of providing for the public. Not-for-Profit Update Presenters

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1 The growing complexity of providing for the public Presenters Nicole White BDO Canada LLP, Partner Ext Ruth Bell-Towns BDO Canada LLP Manager Ext Page 2 Agenda Ontario Not-for-Profit Act Director s Liability Taxation Issues From a Legal Perspective Taxation HST Accounting Frameworks NPO Accounting Standards Potential Future Changes Page 3 Acronyms AcSB Accounting Standards Board ASPE Accounting Standards for Private Enterprises ASNPO Accounting Standards for Not-for-Profit Organizations BOD Board of Directors CAS Canadian Auditing Standards FI Financial Instrument FS Financial Statements FV Fair Value GAAP Generally Accepted Accounting Principles GST Goods & Services Tax HST Harmonized Sales Tax IFRS International Financial Reporting Standards ITA International Tax Authorities ITCs Input Tax Credits (GST/HST) NPO Not-for-profit Organization ONCA Not-for-Profit Corporations Act PBC Public Benefit Corporations PSAB Public Sector Accounting Standards Page 4 ONTARIO NOT FOR PROFIT ACT New Not-for-Profit Corporations Act (ONCA) Ontario has passed new legislation that modernizes the legal framework of not-for-profits which includes charitable organizations But not yet in force! PRESENTER: Ruth Bell-Towns, BDO Canada LLP Goal is to: Ease incorporation process Clarify need for financial accountability Clarify rules for governance and accountability Clarify and establish director s liabilities and protection Ease audit requirements for certain corporations Page 6 1

2 Status Incorporating Received Royal Assent on October 25, 2010 Not yet been proclaimed in force Not in force before 2016 Other pieces of legislation must be amended Corporations will now incorporate using Articles of Incorporation rather than receive Letters Patent Default By-laws are applicable unless the corporation passes their own Can change, repeal, or replace default by-laws at any point Page 7 Page 8 Types of NPO s Audit Requirements under the Ontario NPO Act Generally an auditor is appointed every year 1) Public Benefit Corporations Public Benefit Corporations Non-Public Benefit Corporations a) Charitable Corporations b) Non-Charitable Corporations 2) Non-Public Benefit Corporations Revenue < $100,000 Revenue between $100,000 and $500,000 Revenue > $500,000 May decide to not appoint auditor or obtain review engagement -Special resolution required (80% votes in favour at member meeting) May elect to have a review engagement -Special resolution required (80% vote) Must appoint auditor Revenue < $500,000 Revenue > $500,000 May decide to not appoint auditor or obtain review engagement -Special resolution required (80% votes in favour at member meeting) May elect to have a review engagement -Special resolution required (80% vote) Special resolution is in effect until next annual meeting Page 9 Page 10 Key Features of ONCA Minimum 3 directors articles may provide for minimum and maximum number of directors If a Public Benefit Corporation not more than 1/3 of directors can be employees By-laws set out membership conditions Attendance at meetings Voting rights and proxy voting Call member s meetings Receive copy of records not less than 21 days before annual meeting Other Provisions Distribution of assets on dissolution: For charitable PBC s, distribution of assets to a charitable corporation with similar purposes or to a government or government agency is required. For non-charitable PBC s, distribution of assets to another PBC with similar purposes or to a government or government agency is required. For non-pbc s, the assets are to be distributed in accordance with its articles or ratably to its members. Page 11 Page 12 2

