CRA recently updated several of its webpages relating to charitable donations.
CRA recently updated several of its webpages relating to charitable donations.
CRA recently released a letter which discusses whether a school chaplain employed by a Catholic school board can claim the clergy residence deduction as per section 8(1)(c) of the Income Tax Act (Canada). CRA had the following comments:
There was recent case of R. v. Raza, 2015 BCSC 2512 (CanLII). The three accused were tax preparers who were charged with fraud for allegedly being involved with the issuance of false donation receipts.
Here is an article "Sunny days for charities and political activities? But lack of transparency results in some clouds" which discusses a recent press release from the Minister of National Revenue dealing with the charity political audit program.
Here is an article "Canadian Charities Helping Syrian Refugees". It may be helpful for some charities that wish to get involved in the Syria Crisis.
The Department of Finance has requested pre-budget submission. Here is the Blumbergs' Pre-Budget Submission to the Standing Committee on Finance and the Minister of Finance for the 2016 Federal budget.
Many Canadian charities and donors wish to assist Syrian refugees and those affected by the conflict. CRA has just released guidance to assist donors and charities understand their legal obligations.
Corporations Canada recently released a notice on the public disclosure requirements relating to the corporate information that they collect as part of the services they provide for corporations.
In the recent case of Canada v. Scheuer, 2016 FCA 7 the Federal Court of Appeal sided with CRA. A number of people who had invested in abusive tax shelter arrangements sued CRA because CRA had issued a tax shelter number. The FCA concluded that CRA had no alternative but to issue the tax shelter number and such number does not mean that the tax shelter works. CRA does not have a duty to warn "investors" that a scheme like GLGI is suspect. Although I might add that CRA does warn people not to invest in these schemes. Also the FCA suggested "the plaintiffs acknowledge that they received independent legal opinions, opinions from accountants and valuation appraisals in respect of the tax shelter. The issuers of such opinions, who benefited financially from the provision of their professional advice, are better placed to indemnify the plaintiffs in the event of negligence in the exercise of their professional responsibilities." In other words the FCA is encouraging those who invested in these schemes to sue the lawyers, accountants and valuators who provided opinions and appraisals if they were negligent.
The CRA will be introducing a new reporting requirement for registered charities. It is a short question relating to partnership holdings. A charity should print the page and submit it with the T3010 filing. Next year (2016 fiscal year) the question will be on the T3010 and not dealt with separately. Seems a bit cumbersome that all charities must do this for the 2015 fiscal year when there are probably only a very small number who have partnership holdings. The questions is "Did the charity have direct partnership holdings at any time during the fiscal period? Yes No
Diane Lebouthillier, the new Minister of National Revenue has announced that the 2012 Conservative government initiative to audit more registered charities on the issue of political activities will be wound down. There is a lot in the release and I will be writing more about it shortly.
The Department of Finance has released Legislative Proposals Relating to Income Taxation of Certain Trusts and Estates. There are a number of amendments to the Income Tax Act. The Conservative government had previously provided greater flexibility with bequest donations so that the donation could be made by the individual or the estate. However, there was a deadline of 36 months from the date of death. It has now been extended to 60 months or 5 years.
I will be presenting a webinar for Charity Village on January 28, 2016 on Top 20 Compliance Issues for Canadian Charities.
On Tuesday, April 19, 2016 I will be chairing an OBA program entitled "The Forfeited Property of Dissolved Not-for-Profit Corporations: New Developments in the Law". There will be 3 speakers from the Ontario government discussing upcoming changes.
Here is a brief article on "Which Canadian charities spent the most outside of Canada in 2013?"
