April 14, 2012

Green Living Show panel on budget, the environment and charities

I was on a panel today at the Green Living Show.  There was an interesting discussion on the environment, political activities, and charities.

http://www.greenlivingonline.com/torontoshow/mainstage.html

6:30 P.M. – 7:30 P.M.

The Federal Budget Blueprint: What’s Really at Stake
Panel Discussion & Private Reception

The Conservatives’ proposed budget aims to ease environmental hurdles to speed up the construction of Canadian oil pipelines, eliminates the National Round Table on the Environment and Economy altogether and limits the role of charities with regard to advocacy and participation in the public policy process.

Join this panel of leading experts, including a lawyer, economist and environmental stakeholders as they explore important questions including:
Is the federal government overstepping its power?
Are constitutional law issues around freedom of speech being labeled as partisan?
What are the legitimate economic concerns and how do they stack up against environmental costs?

Please join us for this discussion followed by a private reception where there will be an opportunity to speak with like-minded friends and, learn how you can help support our response to this critical situation. Space is limited so get your tickets now.

MODERATOR: Andrew Heintzman, Co-founder of Investeco, author of The New Entrepreneurs, Director of Sustainable Prosperity… more»

Andrew Heintzman is a co-founder of Investeco. Andrew is also the Chair of the Premier’s Climate Change Advisory Panel for the Province of Ontario. He sits on a number of corporate boards, including Lotek Wireless, Triton Logging and Horizon Distributors. In addition, he is on the board of directors of the Tides Canada Foundation, and the Steering Committee of Sustainable Prosperity. Andrew is the author of The New Entrepreneurs, and was co-editor of Fueling the Future: How the Battle Over Energy is Changing Everything, Feeding the Future: From Fat to Famine, and Food and Fuel: Solutions for the Future, all published by the House of Anansi Press. Before Investeco, Andrew was a co-founder and publisher of Shift Magazine.

PANELLISTS:
Dr. Matthew Turner, Economist, Professor in the Department of Economics at the University of Toronto… more »

Matthew Turner is a Professor in the Department of Economics at the University of Toronto. His current research focuses on the economics of land use and transportation and he is broadly interested in understanding the economics of environmental regulation. He holds a bachelors degree from the University of California, a Ph. D. in economics from Brown University, has held post-doctoral fellowships at the Woods Hole Oceanographic Institution and the Hoover Institution, and is an associate editor at the Journal of Urban Economics, the Journal of Economic Geography and Regional Science and Urban Economics. His research appears in the American Economic Review, the Journal of Political Economy, the Quarterly Journal of Economics, the Review of Economic Studies, and is regularly featured in the popular press.

Stephen Hazell, Environmental Lawyer and the founder of Ecovision Law… more »
Stephen Hazell is an environmental lawyer and the founder of Ecovision Law. His experience is unique in that he has held senior management positions in four national environmental organizations, a federal government agency, and a leading Ottawa-based consulting firm. Stephen also served as legal counsel to these organizations, other than the federal government. Stephen also teaches environmental assessment law at University of Ottawa law school.  Stephen served as executive director of Sierra Club Canada where he launched key campaigns to obtain a timeout in expansion of the tar sands oil industry and ensure that Canada meets its international climate change obligations. Stephen co-chaired a joint industry-environmental group initiative that successfully brought provincial and federal governments together to produce a Canada-wide regulatory framework to reduce smog emissions. He also led a successful campaign to ensure that the $16 billion Mackenzie Gas Project is not built until it is demonstrably sustainable.  In the mid-1990s, Stephen led the team at the Canadian Environmental Assessment Agency that developed the regulations for the implementation of the Canadian Environmental Assessment Act. In other leadership roles with the Canadian Parks and Wilderness Society, Canadian Arctic Resources Committee and Canadian Wildlife Federation, he initiated successful campaigns to expand Nahanni National Park Reserve, and create the Mealy Mountains National Park and Lake Superior National Marine Conservation Area. He led successful interventions against environmentally harmful development projects, including the the Great Whale hydroelectric project in northern Quebec, the Kiggavik uranium mine near Baker Lake Northwest Territories, and the White’s Point basalt quarry and marine terminal near Digby Nova Scotia.  He initiated pivotal, precedent-setting law suits against the proposed Rafferty-Alameda dams in southern Saskatchewan and the proposed Cheviot open-pit coal mine near Jasper Alberta.  In the late 1980s, he led a coalition of 40 Canadian environmental and indigenous organizations that developed Greenprint for Canada, a comprehensive set of environmental policy and program recommendations which directly led to the Mulroney government’s $3 billion Green Plan. He initiated a similar initiative Tomorrow Today, launched by eleven national environmental groups in 2008.  In his consulting career, Stephen has been engaged to work on a host of environmental management projects with various Canadian federal, provincial and territorial departments, as well as the governments of Jamaica, Zimbabwe, Slovakia and Costa Rica.  Stephen holds a Master of Science degree in Plant Ecology from the University of Toronto and a Law degree from Queen’s University. He is a noted public speaker and has written numerous scholarly articles, as well as Canada v.The Environment, his 1999 book on federal environmental assessment law and policy. Stephen is an Olympic-distance triathlete and an avid wilderness traveler. His most exciting experience was seeing the Porcupine caribou herd crossing the swollen Firth River in northern Yukon.