3 Other Provisions (cont.) Sets out the standard of care by which officers and directors are to follow. Also provides them with due diligence defense and allows for indemnification and purchase of insurance. Transition 3 years to comply with the standards of ONCA (once in force) At the end of the of the 3 years, if not in compliance with ONCA, the letters patent, supplementary letters patent, by-laws and special resolutions will be deemed to be amended to comply with the Act Share Capital Social Clubs (Golf clubs, tennis clubs, country club, etc.) will have a 5 year transition period Page 13 Page 14 Transition (cont.) Questions? Get legal advice Special issues for registered charities: Registered charities will be considered PBC s If conflict exists between the ONCA and any law applicable to a charitable corporation (e.g. Trustee Act or Charities Accounting Act), the other act prevails. If a registered charity is to be continued under the ONCA, it is advisable to seek the consent of the CRA s Charities Directorate to ensure registered charity status is not jeopardized. Page 15 Page 16 DIRECTORS DUTIES AND 8 WAYS TO AVOID PERSONAL LIABILITY Directors Have 3 Main Duties 1) The Duty of Diligence or Duty of Care 2) The Duty of Loyalty and Good Faith PRESENTER: Ruth Bell-Towns, BDO Canada LLP 3) The Duty of Obedience A breach of any of these duties could lead to a Director facing personal liability, putting personal assets at risk 3

4 The Duty of Diligence/Duty of Care 1) Directors have a duty to MANAGE even if some duties are delegated, Directors still have overall responsibility 2) Directors have a duty to ACT REASONABLY decisions should be informed and made after careful consideration and diligence The Duty of Loyalty and Good Faith 1) Directors have a duty to place the interests of the organization BEFORE their own 2) Directors should avoid CONFLICTS OF INTEREST even the appearance of a conflict 3) Directors should maintain CONFIDENTIALITY and not use any information gained in their role as Director for personal gain or the gain of another The Duty of Obedience 1) Directors have a duty to follow the organization s INTERNAL RULES (by-laws, other regulations and policies, etc.) 2) Directors have a duty to follow the rules set out in LEGISLATION and other EXTERNAL REGULATIONS, e.g.: Duties to ensure payment of source deductions and to file reports and maintain records duties to comply with environmental legislation Duties to comply with employment laws in relation to employment practices 8 Ways to Protect Yourself from Incurring Personal Liability 1) REVIEW the organization s internal rules 2) Act in good faith and with appropriate DILIGENCE 3) Keep proper RECORDS 4) Avoid CONFLICTS OF INTEREST 5) ASK QUESTIONS and DISSENT from actions you don t agree with 6) Get an INDMENITY from the organization 7) Get Director s and Officer s INSURANCE 8) Stay INFORMED and INVOLVED 1. Review the Organizations Internal Rules a) Review letters patent and by-laws of organization b) Ensure management is conducted in line with internal rules c) Have by-laws professionally reviewed and have policies created and ensure they are followed 2. Act in Good Faith and With Appropriate Diligence a) Review documentation with care b) Act in best interests of organization at all times c) Go through diligence process d) Seek assistance from external professionals 4

5 3. Keep Proper Records a) Maintain a minute book b) Keep good records of decisions and in particular discussions which lead to decisions c) Document any employment issues carefully d) Keep or insist that proper books and accounts are kept and reviewed regularly 4. Avoid Conflicts of Interest a) Avoidance is the best policy b) If unavoidable, conflicts should be disclosed and recorded c) Do not vote on issues where there is or may be a conflict d) Take steps to avoid misuse of confidential information 5. Ask Questions and Dissent a) Speak up if you don t understand anything or have questions b) Dissent from actions you don t agree with (silence = agreement) know how to properly dissent c) If all else fails, RESIGN (but again, this must be done properly) 6. Get an Indemnity from the Organization a) An Indemnification Agreement set out the organization s obligation to Indemnify Directors from claims brought against them while acting on behalf of the organization b) NOTE: only protects you if you are acting HONESTLY and in GOOD FAITH 7. Get Director s and Officer s Insurance a) Only offers protection for Directors acting in good faith, honestly and in the organization s best interests b) Not all insurance policies are created equally REVIEW the fine print c) Be careful if providing services to the organization they may not be covered by D & O insurance 8. Stay Informed and Involved a) Know your obligations and responsibilities as a Director b) Attend meetings and insist on receiving proper documentation in a timely manner c) Stay informed about legal changes affecting your organization and review policies and procedures regularly to ensure they are in line with changes 5

