CURRENT LEGAL ISSUES FOR CHARITIES AND NON-PROFIT ORGANIZATIONS DE JAGER VOLKENANT & COMPANY / LOEWEN KRUSE 3 rd ANNUAL SEMINAR FOR CHARITIES AND NON-PROFIT ORGANIZATIONS Wednesday November 19, 2003 SHERATON GUILDFORD HOTEL, SURREY, BC KEN VOLKENANT De Jager Volkenant & Company
CCRA GUIDELINES ON SPLIT RECEIPTING Proposed Legislative Amendments to Income Tax Act Proposed Guidelines on Split receipting: http://www.ccra-adrc.gc.ca/e/pub/tp/itnews- 26/itnews-26-e.pdf Designed to help in determining whether there is a gift in situations other than where there is an outright transfer of property for no consideration 4 Key Elements to New Interpretative Approach
The Four Key Elements 1) There must be a voluntary transfer of property with a clearly ascertainable value 2) Any advantage received by the donor must be clearly identified and its value ascertainable 3) There must be a clear donative intent by the donor to give the property to the donee 4) The eligible amount of the gift is the amount by which the fair market value of the gift exceeds the amount of the advantage provided to the donor
The 4 Key Elements Charity required to clearly identify the advantage provided to the donor in the charitable receipt Where advantage to the donor exceeds 80% of fair market value of the transferred property there is no presumption of gift and the onus to show there is a gift shifts to the donor de minimis threshold no deduction to receipt where advantage received by donor does not exceed the lesser of 10% of the value of the property transferred to the charity and $75 Does not apply to cash or near cash advantages such as redeemable gift certificates, vouchers or coupons
Fundraising Events and Activities Guidelines for calculating Eligible Amount of Gift for fundraising dinners, charity auctions, lotteries, concerts sporting events and golf tournaments Eligible amount = ticket price less the advantage received by the donor Note: no part of the cost of a lottery ticket may be considered as a gift de minimis threshold will not be applied toward the value of the activity that is the object of the fundraising event (e.g. the value of the meal, the value of the concert ticket, the value of the green fee, cart rental and meal at golf tournament) The value of complimentary benefit and door prizes must be included (unless the value is below the de minimis threshold)
FUNDRAISING EVENT SPLIT RECEIPTING EXAMPLE Golf Tournament Fee of $350 (includes Green Fees, Golf Cart and Meal) FMV of Green Fee is $100, Golf Cart $25 and Meal $75 Door/achievement prizes have value of $5,000 Divide $5,000 by number of participants (144) = $34.72. Since this is below the de minimis threshold (10% of $350 = $35) the value of the door prizes is not included in calculating the advantage to the donor Receipt to donor in this example will be calculated as follows: $350 - $100 - $25 - $75 for a total of $150 If the value of the door prizes was greater than $35 per person, this amount would also have to be deducted from the Fee to determine the eligible amount of the gift
NEW CCRA POLICY STATEMENT ON POLITICAL ACTIVITIES Expansion of CCRA s previous position on political activities Review Policy Statement at http://www.ccra- adrc.gc.ca/tax/charities/policy/cps/cps-022- e.html Political vs. Charitable Purposes 3 Categories of Activities Charitable Activities Prohibited Activities Permitted Charitable Activities
Categories of Political Activities Charitable Activities Activities which directly further the charitable purpose of a charity but have a political nature will be permitted, such as participation in a public awareness campaign provided that the political nature of the activity: Is connected and subordinate to the charity's purpose Does not contain a call to political action Is based on a well-reasoned position rather than on information the charity knows or ought to have known is false, inaccurate or misleading Is not primarily of an emotive nature General Rules to assist in knowing whether activities are charitable or not Public awareness campaigns Providing contact information during public awareness campaign Communicating with an elected representative or public official Releasing the text of a representation
Categories of Political Activities Charitable Activities Policy Statement describes situations which will now be considered to be charitable notwithstanding that they have some political aspects to them, as long as the limits described previously are respected. Some examples: Distributing the charity s research on a particular topic relevant to its charitable purpose Releasing and distributing a research report to election candidates Publishing a research report online Presenting a research report to a Parliamentary Committee Providing an interview in relation to the research report Distributing a research report to members of Parliament Joining a government advisory panel to discuss policy changes