Dr. Rick Smith, executive director, Environmental Defence and co-author of bestseller, Slow Death by Rubber Duck… more »

Rick Smith is a prominent Canadian author and environmentalist. He is Executive Director of Environmental Defence Canada (http://www.EnvironmentalDefence.ca) and co-author, with Bruce Lourie, of “Slow Death by Rubber Duck: How the Toxic Chemistry of Everyday Life Affects Our Health”, a surprising look at common pollutants and the ease with which they accumulate in the human body. To illustrate this issue Rick and Bruce experimented on their own bodies, raising and lowering levels of toxic chemicals in their blood and urine through the performance of ordinary activities. A major Canadian and Australian bestseller and a Quill & Quire “Book of the Year” for 2009, “Slow Death by Rubber Duck” was recently released in the U.S. and has already been featured by the Washington Post (which said it “is hard-hitting in a way that turns your stomach and yet also instills hope”), Dr. Oz, Fox News, and Oprah Magazine. The book has now been translated into 6 languages.

With a Ph.D. in biology from the University of Guelph and a stint as Chief of Staff of the federal New Democratic Party, Rick’s career has been equal parts science and policy. He is regarded as one of the country’s leading environmental campaigners and has spearheaded efforts to achieve important new environmental and health protections such as Canada’s first federal Endangered Species Act; the world’s largest Greenbelt, now enacted around Toronto; and Canada’s decision to ban the toxic chemical bisphenol A (BPA) in baby bottles (becoming the first country in the world to do so), and get hormone-disrupting flame retardants out of consumer electronics and phthalates out of kids toys.

Rick lives in Toronto with his wife and their two young sons.

Mark Blumberg, partner at the law firm of Blumberg Segal LLP… more »

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. He provides legal services and advice to Canadian charities and foreign charities operating in Canada. He has a B.A. in Political Science from the University of Toronto, an LLB from the University of British Columbia and a LLM from Osgoode Hall Law School in Tax Law.

Mark is on the Executive of the Canadian Bar Association (CBA) National Charities and Not-for-Profit Law Section and Ontario Bar Association (OBA) Charity and Non-profit law section.  Mark is the lead trainer for the Charity Law Information Program (CLIP), which is a project of Capacity Builders, funded by the Charities Partnership and Outreach Program (CPOP) of the Charities Directorate of the Canada Revenue Agency. The project’s goal is to help Canadian charities become more aware of their legal obligations under the Income Tax Act, and to increase compliance with those requirements. (http://www.capacitybuilders.ca/clip/clip.php)  Mark is also the editor of at http://www.canadiancharitylaw.ca/ – a Canadian charity law website and http://www.globalphilanthropy.ca/ – a Canadian website dedicated to news about the Canadian charitable sector as well as legal and ethical issues for Canadian charities operating in Canada or abroad.