6 Questions? TAXATION ISSUES FROM A LEGAL PERSPECTIVE PRESENTER: Ruth Bell-Towns, BDO Canada LLP Page 31 The Face Not-for Profit vs. Charity NOT FOR PROFIT CHARITY PURPOSE Social welfare, civic improvement, pleasure, sport, recreation, or any other purpose except profit; Cannot operate exclusively for charitable purposes; PURPOSE Established to operate exclusively for charitable purposes REGISTRATION No registration process for income tax purposes; REGISTRATION CRA must approve registration as a charity Not-for Profit vs. Charity (cont.) Not-for Profit vs. Charity (cont.) NOT-FOR-PROFIT CHARITY NOT-FOR-PROFIT CHARITY CHARITABLE REGISTRATION NUMBER Not issued a charitable registration number; TAX RECEIPTS Cannot issue official donation receipts for income tax purposes; CHARITABLE REGISTRATION NUMBER Upon approval by CRA, issues a charitable registration number; TAX RECEIPTS Can issue official donation receipts for income tax purposes; DISBURSEMENT QUOTA/SPENDING REQIREMENTS Not Applicable DESIGNATION NPO s do not receive a designation; DISBURSEMENT QUOTA/SPENDING REQIREMENTS Minimum spending quotas on its own charitable activities or as gifts to qualified donees; DESIGNATION Designated by CRA as charitable organization, public foundation or a private foundation; 6

7 Not-for Profit vs. Charity (cont) Not-for Profit vs. Charity (cont) NOT-FOR-PROFIT CHARITY NOT-FOR-PROFIT CHARITY TAX RETURNS May have to file a T2 return or an information return (form T1044) TAX RETURNS Annual information return requirements (Form T3010) within six months of its fiscal period end; TAX EXEMPTION STATUS Generally exempt from paying income tax however may be taxable on property income or on capital gains. TAX EXEMPTION STATUS Exempt from payment of income tax. PERSONAL BENEFIT Cannot use its income to personally benefit members PERSONAL BENEFIT Cannot use its income to personally benefit members Some Definitions CHARITABLE ACTIVITIES CHARITABLE PURPOSES Two Part Test: Charity is constituted for purposes ( Objects ) that are exclusively charitable and define the scope of activities that can be engaged in by the organization Subject to limited exceptions, devotes its resources to charitable activities that further those purposes Purpose Purpose: Objectives to be achieved; Clearly stated in governing document; Must be exclusively charitable; Purpose Purpose Purpose must identify three elements either expressly or implicitly: charitable purpose category relief of poverty, advancement of education, advancement of religion, or certain other purposes which are beneficial to the community in a way the law regards as charitable; Purpose must identify 3 elements either expressly or implicitly: Charity purpose category relief of poverty advancement of education advancement of religion or certain other purposes which are beneficial to the community in a way the law regards as charitable The means of providing the charitable benefit; And the eligible beneficiary group 7

8 Qualified Donee A Qualified Donee: a registered charity; a registered Canadian amateur athletic association; a listed housing corporation resident in Canada constituted exclusively to provide low-cost housing for the aged; a listed Canadian municipality; a listed university outside Canada with Canadian students; a listed charitable organization in certain circumstances Her Majesty in right of Canada, a province or territory; and the United Nations and its agencies Some Help CRA CG-019 How to Draft Purposes for Charitable Registration The Face Questions? Page 46 TAXATION PRESENTERS: Ruth Bell-Towns, BDO Canada LLP Taxation Overview The Legislation; CRA s Interpretation Bulletin It-496R (2001); CRA s Change in Policy; CRA s NPO Audit Project; Keys to Maintaining NPO Status; Tax Filing Requirements; and Charity Receipts Page 48 8

