David Stevens, Partner - Gowlings LLP
Prof. Adam Parachin, Western University
Derek Ross, Director of Legal Affairs - Canadian
Council of Christian Charities
Chair: Lucinda E. Main, Associate - Heenan Blaikie LLP
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Non-Profit Organization – New CRA Positions
and CRA Risk Identification Project
2
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations

Paragraph 149(1)(l) ITA provides a tax
exemption for a person that is:
Toronto Young Practitioners Group
3
Charities and
Not-For-Profit Organizations



4
Limited case law and limited guidance from
CRA on scope and meaning of provision
IT-496R Non-profit Organizations (August 2,
2001) paragraphs 7 and 8 considered to be
accurate (if conservative) guidance
In 2009, CRA began to issue technicals that
were considerably more narrow on the
permissibility of profits
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations

CRA Doc No. 2009-0337311E5:
Toronto Young Practitioners Group
5
Charities and
Not-For-Profit Organizations


6
CRA Doc. No 2010-038058117 provides a
codification of its recent technicals and
concludes with this formulation:
Main preoccupation of many of the technicals
was condominium corporations, and other
mutual benefits
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations



CRA also commenced a `Risk Identification
Project`in 2009 to audit over 1400 NPOs in
three years to evaluate what is happening in
the NPO sector
Many audits ended in education letters
requiring the audited NPO to modify its
activities
CRA issued guidance on 27 August 2012 on
status of project:
Toronto Young Practitioners Group
7
Charities and
Not-For-Profit Organizations

8
`third and final year of research project
related to tax compliance in NP sector … ITA
contains rules that govern how NPOs may
operate … level playing field … some NPOs
have received an education letter as part of
CRA`s research project to help raise
awareness of the rules governing the tax
exemption … learn more about NPOs by ...`
connecting to a link to a new web page on
NPOs
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Review of changes for charities and
Not-For-Profit Organizations in the 2012
Budget
Toronto Young Practitioners Group
9
Charities and
Not-For-Profit Organizations


10
Foreign charitable organizations now qualify
as qualified donees if they receive gift from
government of Canada
Proposed rule would give authority to MNR,
after consultation with MofF, to recognize
foreign charities engaged in disaster relief,
urgent humanitarian aid or the national
interest of Canada; status would last for 24
months; applicable post January 1, 2013
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations


Current rules permit non-partisan political
activity that is ancillary and incidental and
does not use more than 10% of resources
Proposed rules:
◦ Intermediate sanction - suspension of receipting
privileges for one year - where charity exceeds
limitations on political activities or provides
inaccurate or incomplete info
◦ Gifts to other charities that are ear-marked for
political activity considered to be political
expenditure of donor charity
11
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
◦ CRA to receive additional $8 million to fund
increased enforcement
◦ More information on political activities to be
required in T3010, including, amounts received
from outside Canada to fund political activity,
amounts expended on political activity, amount of
ear-marked grants, and description of political
activities
12
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations

Proposal to tighten rules on charitable
donation tax shelters:
 increase penalties to unregistered promoters to
greater of the amount calculated under current rules
and 25% of purported charitable gift
 Higher penalties for failure of tax shelter promoters to
comply with current transparency requirements from
current maximum of $2500 to 25% of greater of
consideration received by promoter or of purported
charitable gift
 Tax shelter registration numbers valid for only one
year
13
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Review of changes for charities and
Not-For-Profit Organizations in the 2012
Notice of Ways and Means Motion to amend
the Income Tax Act (Technical Bill)
14
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations

15
New definitions of `charitable
organization`,`public foundation`, and
`private foundation` - first introduced in
2000 and generally used and applied by CRA
since at least July 2007 – to focus on NAL
fiduciaries (more than 50% required ) and de
facto control by more than 50% donor
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Sheldon Inwentash and Lynn Factor Charitable
Organization v. The Queen
16
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations


17
Issue – whether registered charity established
as a trust with one corporate trustee properly
designated as a `public foundation`; SI and
spouse and related corporations had donated
all of the Foundation`s property
Held - more than 50% NAL requirement is
clear language that Parliament intended that
there be more than one fiduciary of a public
foundation
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Review of recent Canada Revenue Agency
technicals
18
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations




19
2010 – 0375811E5 – Feb 22, 2011 – split
receipting rules and naming rights
2010 – 0380811E5 – Nov 2010 – gift by
Canco to US charity
2010 – 0370841E5 – Sept 24, 2010 `designated gift`
2011 – 0394671R3 – 2011 - charitable
donation of listed shares
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations


20
2012 – 0441151E5 – May 24, 2012 –
donation of flow-through shares – 40(12) and
cda
2012 – 0432601E5 – gifting life insurance to
charity
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
New federal and provincial corporate acts
dealing with Not-For-Profit Organizations
21
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations

CNCA in force October 17, 2011
◦ Three years to October 17, 2014 to continue

ONCA Royal assent October 25, 2010; in
force possibly July 2013
◦ No draft regulations as yet
22
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations

CNCA
Incorporation as of right
`solicitìng corporation`
Member democracy
Class vote for all members, voting and non-voting,
on fundamental changes
◦ No ex officio directors
◦ Rules distributed between articles and by-laws
◦ Articles of continuance required
◦
◦
◦
◦
Toronto Young Practitioners Group
23
Charities and
Not-For-Profit Organizations

ONCA
◦ Similar to CNCA
◦ Continuance is automatic; governing documents
deemed amended as required after three years
24
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Income Tax Recognition of Charitable “Gifts”
Toronto Young Practitioners Group
25
Charities and
Not-For-Profit Organizations
Features of Tax Code
Recognizing Charitable Giving
(1)
(2)
(3)
26
Eligible Donees

ITA relies upon common law concept of “charity”
Form



of Recognition
2 stage credit for donations by individuals (s. 118.1)
deduction for donations by corporations (s. 110.1)
targeted capital gains tax exemption for ecological
property and listed securities (para 38(a.1)/(a.2)
Eligible Contributions

What contributions qualify for donation incentives?
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Qualifying Contributions

must be a “gift”

BUT: ITA does not statutorily define “gift”

see A. Parachin, “Reforming the Meaning
of ‘Charitable Gift’: The Case for an
Alternative to Split Receipting” (2009) 57:4
Canadian Tax Journal, 787-838
Toronto Young Practitioners Group
27
Charities and
Not-For-Profit Organizations
Starting With the Obvious…

Tax concessions for charitable gifts require actual (as opposed to
notional) transfers
[The ITA] does not provide that a taxpayer may have a
deduction up to 10% of his income merely by claiming it; he
first must actually have paid out that percentage.
Tax A.B.C. 179 (T.A.B.)
28
Toronto Young Practitioners Group
Kulik v. M.N.R. (1964) 36
Charities and
Not-For-Profit Organizations
Poor Statutory Design?

Not defining “gift” has proven a poor statutory design:
“The meaning of the term ‘gift’ as applied to particular
transfers has always been a matter of contention.” Commissioner of
Internal Revenue v. Duberstein, 363 US 278 (1960):
*
*
*
Meaning of gift is “in flux” and “requires clarification” to
remedy “ambiguity”. R. v. Bromley, [2004] 3 CTC 58:
*
*
The meaning of gift as “quite clear”.
29
*
Webb v. R. [2005] 3 CTC 2068 (TCC)
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations



30
Further, “gift” is a uniquely problematic term b/c it has a
distinctive common law meaning
At common law gift means a voluntary transfer of property
for no consideration
common law approach to defining gift driven by concerns
lacking tax policy significance
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Tax Policy Behind Donation Incentives

Extensive body of literature debating tax policy behind donation incentives

Two competing schools of thought:
(1) Tax Base Theory

Charitable donations are not “income” b/c they are neither
savings nor consumption

 charitable donations outside of normative tax base
(2) Subsidy Theory

recognition of charitable donations is a tax expenditure

Goal is not to accurately measure taxable income but to
incentivize charitable giving
31
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations



32
Subsidy view is more widely accepted than tax base view

Could both theories have merit?
Subsidy view suggests we should ultimately only care about one
thing:

Does a donation economically equip the donee to perform
charitable works in some quantifiable way?
Authorities have, however, fixated on considerations lacking any
obvious policy relevance owing to adoption of common law
conception of gift
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Qualifying Contributions


Innumerable authorities have established
that “gift” has its common law meaning for
ITA purposes
i.e., voluntary transfer of property for no
consideration
Toronto Young Practitioners Group
33
Charities and
Not-For-Profit Organizations
Donated Services ≠ Gifts:




“property” criterion means donations of services go unrecognized
Subsidy view of donation incentives allows for recognition of
services
Numerous authorities have concluded donated services do not
qualify
Justifiable due to:
(1) Valuation Concerns
(2) Economizing Tax Expenditure
34
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Significance of No Consideration Criterion
Consideration Vitiates Gift:

Many cases / CRA publications have concluded that the presence of
consideration precludes a donation from qualifying as a “gift”
“[I]t is not possible to make a ‘gift’ if some valuable consideration such
as goods or services is received in return.” (Tite v. M.N.R. [1986] 2
C.T.C. 2343 (TCC))
35
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Consideration Vitiates Gift:

Transplanting C.L. meaning of gift into ITA has meant that
many gift like transactions with charities have gone
unrecognized for tax purposes

e.g., sales to charities for less than FMV donation in
exchange for consideration from 3rd party other dual
character transactions
36
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Consideration Vitiates Gift:

No consideration criterion is ubiquitous in the gift jurisprudence

It is not just one among many criteria that must be satisfied

No consideration criterion is also behind other gift criteria:


37
Donor Intent
Voluntariness
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Donor Intent

donor intent means that property cannot transfer by way of gift except where a
donor intended to transfer property

Did the donor intend to transfer title or something less?

e.g., bailment versus gift

Tax authorities have linked donor intent with no consideration criterion:

Must have intended transfer by way of gift, i.e., for nothing in return

“liberal intent”

“detached and disinterested generosity”
38
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations

Donor intent has  therefore been approached as sometimes requiring two
things:
1.
2.

Intent to transfer title to donee
Donative intent, i.e., intent to be deprived without benefit in return
McPherson v. R. [2007] 2 CTC 2277 (TCC) @ para. 20:
There is an element of impoverishment which must be present for a transaction to be
characterized as a gift. Whether this is expressed as an animus donandi, a charitable
intent or an absence of consideration the core element remains the same.
39
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations

When will benefits / consideration vitiate donative
intent?

Tax credits are not benefits capable of undermining
donative intent
(e.g., Friedberg v R. 92 DTC 6031 FCA)

40
Benefits / consideration will undermine donative
intent if received directly from charitable donee or
from a 3rd party
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations

donative intent, as applied by tax authorities, teeters toward a motive
requirement, though courts have repeatedly rejected a motive test
A charitable frame of mind is not a prerequisite to getting a charitable gift tax credit.
People make charitable gifts for many reasons: tax, business, vanity, religion, social
pressure. No motive vitiates the tax consequences of a charitable gift. (Klotz v. The Queen 2004
TCC 147 at para 25)

Donative intent has been held absent where donor gave in anticipation of
receiving a benefit in return (directly from charity or via third party)
Toronto Young Practitioners Group
41
Charities and
Not-For-Profit Organizations
Maréchaux v. The Queen (2010) FCA 287
Facts:
leveraged gift arrangement

donor gave $30,000 as part of promoted gift structure

donor anticipated benefiting by what in economic substance amounted to an
additional $70,000 donated in his name by a 3rd party at no cost to him

no guarantee that the “top up” would in reality be cost free to donor but this is
what did indeed occur
Holding:

no gift recognized
“Once it is determined that the appellant anticipated to receive, and did
receive, a benefit in return for the Donation, there is no gift.” (para 42 of trial

decision, 2009 DTC 2095 (TCC))
42
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Reflections:

arguably wrong to not recognize any amount of the
donation

arguably incorrect that donor received a “benefit”
capable of vitiating gift

benefit received by the donor was in substance the
tax benefit of having donation topped up from
$30,000 to $100,000

innumerable authorities establish that tax benefit is
not capable of vitiating a donation as a gift
43
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Berg v. The Queen (2012) TCC 406
Facts:



Buy-low, donate-high arrangement involving time share units
Transactions had several artificial steps designed to support an artificially high
valuation of the donated time share units
Crt found as a fact that donor’s motive was to produce a positive cash flow
through inflated valuation
Held:


44
Gift is recognized at FMV valuation reflecting the donor’s cost of the time share
units
Donative intent not vitiated b/c the anticipated benefit merely took the form of
tax credits resulting from an inflated donation receipt
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Voluntariness Criterion

Donation must be “voluntary” in order to qualify as a gift for
purposes of ITA

Donation will fail to meet this requirement if it is:
(1) Made further to a legal obligation; or
(2) Made further to a moral obligation.
Toronto Young Practitioners Group
45
Charities and
Not-For-Profit Organizations

But we know that “voluntariness” is not viewed as intrinsically important

Many involuntary donations are upheld as gifts:
46
◦
e.g., donations in fulfillment of enforceable pledges
◦
e.g., payment made by guarantor of a debt owed by a charity
◦
e.g., moral obligation to “tithe” to church does not vitiate gift
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations

Voluntariness is primarily a way to test for
consideration

Transfers for consideration are enforceable under
contract law

47
 transfers for consideration are involuntary and
thus not gifts
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations

Donations pursuant to moral obligations vitiate gift only where there is a
disguised quid pro quo

e.g., school provides educational services and parents make “gifts”
acccording to their means and conscience

Since this is simply a disguised (unenforceable) fee for service,
authorities concluded it is not a gift
48
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Ad Hoc Exceptions to No Consideration Rule

Not all authorities have agreed that consideration
automatically vitiates gift

Several exceptions exist (some acknowledged,
some not acknowledged)
Toronto Young Practitioners Group
49
Charities and
Not-For-Profit Organizations

The following transfers for consideration have qualified as charitable gifts:







50
Consideration of nominal value (lesser of $50 and 10% of donated
property)
Purchase of tickets for dinners, balls, concerts, shows and like events
Payment for religious education
Purchase of annuity from a charity
Sale of property to charity for less than FMV
Payment to charity in excess of FMV of property / services received
Donations in exchange for “naming privileges”

“I know it says in the Bible it is better to give, but I still enjoy
having my name on the building.” (Gerald Ratner)

“…he was purchasing a monument to himself.”
Toronto Young Practitioners Group
(John Colombo)
Charities and
Not-For-Profit Organizations

No convincing explanation has ever been offered for why these (and only these)
exceptions exist

e.g., naming privileges have no value

Really?

e.g., religious education is not consideration

Why not?
51
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Permissible Legal Forms for Gifts
Why does it mean to say that gift has its private law meaning under the ITA?

Does this mean that only those transactions in the legal form of common
law gifts qualify?

Does this mean that any transaction for no consideration – regardless of
legal form – qualify?

Authorities have never categorically concluded that only transactions in
the legal form of common law gifts qualify

BUT → authorities portray common law gifts as the idealized norm
52
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Charities as Beneficiaries of Express Trusts:

CRA’s administrative practices regarding these donation arrangements
are at an early stage of development

Who is the “donor” where a charity is given a beneficial interest in an
express trust?

The settlor of the trust at time of settlement?

The trust of the trust at the time of distribution to the charity?
Toronto Young Practitioners Group
53
Charities and
Not-For-Profit Organizations
Charities as Beneficiaries of Express Trusts:

Settlor is donor is the charity’s beneficial interest is susceptible to valuation at
time trust is settled


54
e.g., fixed income entitlement (no capital interest) for A for life followed
by vested remainder for charity
Trust not the donor here b/c trustees are duty bound to effect the capital
distribution to the charity (i.e., it is not voluntary)
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Charities as Beneficiaries of Express Trusts:
But sometimes neither the settlor nor the trust qualify as the donor

◦
e.g., fixed income entitlement to A for life with power of encroachment in favour of A
followed by remainder to charity