Toby Heaps, Co-founder and President of Corporate Knights Inc. more »

Toby Heaps is the co-founder and president of Corporate Knights Inc. Toby has a Bachelor of Arts degree from McGill University in Economics, with a minor in International Development. From 1997-98, he spent one year in the Belgrade Field Program (LLB in Management Studies) with the London School of Economics and Political Science. He worked for Conflict Resolution Catalysts in Bosnia, and for several international publications and social organizations in the former Yugoslavia including B-92 in Belgrade. He has written for the Financial Times, Toronto Star, Globe and Mail and Investors Digest. Toby has experience working on political campaigns, including in 2006 as campaign manager for City of Toronto Councillor A. A. Heaps. Before founding Corporate Knights, Toby was the managing editor of the Mutual Fund Review magazine and Planning for Profits magazine. In 1998, Toby played centre field for Yugoslavia’s National Baseball Team.

April 10, 2012

Toronto Star reports “Tax preparer becomes fugitive in fraud case” involving charity receipting

The Toronto Star covered the story of a tax preparer from Vaughan, Ontario who is a fugitive after having prepared thousands of tax returns with fraudulent charitable donation receipts amounting to millions of dollars.  Most interesting is that the CRA cannot release a photo of the woman even though she is a fugitive.  I think S. 241 of the Income Tax Act (confidentiality provisions) needs to be modified to allow CRA to release more information on charities and now tax preparer fugitives.  I have sent submissions to Finance on that and lets wait and see. 

Tax preparer becomes fugitive in fraud case”
http://www.thestar.com/news/article/1158830—tax-preparer-becomes-fugitive-in-fraud-case?bn=1

April 08, 2012

How accurate are the T3010 charity returns when it comes to political activities?

Canadian registered charities must file the T3010 Registered Charity Information Return within six months of the end of their fiscal year, although some are not able to meet that deadline and file soon thereafter.  It is a very important form because despite its limitations it is really the only uniform way to obtain information on all registered charities in Canada.  Some people are surprised to find out that answers on the T3010 are not always reliable.  I am going to make a few comments on the reliability of the T3010 and specifically with respect to questions relating to “political activities”.

I am going to argue that different questions on the T3010 are not uniformly reliable for a number of reasons including the complexity of the question, the complexity of the subject matter, the prominence of the question on the form, and the concern about repercussions in answering a question one way or the other.
Whereas the charities answers to questions such as name of charity is probably very correct, the amount in cash/bank accounts is probably quite correct (banks tend to give statements covering a lot of that), there are other more complicated or difficult questions that are not filled in correctly.  One of the most incorrectly completed lines is line 5020 “total expenditures on fundraising” - you can read more about that below.  Another question which I will discuss further is question C5a (line 2400) “Did the charity carry on any political activities during the fiscal period?” and “Enter the total amount spent by the charity on these activities? [ie. political activities]  [line 5030]

My quick analysis of the T3010 shows that about 500 charities answer yes to them doing political activities out of 86,000 charities. This is far less than one percent.  I was quoted in the National Post as saying the figure is probably far higher that actually are involved in political activities. 
( http://news.nationalpost.com/2012/04/06/the-politics-of-charity-when-is-does-a-tax-exempt-organization-to-political/ )

If you want to read a piece put out by Imagine Canada on the number of charities doing political activities you might find this helpful.  Imagine Canada surveyed 3,816 charity leaders and 1,625 complete responses were received (42% response rate) Imagine notes that “Responses have been weighted by organization size, region and subsector to produce more accurate national estimates.”  Remember I support charities doing political activities, they just need to make sure they are doing it within the rules for registered charities.

“PERMITTED POLITICAL ACTIVITIES
Political activities seek to pressure the government on an issue related to the charity’s purpose. Political activities are permitted if the charity’s activities are non-partisan and if the charity devotes substantially all of its resources to other, charitable, activities.”
Just over a third (39%) of charities engaged in permitted political activities over the previous year. In terms of specific activities, charities are most likely to encourage the public to contact elected representatives or government officials (22%) or to make a statement to the media (19%; see Figure 3).
Interestingly, although organizations are comparatively likely to make use of research in their charitable public awareness and policy activities, they were much less likely to do so in contexts linked directly to specific political actions (14%).