9 The Legislation CRA s Interpretation Bulletin IT-496R (2001) Non-Profit Organizations are exempt from income taxes under paragraph 149(1)(l) of the Income Tax Act provided that: They are organized and operated exclusively for social welfare, civic improvement, pleasure or recreation or any other purpose except profit; and No part of the income is payable to, or otherwise available for the personal benefit of any proprietor, member or shareholder. Organization is not operated exclusively for non-profit purposes where it carries on a trade or business. Examples cited by the CRA where an activity may be a trade or business: Activity which is operated in a normal commercial manner Goods and services are not restricted to members and their guests Operated on a profit basis rather than cost recovery Operated in competition with taxable entities carrying on the same trade or business Page 49 Page 50 CRA s Interpretation Bulletin IT-496R (2001) Generally, the carrying on of a trade or business directly attributable or connected with pursuing the non-profit objective of the organization will not cause it to be considered to be operated for profit. If an organization earns income in excess of its expenditures and accumulates the excess and the balance exceeds its reasonable needs to carry on its non-profit objectives, profit will be considered to be one of the purposes. CRA - Change in Policy In 2009/2010, several Technical Interpretations were issued by the CRA which reflected a shift in policy The TI s indicated a stricter definition of an NPO and suggested the following: Profits must be generally unanticipated and incidental Specific activities of an NPO are looked at separately, rather than collectively Where an organization intends to earn a profit, it will not be exempt, even if it expects to use the profit to support its non-for-profit objectives. The profit motive will not be considered to apply where the organization accumulates funds to acquire capital assets (e.g. building expansion) to facilitate its non-profit objectives. Page 51 Page 52 CRA - Change in Policy (cont.) Comments by CRA at CICA National Conference on Income Taxes (2011) Level of profits: Can earn incidental profits; Profits to fund not-for-profit objectives is not in itself a not-for-profit objective; Limited fundraising activities; Activities reviewed both independently and as a whole CRA - Change in Policy (cont.) Comments by CRA at CICA National Conference on Income Taxes (2011) Capital Projects and Reserves: Can fund capital projects and establish operating reserves from capital contributed by members, from gifts and grants, or from accumulated incidental profits Reasonable operating reserves allowed for ordinary operations Reserves need specifically identified purpose Page 53 Page 54 9

10 CRA s NPO Audit Project Keys to Maintaining NPO Status CRA NPO Risk Identification Project Historically few audits on NPO status Audits of 1,440 NPO files over 3 years ( ) Audited organizations have received Education Letters Possible opportunity for organizations to re-arrange their affairs in accordance with the Act CRA will report results to Department of Finance Possibility of new legislation being introduced Legal documents (articles, bylaws, etc.) need to reflect the non-profit objectives of the organization Activities of the organization need to be aligned with its objectives Do not provide goods and services in direct competition with the private sector Legal documents should prohibit distribution of income to members If cash reserves are maintained, they must be held for a specific purpose relating to fulfilling the non-profit objectives Monitor changes in legislation and CRA s policies Page 55 Page 56 Tax Filing Requirements T3010 Charity Returns Must be filed no later than 6 months after year end Most details are publically available on CRA website Common errors found on charity returns T1044 Not-for-profit Returns Size test Received or entitled to taxable dividends, interest, rentals, or royalties totaling more the $10,000 in a fiscal period; Owned assets valued at more than $200,000 in the immediately preceding fiscal period; or If the NPO has been filed in a previous fiscal year Must be filed no later than 6 months after year end T2s CRA administrative policy Requirement to file vs. expectation to file Charity Receipts Registered charities do not HAVE to issue charity receipts Only registered charities CAN issue charity receipts Donations must been given freely Must be a donation of property (cash, equipment, etc.) Cannot be for services, gift certificates (unless purchased and gifted) or pledges Advantage or consideration cannot be conferred Page 57 Page 58 ABC Charity Receipt #00123 What Must Appear on a Charity Receipt 1. a statement that it is an official receipt for income tax purposes; 2. the name and address of the charity as on file with the Canada Revenue Agency; 3. the charity's registration number; 4. the serial number of the receipt; 5. the place or locality where the receipt was issued; 6. the day or year donation was received; 7. the day on which the receipt was issued if it differs from the day of donation; 8. the full name, including middle initial, and address of the donor; 9. the amount of the gift; 10. the value and description of any advantage received by the donor; 11. the eligible amount of the gift; 12. the signature of an individual authorized by the charity to acknowledge donations; and 13. the name and Web site address of the Canada Revenue Agency ( Page Anystreet, Gift City Date received: 06/01/13 AnyProvince, A1A 1A1 Date issued: 06/04/13 Charity Registration No. XXXXX XXXX RRXXX1 Donated by: G. Sam Aritan Charity Lane, Gift City AnyProvince, B2B 2B2 Total amount received by the Charity: $3,500 Value of the Advantage: $1,000 Advertising Eligible amount of gift for tax purposes; $2,500 Authorized Signature: Official receipt for Income Tax purposes. Canada Revenue Agency: 10

