Four Acts & A Policy (Current Legal Issues for Charities & Non-Profit Organizations) DE JAGER VOLKENANT & COMPANY/LOEWEN KRUSE 5 th ANNUAL SEMINAR FOR CHARITIES AND NON-PROFIT ORGANIZATIONS Wednesday November 9, 2005 SHERATON GUILDFORD HOTEL, SURREY, BC KEN VOLKENANT De Jager Volkenant & Company
Four Acts & A Policy (Overview) Act One Uniform Charitable Fundraising Act (Proposed) Act Two Act to Amend the Lobbyist Registration Act Act Three Act to Amend the Telecommunications Act Policy Umbrella Organizations Act Four Income Tax Act Changes
Act One Uniform Charitable Fundraising Act Regulation of Charitable Fundraising is a Provincial Matter Uniform Law Conference of Canada met and agreed on draft Legislation in August 2005 Not Law until adopted by a Province (no such law currently in BC some Provinces have legislation) Purposes: Ensuring members of the Public have sufficient information to make informed decisions when contributing to charities Protecting the Public from fraudulent, misleading or confusing solicitations Establishing standards for charities and fundraising businesses making solicitations
Act One Uniform Charitable Fundraising Act Areas of Focus under the Proposed Act Regulation of solicitations (time and manner) Providing donor with information during solicitations Mandatory receipts for gifts > $10.00 Financial Record Keeping and disclosure of Financial Information Licensing of Fundraising businesses Compliance with standards of practice for fund raising businesses For briefing notes and report of working group see: www.ulcc.ca/en/poam2/index.cfm?sec=2005&sub=20 05g
Act Two Act to Amend the Lobbyist Registration Act Purpose: that the public office holders and the public be able to know who is engaged in lobbying activities When someone is classified as a public office holder When an individual or organization is considered to be lobbying and therefore is required to register Thresholds before the requirement to register is activated What information has to be filed with a registration
Act Two Act to Amend the Lobbyist Registration Act Charities are not exempt from the Act If a significant part of an employee s duties is lobbying the most senior employee of the organization must ensure that all those involved in lobbying are registered significant means 20% of the person s overall employment duties Also applies if the collective lobbying duties of several people would be the equivalent of 20% of one person s job Term lobbying broadly defined from attempting to influence a public office holder to communicating with a public office holder
Act Two Act to Amend the Lobbyist Registration Act However, it is not considered lobbying if A submission (written or oral) is made to a Senate Committee, House of Commons Committee or another person or body with powers conferred on them by a Federal Act if the proceedings are a matter of public record A communication (written or oral) made to a public office holder regarding the enforcement, interpretation or application of a Federal Act or regulation by the public office holder with respect to the organization An organization asks a public office holder for publicly available information
Act Two Act to Amend the Lobbyist Registration Act A Public Office Holder is defined under the Act and includes: A member of the Senate or House of Commons A person appointed to their position by the Governor General or a Minister (not including judges) An officer, director or employee of a federal board, commission or tribunal A member of the Canadian Armed Forces A member of the RCMP
Act Two Act to Amend the Lobbyist Registration Act While the amendments are now in force this Act is not likely to apply to most charities A charity would have to have the equivalent of one employee working approximately 1 day every week on lobbying type of work before it would be required to register under the Act
Act Two Act to Amend the Lobbyist Registration Act Copy of Act available at: www.parl.gc.ca/legisinfo/index.asp?la ng=e& query=3161&session=11&list=toc Interpretation Bulletin with definitions: Significant Part of Duties : www.strategis.ic.gc.ca/epic/internet/inlobbyistlobbyiste.nsf/en/nx00111e.html Communicating with Public Office Holders : www.strategis.ic.gc.ca/epic/internet/inlobbyistlobbyiste.nsf/en/nx00109e.html
Act Three Act to Amend the Telecommunications Act (Bill c-37) Adds to Telecommunications Act creating legislative framework for a national do not call list Gives Commission authority to administer a related database/information system Commissions powers delegated to CRTC Original Draft did not exempt charities Recommended amendment will exempt charities Charities means registered charities so non-profit organizations that are not registered charities are not exempt from the legislation
CRA Policy on Umbrella Organizations Draft policy released in July 2005 Addressed the eligibility of umbrella organizations for charitable registration Definition of Umbrella Organization: An organization that works to achieve a charitable goal by supporting, improving and enhancing the work of groups involved in the delivery of charitable services Organization does not have to work directly with charitable beneficiaries in order to be considered as advancing charitable purposes Activities are charitable if organization contributes to an improvement in the quality of service and level of service available to the public