Again, most organizations engage in these activities irregularly (40%) or a few times a year (37%) - just 6% engage in them a few times a week or more. As with charitable awareness and policy activities, organizations that engage in political activities are most likely to focus on influencing provincial governments (81%; see Figure 4). Compared to charitable public awareness and policy activities, specifically political activities focus even more closely on provincial governments.”

To read the full Sector Monitor see http://www.imaginecanada.ca/files/www/en/sectormonitor/resources/sectormonitor_vol1_no3_factsheet2_2010.pdf

Why do charities get the question dealing with political activities so wrong?  I am going to take a guess at 4 top reasons.

1) They don’t understand what a “political activity” is for a charity and confuse political with “partisan political” which is prohibited.  Therefore, when they say “no” they think they are really saying knowing to partisan activities.  Most charities don’t scrutinize enough the T3010 Guide which is called the T4033-1   Completing the Registered Charity Information Return.  The Guide is 25 pages long of instructions and is discussed below. 

2) They skip over the 3 or so lines dealing with political in the 9 page T3010 form.  You might say that is impossible but generally this information is completed by humans, who are volunteers, and it is often done very last minute and frequently no one checks over the work.  While I suggest that all charities provide the draft T3010 to every board member that is not required by law and probably is not done by most charities.  Larger charities, in addition to providing the T3010 to its board, should also have at least one person from programming, finance and fundraising each review the T3010 from their own particular perspectives. Also before around 2002 detailed questions were asked on the T3010 about political which made it more difficult to miss.
Here are some of the questions that were asked before 2003: “During the fiscal period, did the charity attempt to influence public opinion or to affect legislation or policy using any of the following means?
  media advertisements
  conferences, workshops, speeches, or lectures
  publications, or published or broadcast statements
  rallies, demonstrations, or public meetings
  mailings to elected officials or the public
  meetings with elected officials or their staff
  presentations or briefs to elected or appointed officials
  letter-writing campaigns
  other (please specify)

I understand from 2002 to 2003 when the revised form came in with the question being posed differently and less prominently that there was a substantial reduction in the number of charities indicating they were doing political activities.  Here is the much more prominent question on political activities that used to appear in the T3010 before 2003.   In all likelihood in the next few months we will have more prominence on the T3010 dealing with political activities and I will not be shocked that more charities acknowledge doing permissible political activities.

3) The person completing the form is not aware of the details of the activities of the charity, including political.  A finance person, for example, in a charity may not be aware of all the programmatic work.  Many charities are spread out over the whole country and someone in Toronto may know little about the Halifax operation and vice versa.  At the same time that expectations for transparency and accountability are increasing there are unrealistic expectations that charities not ‘waste’ funds on administration.  Well completing the T3010 is administration, so is often completing reports to stakeholders on the work of the charity. Charities should spend no more than necessary on administration but they should also not spend any less than necessary on adminstration (you can see my article on this point http://www.globalphilanthropy.ca/index.php/articles/how_much_should_a_canadian_charity_spend_on_overhead_-_an_article_by_mark_b/ or read lots of academic studies on the subject)

4) They may know that they are doing political activities or suspect that perhaps what they are doing falls within political but are afraid to put in that they are involved with political activities or “lobbying” for fear that some stakeholders may object or cut funding.

Guide to the T3010

Most charities do not look at the Guide or certainly don’t read every section but the Guide goes into further information on answering the political questions:

“C5 – (a) – Line 2400 – Tick yes if the charity carried out any political activities during the fiscal period. We consider an activity to be political if a charity:

(a) explicitly makes a call for political action (for example, encourages the public to contact an elected representative or public official and urges them to retain, oppose, or change the law, policy, or decision of any level of government in Canada or a foreign country);

(b) explicitly communicates to the public that the law, policy, or decision of any level of government in Canada or a foreign country should be retained (if the retention of the law, policy, or decision is being reconsidered by a government), opposed, or changed; or

(c) explicitly states in its materials (whether internal or external) that the intention of the activity is to urge, or organize to put pressure on, an elected representative or public official to retain, oppose, or change the law, policy, or decision of any level of government in Canada or a foreign country.