11 Questions? HST PRESENTER: Ruth Bell-Towns, BDO Canada LLP Page 61 HST and NPO s Charities versus Not-for-Profits Registration for GST/HST Charity versus NPO HST Treatment of supplies Rebates and ITCs Am I Registered for HST? HST number does not mean registered for HST CRA issues public sector body rebate account numbers that look identical to HST registration account number If registered, need to collect HST on all taxable supplies Page 63 Page 64 Charity vs. NPO So what s the difference? HST rules for Charities differ from those for other NPO s Certain supplies are exempt when provided by charity and taxable if provided by an other NPO Rebate rules are different Must distinguish between a charity, a public sector body and a public institution, as different rules apply to supplies made by each. When do I Have to Register? Charities Taxable supplies over $50,000 Total Revenue over $250,000 Non-Profits Taxable supplies over $50,000 Status matters! Page 65 Page 66 11

12 Charities Do I Need to Collect HST? General exemption A supply made by a charity of any property or service, with some exclusions Does not include: Supply of property used in taxable activities Sale of goods that were acquired, manufactured, or produced by the charity for the purpose of making a supply (other than donated or used goods) Certain sales and leases of real property Admissions to places of amusement Certain memberships Certain recreational activities Parking (in certain circumstances) NPO s (other than charities and public institutions) No general exemption Makes NPO s more likely to have taxable supplies Need to review sources of income carefully Many NPO s are not registered although they are required to register Page 67 Page 68 NPO Supplies General rule: Taxable unless a specific provision exists in Part VI of Schedule V Exempt: Volunteer fundraising (sales of goods under $5) Volunteer run-bingo or casino admission Supplies for charge not exceeding direct cost Admissions less than $1 Supplies for Nil consideration Amateur performances and events Recreational services / camps for children, disabled and underprivileged Relief of poverty or distress Meals on Wheels Certain memberships Certain supplies of real property Supplies by Labour organizations to trade unions Municipal services Grants vs. Fee for Service A grant or a subsidy received by an entity is generally not subject to GST/HST because it is not consideration paid for a supply made by the entity. Therefore, it is outside the scope of the GST/HST. Beware of any link between the grant and a supply made by the entity; this may cause the supply to be taxable. Consider the nature of the supply and the entity making the grant/donation. Review agreements relating to the supply. Page 69 Page 70 Example: Golf Tournament Fees Charities Not exempt under the general provision as this is a supply to a place of amusement for a price exceeding $1 Exempt if non-recurring fundraising i.e. not sold on a regular or continuous basis through a significant portion of the year Exempt if donation receipt is issued Non-Profit Organization Supply to a place of amusement generally taxable when provided by an NPO Example: Membership Charities Memberships are generally exempt Except for recreational or athletic activities or facilities Non-Profits Generally exempt Except where discounts or other benefits are provided to members May file election to make memberships taxable Page 71 Page 72 12