No gift by settlor b/c charity’s beneficial interest no susceptible to valuation at
time trust is settled

No gift by trust b/c trustees are duty bound to effect the capital distribution to the
charity (i.e., it is not voluntary)
55
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Charities as Beneficiaries of Express Trusts:

CRA concludes creation of income interest in favour of charity is not a gift by
settlor


CRA concludes transfer of additional capital to trust in which charity is
indefeasibly vested as to capital is not a gift by settlor

56
b/c future income of trust is not property of the settlor at the time of
settlement
b/c no additional property has been transferred to the charity
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Split-Receipting




“Split-Receipting” ≠ Def’n of gift
248(30): consideration does not “in and by itself” disqualify
a donation as a “gift”
248(31): “Eligible amount” of a gift = FMV of donated
property less the “amount of the advantage”
248(32): “amount of the advantage: = value of all benefits
received in connection with donation
Toronto Young Practitioners Group
57
Charities and
Not-For-Profit Organizations

split-receipting rules were released in December 2002 have not
yet been enacted

CRA is nevertheless applying the draft rules

Edwards v. The Queen 2012 TCC 264:


58
taxpayer sought adjournment until split-receipting rules
enacted
adjournment denied
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations

Expectations of Split-Receipting:
1. Economic substance would now prevail over legal
form
2. Common law meaning of gift would fade in
importance:
(a) C.L. gift would now represent but one example of
gift transaction
(b) Gift indicia previously used to restrict gift to C.L.
meaning would be abandoned
59
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations


C.L. understanding of gift continues to have undue
influence
In fairness, CRA has acknowledged that other transaction
types may now qualify:
“[A] sale of property for partial consideration can qualify
as a gift.” (2007-0227171R3)

60
Continuing influence of C.L. is subtle
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations

Consider following position of CRA:
(2003-0036585)
In general, a ‘gift’ for purposes of the Income Tax Act (“the Act”)
means a voluntary transfer of property without valuable consideration
to the donor.
Proposed amendments to the Act will allow the Canada Revenue
Agency to recognize a gift, for tax purposes, in certain circumstances
where a donor has received consideration… (Emphasis added.)
Toronto Young Practitioners Group
61
Charities and
Not-For-Profit Organizations

Implications of CRA’s position:
1.
“Gift” first and foremost still has its common law meaning
→ “means” versus “includes”
2.
Split-receipting is arguably the exception not the new rule
3.
Incoherence remains


62
old gift criteria still enforced
e.g., voluntariness, donor / liberal intent
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Technical News No. 26:




63
Purchase of lottery tickets does not qualify as a gift
Such purchase is “primarily motivated by the chance to win
the significant prizes that are offered”
But opportunity to win a “hole in one” prize at charity golf
tournament is not a benefit to the donor
Isn’t the essential question just: Did the “donor” contribute
more than what he or she took back, either as chance to
win lottery or chance to win hole in one prize?
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Alternative Solution

All reference to charitable “gifts” in the ITA should be changed to references to
“charitable donations”

Proposed subs. 248(30) should be abandoned in favour of the following:
“Charitable donation” means any transfer of property to or for the benefit of a
qualified donee, whether by way of common law gift, trust, sale or any other form of
transaction, in respect of which there is an eligible amount.”
64
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Third Party Penalties and Abusive Donation Schemes
S. 163.2:

provides for monetary penalties assessable against third parties

applicable where a person knowingly, or in circumstances amounting to
gross negligence, participate in, promote, or assist conduct that results in
another taxpayer making a false statement or omission in a tax return.