Both the common law and the Income Tax Act allow registered charities to conduct limited political activities. The law recognizes the historical and continuing role of registered charities in contributing to the development of public affairs and policy. However, registered charities are not political bodies. Therefore, they face limits on the type and extent of political activities they can pursue.

There are three important restrictions:

  Political activities must be entirely non‑partisan in nature. Registered charities must not support or oppose political parties or candidates for public office. For example, a registered charity cannot purchase tickets to a fundraising event held by a political party;
  Disbursements on political activities are allowed only as additional expenditures, provided registered charities have satisfied the requirement that they devote substantially all their resources to charitable activities. Registered charities may devote generally no more than 10% of their disbursements to political activities; and
  Political activities must relate directly to the registered charities’ purposes. Registered charities are not permitted to commit their resources to campaigning on issues, policies, and laws that are unrelated to their formal purposes. For example, a registered charity established to protect the environment may press a government on its environmental policies but not on an unrelated issue, such as prison reform.

We accept that a charity is not necessarily engaging in a political activity when it addresses a government body or the public at large on legislative and policy matters. Instead, the activity can sometimes form a regular part of its charitable or administrative activities. Examples include:

  conducting day‑to‑day business with government agencies (for example, the costs to a hospital of preparing reports for, or meeting with, officials of a ministry of health);
  providing governments or the public with specialized information at the charity’s disposal; and
  expressing the charity’s views to a governmental body on an issue affecting its ability to carry out its charitable mandate.

For more information, see Policy Statement CPS-022, Political Activities,

C5 – (b) – Line 5030 – Enter the total amount of resources, such as employees, volunteers, directors, equipment, and premises, devoted by the charity on political activities during the fiscal period.”

Here is another piece in the guide:

“Line 5030 – Enter the part of the amount on line 4950 that represents expenditures for political activities, inside or outside Canada. For additional information on acceptable political activities, refer to the policy statement CPS-022, Political Activities. “

 

One interesting resources is “PERSPECTIVES ON FUNDRAISING: WHAT CHARITIES REPORT TO THE CANADA REVENUE AGENCY” which was prepared by Imagine Canada and discusses in detail some of the issues with the information on fundraising.  For example:

“The CRA recognizes that there are problems with the accuracy of the information that charities file and has attempted to improve the situation by warning charities about common mistakes on their website, offering information sessions on how to properly file T3010 reports, as well as providing guides and other resources, These efforts have been targeted mainly towards small and rural charities. Our analysis reveals, however, that errors are not confined to these types of charities.

There is a very high frequency of problems that include mistakes in simple arithmetic (i.e., the sums of individual items not adding to reported totals), errors of omission (e.g., the failure to itemize expenditures) and logical inconsistencies (e.g., active charities reporting that there have been no charitable expenditures). Over one-third of charities had at least one readily identifiable problem of these types in their returns. These problems are more common among the smaller charities. However, even 23% of the largest charities in the country have issues with their returns.

With respect to the evaluation of fundraising costs, one of the more troubling findings is that only 27% of charities report fundraising costs despite the fact that 84% report receiving dollars from tax-receipted gifts or fundraising revenues. We have reservations about whether this is a reliable estimate of the extent to which such costs are being incurred.  Problems are most common with the returns filed by the more than half of all charities with revenues of $100,000 or less. These charities have the highest reliance on fundraising and rely predominantly on a narrow range of fundraising methods such as special events, the sales of products such as cookies or chocolate and the use of collection plates and boxes. They also appear to have the lowest fundraising costs.”

...
The Quality of Information That Charities Report
CRA provides public access to the information that charities report about their activities, revenues and expenditures. But what is the quality of this information? Problems with data
quality were identified by Sharpe (1994) but there has not been a recent public assessment of the information.