13 Example: Silent Auction Charities Exempt if items are donated to charity If purchased by the charity, sale is taxable Non-Profit Organization Taxable as considered to be a sale by an NPO. Non-recurring fundraising exemption does not exist Example: Fundraising Ball Charities Not exempt under the general provision as this is a supply to a place of amusement for a price exceeding $1 Exempt under section 2 if at least part of the consideration is an amount donated to the charity for which a donation receipt is issued May be exempt under section 3 (non-recurring fundraising) if the supply is not made on a regular and continuous basis throughout the year Non-Profit Organization Taxable for an NPO Page 73 Page 74 Example: Sponsorships Charities Exempt under the general provision. May be taxable if taxable goods or services are provided in exchange for the sponsorship. Non-Profit Organization Generally exempt under S.135 of the Act. Not exempt where payment is made primarily for advertising on television, radio, newspaper, magazine or other publication issued periodically Charities: HST Rebate The HST has 2 components- the federal 5% GST and the Ontario 8% HST Rebate for expenses incurred 50% of the 5% GST paid on expenses 82% of the 8% OHST paid on expenses Need to file rebate form (GST66) May file twice per year (6 months) Page 75 Page 76 NPO HST Rebate NPO HST Rebate May be eligible for 50%/82% HST rebate in respect of exempt activities if they meet the government funding test: Government funding test: Minimum 40% of revenues from government sources. In the current year or previous 2 years. Financials must identify revenue as government funded Can t be fee for service There are also different rebate rates and rules applicable to: Municipalities Hospitals (including certain other entities providing health care such as community care centres, family health teams, chronic care facilities, etc.) University/Public College School Authorities If test not met, no rebates available Page 77 Page 78 13

14 Charities Charities: Net Tax Calculation Are you claiming ITC s? Charities must use special Net Tax Calculation method to account for HST: Remit 60% of HST collected on most taxable supplies Remit 100% of HST on sales of certain real property No ITC s except for purchases of certain capital property used primarily in commercial activities Claim 50%/82% rebate for HST paid Elect out of Net Tax Calculation if: Charity makes supplies outside of Canada Charity makes zero rated supplies or 90% or more of supplies are taxable Must file an election to use ITC method Page 79 Page 80 Self Assessment of HST Self-assessment for GST or HST may be required where: goods or services are acquired outside Ontario (outside Canada or from another province) the entity paid less than 13% HST on the supply (eg: software or licence acquired from US supplier; tangible goods imported and subject to 5% at border, or goods acquired in another province in Canada with lower GST/HST rate) the supply is not being used exclusively for the purpose of making taxable supplies HST Planning Opportunities In some cases, there are opportunities to file elections to make certain supplies taxable (eg: certain supplies of real property, memberships) if they are otherwise exempt. This may entitle the entity to benefit financially from the HST rules available to it (such as the ability to claim Input Tax Credits) Any self-assessed tax must be reported and remitted to CRA; this tax is eligible for any NPO or charity rebate claimed by the entity. Page 81 Page 82 Questions? ACCOUNTING FRAMEWORKS PRESENTER: Nicole White, BDO Canada LLP Page 83 14

15 Government Controlled vs. Private NPO Government NPO A government not-for-profit organization is defined in the PSA Handbook as an organization that has all of the following characteristics: (a) It has counterparts outside the public sector. (b) It is an entity normally without transferable ownership interests (c) It is an entity organized and operated exclusively for social, educational, professional, religious, health, charitable or any other not-for-profit purpose. (d) Its members, contributors and other resource providers do not, in such capacity, receive any financial return directly from the organization Government Controlled vs. Private NPO Private NPO Normally without transferable ownership interests Organized and operated exclusively for social, educational, professional, religious, health, charitable or any other not-for-profit purpose A not-for-profit organization's members, contributors and other resource providers do not, in such capacity, receive any financial return directly from the organization Difference is government control Page 85 Page 86 Accounting Framework Options Questions? Private NPO Accounting Standards for Private Not-for-profit Organization Government NPO Public Section Accounting Standards for Not-for-profit Organizations Can use full Public Sector Accounting Standards or Public Sector Accounting Standards with 4200 NPO standards Page 87 Page 88 Contributions NPO ACCOUNTING STANDARDS Definition A non-reciprocal transfer of cash or other asset This includes government funding PRESENTER: Nicole White, BDO Canada LLP Three types of contributions are Restricted contribution subject to externally imposed stipulations that specify the purpose for which the contribution is to be used Endowment contribution subject to externally imposed stipulations specifying that the contributed resource is to be maintained permanently Unrestricted contribution anything not meeting the above two definitions 15