CRA Policy on Umbrella Organizations Three types of Umbrella Organizations Charities established to improve the efficiency and effectiveness of other registered charities Organizations that work with and through constituent groups that may or may not be registered charities in order to achieve a recognized charitable purpose Charities that hold property for other registered charities
CRA Policy on Umbrella Organizations An organization s eligibility for registration is assessed in respect of its dealing with beneficiaries rather than its members Beneficiary means individuals or organizations that the umbrella organization s charitable programs are designed to ultimately benefit Members are individuals and organizations that are given a defined right to participate in the umbrella organization s sphere of activity (usually through a formal process)
CRA Policy on Umbrella Organizations Charities Established to Assist Other Registered Charities These are umbrella organizations that improve the efficiency of charities by: Reducing overhead (leaving more $ for charitable activities) or Engaging in activities that improved effectiveness such as providing advice, assistance and expertise (increasing capacity for delivering charitable services) Beneficiaries must be predominantly (90%+) registered charities (leaves room for benefit to organizations that are not registered charities)
CRA Policy on Umbrella Organizations Objects must clearly state that the purposes of the organization is to improve efficiency and effectiveness of registered charities Umbrella Organization can not engage in purposes that are considered to be political Sample activities: Providing facilities at below market costs to charities Providing specialized administrative or professional consulting services to charities Note that payment for such services by a charity are to be recorded as payments (i.e. not as gifts to the Umbrella organization)
CRA Policy on Umbrella Organizations Umbrella Organizations Advancing a Recognized Charitable Purpose Established to further a particular charitable purpose May benefit constituent groups as ancillary to achieving the particular charitable purpose but may not have stated purpose of providing support or to of coordinating the activities of member organizations Purpose must be stated in relation to specific charitable category Activities must advance a charitable purpose
CRA Policy on Umbrella Organizations Examples of Umbrella Organizations Advancing a Recognized Charitable Purpose Coordinating services between member organizations to ensure services are delivered to a maximum number of beneficiaries Holding conferences and seminars on topics related to the charitable purpose Conducting and disseminating or collecting and distributing research of member groups Providing information to the government, media and public on issues relating to the charitable purpose
CRA Policy on Umbrella Organizations Charities Established to Hold Title to Property Purpose is to hold title to property for another charity CRA recognizes asset protection as a possible motivation Addresses limitations for foundations holding title with regard to indebtedness Beneficial ownership reference creates some uncertainty Purpose must be to provide charitable service to benefit charity (i.e. not simply to hold title) Can include services in addition to holding title such as property management services and property acquisition and development Important to consider property tax exemption status in all title holding arrangements
Act Four Income Tax Act Changes Changes to Disbursement Quota Rules Definition of Disbursement Quota: A prescribed amount that a Registered Charity must disburse each year in order to maintain their charitable registration Purpose of the Disbursement Quota: To make sure that charities use charitable funds on charitable activities To discourage charities from spending excessive amounts on fundraising and from accumulating funds
Act Four Income Tax Act Changes Intermediate Sanctions Concept of intermediate sanctions is to introduce sanctions (penalties) that are more commensurate to relatively minor infractions i.e. other than revocation See Mike Loewen s worksheet summarizing sanctions
Act Four Income Tax Act Revocation Changes still available to CRA for offences and is also now available if CRA determines that a charity obtained its original charitable registration on the basis of false, misleading or omitted information Revocation Tax If revoked, a charity must pay a tax equal to 100% of its assets to CRA Tax can be mitigated by a donation of the tax payable to an arms length charity
Act Four Income Tax Act Charitable Assets are trapped in Charity Zone (trapezoid) Need to Understand the Dividing Line which is a fluid concept determined by Courts and CRA Policy Consider playing on both sides of the line Changes
Act Four Income Tax Act Changes Annulment Available where registration is obtained in error Available where charity ceases to be a charity because of changes in the law No effect on issued receipts No 100% revocation tax or other penalty Permits errors to be rectified without negative public notice which goes with notice of revocation