Here is a note on "Which are the largest Canadian registered charities by assets - 2013"
At the 2015 APFF conference roundtable, CRA responded to several questions regarding the charitable registration process:
I recently contacted Industry Canada and they advised that as at December 18, 2015 there were 19,997 not-for-profit corporations under Canada Not-for-profit Corporations Act (“CNCA”) . The figure includes new incorporations, continuances from the CCA and continuances from other acts/jurisdictions. The number of continuance have slowed down with less than 50 per month being submitted to Industry Canada. The number of continuances to the CNCA was 12,525 as at December 5, 2015. There are also 3,163 not-for-profit corporations still under the Canada Corporations Act (“CCA”)
The Charity Commission of England and Wales just released a report entitled Campaigning and political issues arising in the run-up to the 2015 General Election. When they put it out they probably did not think that it is such a special report. It explained that in the 2015 UK election there were complaints about UK charities, the Charity Commission investigated and what the result was. Nothing that exciting, except in Canada if the CRA was to prepare a similar report and provide it to either MPs or the public then people at CRA would go to jail.
The Honourable Justice F.J. Pizzitelli of the Tax Court of Canada dealt with a motion in V. Ross Morrison v. The Queen. The court dismissed the motion with costs. The cases deals with the Canadian Humanitarian Trust (“CHT”) and Canadian Gift Initiative (“CGI”) which CRA would describe as abusive charity gifting tax schemes. Mr. Morrison had wanted that the CRA to "disclose or produce for inspection the names and municipal and/or email addresses of all persons who have filed Objections to the Reassessments in the CHT and CGI Donation Programs and whose Objections have not been resolved (the “Outstanding Objectors”);" The court noted "I do not agree with any of the Appellant’s arguments. The Appellant has neither provided nor argued any legal precedent that supports his position on any of these issues. There is ample precedent against."
The CRA has been focusing in on charities that have not been active for a number of consecutive years. They have been sending out letters to the various charities asking them if they want to voluntarily give up their charitable status, or explain the reason for inactivity, or CRA may take compliance action. CRA is presumably concerned with inactive charities as they clog up the system and also may be targets for charity scammers to take over and use inappropriately.
In R. v. Kueviakoe, 2015 ONCJ 681 (CanLII) Ekue Kueviakoe was charged with numerous offences contrary to the Income Tax Act (Canada) because he prepared many false income tax returns. He was fined at a rate of 100% of the tax avoided on all those income tax returns and sentenced to a one year conditional sentence ie. house arrest. He will have to pay over $70,000 in fines. The Judge took into account a myriad of factors in determining the sentence including sick members of his family, his loss of a stable job resulting from the fraud etc. The Judge noted that in terms of the taxpayers "The Canada Revenue Agency reassessed each of those people such that they are responsible for paying their portion of those taxes. The Canada Revenue Agency has therefore already been reimbursed. The individual taxpayers might also have been assessed administrative penalties for their part in this."
As we know the Federal government is creating a new higher top marginal tax rate for those earning income over $200,000 and increasing the tax on that income from 29% to 33%. From a tax policy perspective this will increase the progressivity of the income tax system in Canada. The Federal government is also increasing the tax credit for donors that are in the 33% marginal tax bracket so that instead of the 29% tax incentive they will receive a 33% Federal tax incentive. So for people earning over $200,000 in 2016 this will mean a greater tax incentive for certain donations that offset their income over $200,000. The increased incentive will only take effect on January 1, 2016.
There has been a large amount of scrutiny of fundraising practices in the UK over the last number of years and especially the last few months. The Charity Commission of England and Wales has published new draft guidance "which states more clearly than ever that trustees must take responsibility for the fundraising undertaken by their charities."
The Toronto Star had an article of December 5, 2015 entitled "Cancer foundation co-founder misused donor cash, judge finds". It sheds some light on how a co-founder of a Canadian registered charity, Steven Sokolowski, has been ordered to repay to the charity a large amount of money for "private parties, pricey wine and payments to girlfriends." The article is worth reading. It highlights the importance of having good governance and adequate internal controls in a charity.
Do you require legal advice with respect to Canadian or Ontario non-profits or charities?
Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.