16 Revenue Recognition Contributed Materials and Services Two Methods Deferral method Restricted fund method An organization must choose which method to follow and apply it consistently to all contributions received An organization may choose to recognize contributed materials and services, but only when The fair value can be reasonably estimated The materials and services are use din the normal course of the organization s operations and, if not donated, would have been purchased Measurement Deferral Method All contributions must be measured at the fair value at the date of contribution Under the deferral method, restricted contributions are deferred and recognized as revenue in the period in which the related expenses are incurred (ie the expense that the money was donated and restricted to be spent on) All other contributions are recognized as revenue in the period received Contributions can be internally restricted by the board but for the revenue to be deferred, the restriction must be external Deferral Method Restricted Fund Method Endowment contributions Recognized as direct increases in net assets in the period received Restricted contributions for expense of one or more future periods Must be deferred an recognized as revenue in the same period in which the related expense are incurred Restricted contributions for purchase of capital assets If the capital asset is subject to amortization the contribution used to purchase it is deferred and recognized on the same basis as amortization of the capital asset acquired If the asset will not be amortized, such as land the contributions used to acquire is recognized as a direct increase in net assets This is a specialized type of fund accounting which involves the reporting of details of financial statement elements by fund in such a way that the organization reports total general funds, one or more restricted funds and an endowment fund (if applicable) The general fund is a self balancing set of accounts which reports all unrestricted revenue and restricted contributions for which no corresponding restricted fund is presented The restricted fund is a self balancing set of accounts the elements of which are restricted or relate to the use of restricted resources Allocations of resources that results from the imposition of internal restrictions are recorded as interfund transfers 16

17 Questions? POTENTIAL FUTURE CHANGES PRESENTER: Nicole White, BDO Canada LLP Page 97 Joint AcSB / PSAB Project Statement of Principles Improvements to Not-for-Profit Standards Main features that affect both private and public sector NPOs: A contribution would be recognized as an asset, when the NPO has control of the contribution, would exercise that control if necessary and can reasonably estimate the amount to be received. A contribution would be revenue, except when the contribution gives rise to an obligation that meets the definition of a liability. The proposals replace the deferral and restricted fund methods. The proposals could also have a significant impact on the accounting for contribution pledges and endowment contributions. A capital asset would be recognized by an NPO on its statement of financial position regardless of the size of the NPO (i.e. removing the size exemption currently available). Joint AcSB / PSAB Project Statement of Principles Improvements to Not-for-Profit Standards Main features that affect private sector NPOs only: The accounting for tangible capital assets by a private sector NPO would follow the standards for private enterprises under ASPE. The proposals would add guidance on accounting for partial write-downs for both tangible and intangible capital assets. Collections of works of arts and historical treasures would be accounted for at either cost or nominal value in the statement of financial position. Controlled NPOs would be consolidated, subject to an exclusion for a large number of individually immaterial organizations, and controlled profit-oriented enterprises would be accounted for by the equity method. Financial statement presentation by a private sector NPO would follow the standards in ASPE. The proposals would require expenses to be presented by both function and object (nature) rather than on one of the two bases. Page 99 Page 100 Joint AcSB / PSAB Project Questions? Statement of Principles Improvements to Not-for-Profit Standards Main features that affect public sector NPOs only: Eliminates NPO accounting for capital assets, controlled and related entities and financial statement presentation in the PS 4200 Series. Therefore will follow full PSAS for these areas. Presentation of net debt. Presentation of budget information. Intangibles, collections and economic interests would be accounted for on basis consistent with the current PS 4200 Series. Page 101 Page