Act Four Income Tax Act Appeals Regime Old Regime Changes Federal Court of Appeal judicial review No administrative appeal process Costly and very ineffective New Regime Changes appeal procedure Internal Appeal Process CRA internal objective review process extended to Denial of Applications, Revocation or Annulment, Designation of Charity as Foundation, imposition of taxes or penalties
Act Four Income Tax Act Changes Judicial Review Process Appeals of Intermediate sanctions and penalties entitled to a trial de novo before Tax Court of Canada Appeals of refusals to register, revocation, annulment and charitable designation continue by way of an application for judicial review at the Federal Court of Appeal Important to get all information relevant to applications and revocations on the record
Act Four Income Tax Act Changes Additional Information Available to the Public Financial Information Registration/annulment correspondence from CRA Material Filed and CRA responses regarding requests for exemptions and special status Information detailing application of sanctions to charity Identity of Charity Sanction imposed Grounds for sanction CRA decisions regarding objections to assessment of taxes or penalties
Act Four Income Tax Act Changes Increased information on web site Reasons for registration decisions Policies Procedures Research database Should generally help charities to comply with the law and CRA administrative policies Additional information required in tax receipts
Act Four Income Tax Act Changes Definition of Gifts and Split Receipting New Definition of Charitable Organization and Foundation Change from a contribution test to a control test will help avoid a designation of private foundation where large gifts from a donor received Control test is more complicated (direct or indirect and requirement to be at arms length from directors) and must be considered where a donor donates more than 50% of the capital of a charity
Act Four Income Tax Act Changes Anti Tax Shelter Provisions Attempts by CRA to undermine aggressive tax planning programs which include charitable credits requirement to register certain programs as tax shelters Concern about misuse of tax shelter programs by charities Programs are complicated but essentially boil down to a buy low donate high concept resulting in charitable credits that offset income
Act Four Income Tax Act Changes New deeming provisions Fair market value of property donated deemed to be the lesser of: Fair market value of the property Cost or adjusted cost base of the property if: The property was acquired under a gifting arrangement where it is represented that the tax credits will meet or exceed the cost of acquiring the property If the tax payer acquired the property less than three years before the gift was made If the tax payer acquired the property less than ten years before the gift was made and it can be reasonably concluded that one of the main reasons that the property was acquired was to make the gift
Act Four Income Tax Act Changes Deeming provision does not apply to inventory, real property or immovable property located in Canada, certified cultural property, publicly traded shares and ecological gifts Does not apply to gifts made as the result of the death of a donor and other specific corporate reorganization situations New rules limiting charitable receipting for situations involving limited recourse debt
Act Four Income Tax Act Changes Reasonable Inquiry/Information from Donor Charities issuing receipts for gifts with an eligible amount in excess of $5,000 will be required to make a reasonable inquiry as to the existence of any circumstances in respect of which the new splitreceipting or tax shelter rules might apply to cause the eligible amount to be less than the fair market value of the property donated Failure to make reasonable inquiry will likely result in an incorrect receipt and could trigger an intermediate sanction
Act Four Income Tax Act Changes Charities will be required to ask donors when gifts in kind were acquired Charities should obtain written confirmation from the donor to evidence the date of acquisition If the deeming provisions apply the charity will need to inquire of the donor to determine the amount of the adjusted cost base of the gift Charities may be required to ask the donor whether the donor had an expectation to make a gift when the property was acquired The sanction on the donor for failing to provide the information, whether or not the inquiry is made, is for the eligible amount to be deemed as $0 i.e. no credit Not sure what happens if inquiry made but the donor fails to provide info
Act Four Income Tax Act Changes Expanded Basis for Revocation of a Charity Proposed amendments will permit revocation if a charity makes a disbursement by way of a gift which is not a gift made in the course of charitable activities carried on by the charity, or not a gift to a qualified donee (essentially another registered charity) All gifts must be made in the course of a charity carrying on its charitable activities Must have agreements (agency, joint venture, partnership) or transfer to a qualified donee anything else will risk revocation
Four Acts & A Policy THE END THANK YOU FOR ATTENDING! Questions (As Time Allows)