CRA is aware of the common types of errors that charities make and warns charities about them on their website (http://www.cra-arc.gc.ca/tx/chrts/prtng/rtrn/mstks-eng.html). They have also reached out to small and rural charities and offered information sessions about how to properly file T3010 returns as well as information guides and other resources (CRA, 2008a, CRA, 2008b). Nevertheless, our evaluation shows that it is very common for organizations to make a variety of errors when completing the T3010 form.2 Many organizations enter clearly impossible values, others leave critical lines blank, and many make arithmetic errors. For example, a small Lutheran church, with reported revenues of less than $100,000, inadvertently became the single largest source of tax-receipted gifts in 2007, when it reported that it had received tax-receipted gifts of $5,788,957,989 instead of the intended value of $57,889. This represents 41.6% of the total amount of tax-receipted gifts in that year. As another example, one organization neglected to round their tax-receipted donations to the nearest dollar, as is required, which increased their total donations from $1,239,079 to $123,907,997, a 100-fold increase.

Our review of the data identified eight systematic types of errors or issues that appear in the information reported by charities on Form T3010 (see Table 2). Six are simple addition errors and a noticeable, but relatively small number of organizations make these types of errors. Much more frequent are errors or issues that are related to expenditures. Specifically, 17.5% of charities report that they incurred expenses yet fail to report what types of expenses they incurred (e.g. fundraising expenses vs. charitable expenditures).3 In addition, 12.4% did not report any charitable expenditure, gifts or transfers to qualified donees despite being active and incurring expenses. Of course, not all errors are applicable to all organizations, and the discussion of each error is limited to those that the error is relevant for.

You can read the full report at: http://library.imaginecanada.ca/files/nonprofitscan/en/other_research/perspectives_on_fundraising_muttart_20090924.pdf

The CRA has all discussed in its report “Small and Rural Charities: Making a Difference for Canadians 2008” the difficulty many charities have for example in completing the T3010 http://www.cra-arc.gc.ca/E/pub/tg/rc4457/rc4457-e.pdf  For example they note that of the charities audited “72% had incomplete T3010s”.  I understand that CRA, which has done a lot of work over the last few years on helping charities understand and complete the T3010 will be doing more work in that area.

If you are interested in the rules around political activities for Canadian charities see CPS-022 CRA’s Guidance on Political Activities for Canadian Registered charities http://www.globalphilanthropy.ca/index.php/blog/comments/canadian_charities_and_political_activities_-_cps022_cras_guidance_on_polit/

By the way for those who are interested the US IRS has looked into the political activities of US charities http://www.irs.gov/newsroom/article/0,,id=161131,00.html

Any thoughts on this note and others would be greatly appreciated.

CPS-022 CRA’s Guidance on Political Activities and Canadian Registered charities

The Charities Directorate of CRA has a guidance entitled “Political Activities” for Canadian registered charities. CRA notes in the guidance that it”... provides information for registered charities on political activities and allowable limits under the Income Tax Act (the Act). It also provides a framework that explains how we distinguish between political and charitable activities. In addition, it seeks to clarify the extent to which charities can usefully contribute to the development of public policy under the existing law.  The guidance in this policy statement is based on subsections 149.1(6.1) and 149.1(6.2) of the Act and on general principles of charity law and court decisions that define what is charitable and what is political. This information applies to all registered charities.”  While CRA’s Guidance is pretty good and will probably be improved over the next few months or years - it is of little assistance to a charity if they don’t know it exists or don’t read it.

Here is a link to the guidance.  http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cps/cps-022-eng.html

Here is a copy in PDF of the CRA Policy Statement on Political Activities by Canadian Charities CPS-022 - September 2, 2003 so that you can download it easily to your computer.

Keep in mind the CRA’s note about this being a general guide:

“Under the Act, a registered charity must devote all of its resources to charitable purposes and activities. Notwithstanding this general rule the Act allows a small amount of resources to be used for political activity. This policy statement focuses on resources used for political activity and the limits imposed by the law. It also uses plain language to discuss legal concepts relating to charities. Therefore, you should use the information in this policy statement as a general guide only. In cases of appeal, a decision about an organization’s activities will ultimately depend on how a court interprets the facts of a specific situation.”

