CANADIAN LEGAL
CONFERENCE 2012
CHARITIES, NOT-FOR-PROFIT
ORGANIZATIONS AND SOCIAL
ENTERPRISE
SOME ISSUES TO CONSIDER
C. Yvonne Chenier, Q.C.
[email protected]
GENERAL
Is the social enterprise:
1. A for profit organization?
Regular Income Tax rules apply
2. A not-for-profit organization?
Special Income Tax Act sections apply
3. A registered charity?
Special Income Tax Act provisions apply
C. Yvonne Chenier, Q.C.
[email protected]
NOT-FOR-PROFIT (NFP)
ORGANIZATION
subsection 149(1)(l) of the Income Tax Act
a) It is not a charity,
b) It is organized exclusively for social welfare,
civic improvement, pleasure, recreation or
any other purpose except profit,
c) It is in fact operated exclusively for the same
purpose for which it was organized or for any
other purpose in (b), and
d) It doesn’t distribute income to members.
C. Yvonne Chenier, Q.C.
[email protected]
NFP SOCIAL ENTERPRISE
CAUTION
• If the social enterprise is structured such
that the activities can be described as
follows, then may not be tax exempt under
s. 149(1)(l):
– Intentionally making profit from activities with
non- members
– Making income payable or otherwise available
to the personal benefit of members
– Earning profits from business lines
C. Yvonne Chenier, Q.C.
[email protected]
A REGISTERED CHARITY
• CRA’s Guide CG 014 “Community
Economic Development Activities and
Charitable Registration”
• CRA’s policy statement CPS-019 “What is
a Related Business?”
C. Yvonne Chenier, Q.C.
[email protected]
REGISTERED CHARITY
SOCIAL ENTERPRISE
CAUTION
• Charitable organizations, public
foundations and private foundations are
prohibited from carrying on any unrelated
business
• Charitable organizations and public
foundations can carry on related business
C. Yvonne Chenier, Q.C.
[email protected]
Is the social enterprise of a
charity a business?
Q: Is the social enterprise commercial?
Q: Does the charity intend to profit from the social enterprise?
• If no to either question: the social enterprise is not a business.
If yes to both questions:
Q: Is the social enterprise simply the sale of donated goods?
• If yes: the social enterprise is not a business.
If no:
Q: Is the social enterprise carried out on a systematic, regular basis?
• If no: the social enterprise is not the carrying on of a business.
If yes: the social enterprise is the carrying on of a business.
C. Yvonne Chenier, Q.C.
[email protected]
Is the social enterprise of a
charity an unrelated business?
Q: Is the social enterprise of a charity an unrelated business?
Q: Are substantially all the people running the social enterprise
volunteers?
• If yes: the charity is carrying on a related business.
If no:
Q: Is the social enterprise linked to the charity's purpose?
• If no: the charity is carrying on an unrelated business.
If yes:
Q: Are the business activities subordinate to a dominant charitable
purpose?
• If no: the charity is carrying on an unrelated business.
If yes: the charity is carrying on a related business.
C. Yvonne Chenier, Q.C.
[email protected]
OTHER CONSIDERATIONS:
•
•
•
•
Governance documents/legislation
Fundraising legislation
Disbursement quota requirements
Private foundations cannot engage in any
business activities and are subject to
excess corporate holding rules requiring
public disclosure over 2% and divestment
over 20%
C. Yvonne Chenier, Q.C.
[email protected]
Social Enterprise using
Intermediary Entities
• Financial Separation
• Separate boards (not controlled by board of
non-charity)
• Distinctive names
• Separate equipment, personnel and space
• Legal agreements between entities
C. Yvonne Chenier, Q.C.
[email protected]