Categories of Political Activities Prohibited Activities Defined in the Policy Statement as an illegal activity or a partisan political activity, meaning an activity that involves direct or indirect support of, or opposition to, any political party or candidate for public office Some examples of prohibited activities: Supporting an election candidate in the charity s publication Distributing leaflets that underscore the government s failure to contribute to the charity s goals Hosting dinner for campaign organizers of a political party Inviting competing election candidates to speak at separate events Charity may make the public aware of its stance on a particular issue provided that: It does not explicitly connect its views to a particular political party or candidate for public office The issue is connected to its charitable purpose The views are based upon a well reasoned position; and Public awareness campaigns do not become the primary activity
Categories of Political Activities Permitted Political Activities A Charity that devotes substantially all of its resources to charitable activities may carry on political activities within the allowable limits 10 % of resources may be devoted to permitted political activities including the following: Explicitly communicating to the public that the law, policy or decision of any level of government should be retained, opposed or changes Explicitly communicating a call to political action (asking the public to contact elected or public officials to retain oppose or change the law, policy or a decision of any level of government
Categories of Political Activities Permitted Political Activities Examples of Allowable political activities: Organizing a march to the Legislature Buying a newspaper ad to pressure the government Organizing a conference to support the charity s opinion Hiring a communications consultant to conduct a media campaign Using a mail campaign to urge supporters to contact the government Organizing a rally with the express purpose of pressuring any level of government to change the law
NEW CCRA POLICY STATEMENT ON POLITICAL ACTIVITIES 10% of resources means 10% of a charity s financial assets as well as everything the charity can use to further its purposes Expenditures in category #3 not included in disbursement quota calculations Policy Statement contains important definitions of terms such as advocacy, call to political action, political purpose, subordinate activities and well-reasoned position, among others New advisory on September 30, 2003 re partisan political activity: http://www.ccraadrc.gc.ca/tax/charities/policy/political_activities-e.html
CHANGES TO TRUSTEE ACT NEW INVESTMENT PROVISIONS Old Trustee Act Investment Provisions Investment List Approach New Trustee Act Modernizes Scope of Investments Modernizes Standard of Care for Investment Provisions Incorporated into Society Act
CHANGES TO TRUSTEE ACT NEW INVESTMENT PROVISIONS trustees may now invest in any form of property or security in which a prudent investor might invest trustees may invest in mutual funds and common trust funds managed by a trust company a standard of care is specified, namely that trustees are required to exercise the care, skill, diligence and judgment that a prudent investor would exercise in making investments trustees are not liable for a loss to a trust if they have conformed to a plan or strategy for the investment, comprising reasonable assessments of risk and return, that a prudent investor would adopt trustees may delegate investment authority to an agent in the manner of a prudent investor provided that they have exercised prudence in selecting the agent, establishing the terms and limits of the authority, acquainted the agent with investment objectives and monitored performance.
CHANGES TO TRUSTEE ACT NEW INVESTMENT PROVISIONS The Prudent Investor Standard No specific definition (intentional) Follows reforms in other jurisdictions where important factors have included: general economic conditions possible effect of inflation or deflation expected tax consequences preservation or appreciation of capital needs for liquidity Positive Development
Asset Protection Christian Brothers of Ireland Case Multiple Incorporations/Trusts (thinking inside the box ) Separate risky operations Separate distinct operations (e.g. Church & School) Multiple Locations/Properties Endowment and Planned Giving Programs
QUESTIONS & DISCUSSION