Recently considered in Guindon v. The Queen (2012) TCC 287
65
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Guindon v. The Queen (2012) TCC 287
Facts:








66
Buy-low, donate-high arrangement involving time share units
Appellant signed legal opinion supporting the arrangement
Appellant lacked expertise in tax law and failed to read all relevant
documentation
Appellant was also President of charity participating in the donation arrangement
Appellant signed 135 donation receipts under the arrangement but did not
independently confirm that property transfers occurred
Appellant also participated as a donor in the arrangement
No time share units were ever actually transferred to the charity
CRA assessed approximately $550,000 in penalties against appellant under
163.2
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Issue:
Are the penalties of a civil or criminal nature?
◦
if the latter, penalties must be prosecuted in provincial court in accordance with
criminal procedure and Charter rights and standard of proof = beyond a reasonable
doubt
Toronto Young Practitioners Group
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Charities and
Not-For-Profit Organizations
Holding:

If penalties are civil, then they were properly assessed

BUT: penalties are criminal in nature and must therefore be prosecuted in
provincial court

TCC attached weight to the breadth of s. 163.2:



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Not expressly subject to a time limit
penalties could be of enormous magnitude
163.2 does not require that a false statement actually be relied upon; sufficient if it “could” be
relied upon
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Reflections:

Guindon reflects a case where broad drafting has
come back to haunt Parliament

Guindon poses a major hurdle to policing abusive
donation arrangements through penalties under
163.2

Appeal is pending
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Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
CRA Guidance:
Fundraising by Registered Charities


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Guidance CG-013 released on April 20, 2012
Purposes are to outline:
◦ the legal principles that relate to fundraising
issues that are connected to federal (CRA)
regulation of charities registered under
the Income Tax Act
◦ the policies and practices the CRA uses when it
assesses fundraising in applications for
registration or in audits of existing registered
charities
◦ how fundraising expenditures should be
allocated for the purposes of completing T3010
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations


Fundraising is the “solicitation of present or
future donations of cash or gifts of any kind,
whether the solicitation is explicit or implied.”
Fundraising is not a charitable activity and does
not advance a charitable purpose
◦ may not be the main or prevailing purpose of a
registered charity
◦ may only be used to assist in achieving broader
charitable purposes
◦ should have an identifiable use or need
Toronto Young Practitioners Group
71
Charities and
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
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Fundraising must not:
◦ be a purpose of the charity in and of
itself (i.e., where fundraising is more
than “ancillary and incidental”, and is a
focus of the organization)
◦ deliver a more than incidental private
benefit (i.e., to a person that is not a
charitable beneficiary, or that exceeds
the bounds of charity)
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations

Fundraising must not:
◦ be illegal or contrary to public policy
(including fundraising where associated
costs are not “reasonable, justifiable, or
proportionate to the amount of money
raised for charitable purposes”)
◦ be deceptive fundraising
◦ be an unrelated business
Toronto Young Practitioners Group
73
Charities and
Not-For-Profit Organizations



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All expenses related to fundraising activities
are reportable on Form T3010
Some activities may contain both fundraising
and other components (i.e., charitable,
management/administrative, or political
content)
Guidance specifies how these expenditures
should be allocated
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations


A fundraising ratio is used by CRA and the
general public to assess each charity’s annual
fundraising performance
To calculate the ratio:
◦ add the revenue amounts from lines 4500
(receipted donations) and 4630 (fundraising
revenue not reported in 4500); and,
◦ divide the total expenditure amount on line 5020
(fundraising expenses) by the sum of lines 4500
and 4630.
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Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Fundraising ratio:
 Under 35% = unlikely to generate concerns
 35% and above = CRA will compare recent
years. The higher the ratio, the more likely
will be concerns
 Above 70% = rarely acceptable and will
raise concerns
 However, evaluation grid is only one factor
CRA will consider in assessing fundraising
 Guidance contains list of best practices for
managing fundraising
76
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Community Economic Development Activities and
Charitable Registration



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New CRA Guidance CF-014 released on July 26, 2012:
http://www.cra-arc.gc.ca/chrtsgvng/chrts/plcy/cgd/cmtycnmcdvpmt-eng.html
CED activities: those that “improve economic
opportunities and social conditions of an identified
community”
Not charitable in and of themselves, but can be
charitable when they further a charitable purpose
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations

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CED activities further charitable purposes that
◦ Relieve poverty – beneficiaries must be poor
◦ Advance education – e.g. beneficiaries are
individuals with conditions associated with
disability
◦ Benefit the community in other ways the law
regards as charitable – e.g. beneficiaries who
are unemployed or facing real prospect of
imminent unemployment and are shown to
need assistance
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations


Guidance sets out examples of acceptable
CED activities for charities
Generally fall into five areas:
◦ Activities that relieve unemployment
◦ Grants and loans
◦ Program-related investments
◦ Social businesses for individuals with
disabilities
◦ Community land trusts
Toronto Young Practitioners Group
79
Charities and
Not-For-Profit Organizations
New CRA Guidance
“Consequences of returning donated property”
2011
Budget introduced rules requiring charities to
file an information return to CRA when they return
donated property
Applies to property returned after March 21, 2011
with an FMV greater than $50
“Information return” is not a specific form, but
simply a letter that must include specified
information, as set out in Guidance CG-016
Does not change the general rule that charity cannot
legally return a gift (though there are limited
exceptions to this rule)
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Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Ineligible Individuals
Concept introduced in 2011 Federal Budget,
now implemented in s. 149.1(1) of the ITA
If an “ineligible individual” controls or
manages a charity directly or indirectly in any
manner whatsoever, or is a director, trustee,
officer, or like official, CRA may suspend
receipting privileges or revoke registration


Toronto Young Practitioners Group
81
Charities and
Not-For-Profit Organizations
Who is an Ineligible Individual?
Has been convicted of a “relevant criminal
offence”
1.
What is relevant? Financial dishonesty (tax evasion,
theft, fraud, breaches of public trust) or any other
criminal offence that is relevant to the operation of the
organization
◦
2.
◦
◦
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Has been convicted of a “relevant offence” in
past 5 years
A central consideration will be whether the offence is
one which, if repeated, could inflict harm on
the organization or its beneficiaries
Examples include non-criminal financial dishonesty
(charitable fundraising, consumer protection,
securities legislation)
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
3.
4.
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Promoter of a tax shelter for which a charity
was revoked (in past 5 years)
A director, trustee, officer or like official, or an
“individual who controlled or managed, directly
or indirectly” a charity or RCAAA during a
period in which the organization engaged in
“conduct that can reasonably be considered to
have constituted a serious breach of the
requirements for registration under [the ITA]”
and for which the registration was revoked in
the past five years
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations


“Relevant criminal offences” and “relevant
offences” not required to have been
committed in Canada
Charities should consider examining
individuals already in their positions
◦ No exceptions for those already in place


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Invest more time in recruiting suitable
individuals for directors, trustees, senior staff
CRA will be issuing guidance on ineligible
individuals
Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations


CRA has indicated that it will first explain its
concerns to the organization and charity will
be given an opportunity to address them (i.e.
remove the individual or explain why it is
appropriate for the individual to continue to
act)
If a charity fails to address the CRA's
concerns, sanctions may be applied up to and
including revocation of registered status
◦ See CRA Q&A factsheet, online: http://www.craarc.gc.ca/gncy/bdgt/2011/qa22-eng.html#_Toc288651106
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Toronto Young Practitioners Group
Charities and
Not-For-Profit Organizations
Afovia et al. v. The Queen
Is
2011-1676(IT)I (Tax Court of Canada, November 8, 2012)
it mandatory for a charitable receipt to
contain all of the information listed s. 3501(1)
of the ITA Regulations? Yes.
Receipt issued by charity was missing a serial
number, the name of the Canada Revenue
Agency and the address of its website, but
contained the other prescribed information
Court held that it was imperative to report all
information listed in s. 3501
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Toronto Young Practitioners Group
Charities and
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Because
the receipts did not meet the
requirements of the ITA, the five taxpayers
were not allowed to claim a tax credit for their
donation
However, the court also found that taxpayers
were unable to prove they had even made the
gifts in question
Court would have dismissed the taxpayers’
appeal on the inadequate receipts alone
Toronto Young Practitioners Group
87
Charities and
Not-For-Profit Organizations
Bill C-458 (“National Charities Week Act”)
Private
member’s bill introduced by MP Peter
Braid on October 31, 2012
Bill proposes to extend tax deadline for
charitable donations to end of February
Also proposes to establish the last week of
February to be “National Charities Week”
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Toronto Young Practitioners Group