You can always contact CRA, in name or anonymously, and ask them about a particular factual situation.  There contact information is here: http://www.cra-arc.gc.ca/chrts-gvng/chrts/cntct/menu-eng.html

If you require legal advice with respect to charities and compliance issues you can contact us at:  http://www.canadiancharitylaw.ca/index.php/pages/contact_us/

April 07, 2012

Transparency - IRS imposes penalty on charity that allegedly inflated pharmaceutical donation

In an article by The Chronicle of Philanthropy by Caroline Preston entitled “Update: IRS Levies Fine on Food for the Hungry Over Drug Valuations” it describes how the US IRS has levied a penalty against a charity that misreported donations on its annual return.

The articles is at: http://philanthropy.com/article/Update-IRS-Levies-Fine-on/130539/

The article notes: “All told, the IRS letter says, Food for the Hungry’s noncash contributions should have been listed on its 2008 tax form as $92,633, not $75.7-million.”

April 06, 2012

National Post article “The politics of charity: When is a tax-exempt organization too political?”

Kathryn Blaze Carlson of the National Post has written another article on charities and political activities entitled “The politics of charity: When is a tax-exempt organization too political?”

“The politics of charity: When is a tax-exempt organization too political?” by Kathryn Blaze Carlson
http://news.nationalpost.com/2012/04/06/the-politics-of-charity-when-is-does-a-tax-exempt-organization-to-political/

April 05, 2012

Highlights of Federal Budget 2012 relating to charities

Here is a short summary of the major provisions relating to charities in the 2012 Federal Budget - tried to keep it to 100 words but I did not make it.

Budget 2012 and charities

* receipting suspension for incomplete T3010 filings (eg.  Not putting in fundraising costs, political activities etc)

* more transparency by Canadian charities on foreign grants to Canadian charities earmarked for political activities (but no limits on it)

* Canadian inter-charity transfers earmarked for political purposes count towards 10 percent allowance of both donor charity and recipient charity.

* changes to one category of qualified donee namely foreign charities who receive a gift from the federal government - this revamped category may result in more international philanthropy.

* bigger penalties for charity tax shelters

* there were no additional tax incentives (Stretch Credit etc.) but also no cuts as in US and UK.

March 31, 2012

CRA releases information on “Budget 2012 - Enhancing transparency and accountability for charities”

The Charities Directorate of the CRA has posted information on the Federal 2012 Budget.

http://www.cra-arc.gc.ca/chrts-gvng/chrts/bdgts/2012/dglttr-eng.html
“Message from the Director General Budget 2012 – Transparency and Accountability

On March 29, 2012, the Minister of Finance presented the 2012 federal budget which proposes several measures related to compliance and transparency with respect to political activities carried on by registered charities and registered Canadian amateur athletic associations (RCAAAs). Changes were also introduced to the qualified donee provision for charitable organizations outside Canada to which Her Majesty in right of Canada has made a gift.

As explained in the Budget, in recognition of the important contribution that registered charities can make to the public policy development process, they are specifically permitted to devote some of their resources to ancillary and incidental non-partisan political activities. This allowance was extended to RCAAAs in the 2011 federal budget. While there are no changes in this regard, Budget 2012 does propose certain amendments to ensure that all funding intended for political activities is reported in a charity’s annual information return. Budget 2012 also proposes to increase transparency by requiring more information about political activities, including the extent to which funding from foreign sources is used to carry on political activities.

In addition, Budget 2012 will provide the Charities Directorate with additional resources to allow us to enhance our education and compliance activities in the area of political activities. Also, new intermediate sanctions will apply where the rules are not followed, as is already the case for other types of non-compliance. As the rules relating to political activity apply to all registered charities, the CRA’s educational and compliance efforts in this regard will extend to the charitable sector as a whole.

Changes have also been proposed to the provision for charitable organizations outside Canada to which Her Majesty in right of Canada has made a gift. Budget 2012 proposes that only those charitable organizations carrying on certain types of activities may be registered. An organization must be:

•carrying on relief activities in response to a disaster;
•providing urgent humanitarian aid; or,
•carrying on activities in the national interest of Canada.
These changes are intended to ensure that Canadians receive tax relief for donations made to organizations carrying out activities of significance to, and in the interest of, the Canadian public.

The new measures for political activities will come into effect when the implementing legislation receives Royal Assent. The other measure will be effective on or after the later of January 1, 2013 and Royal Assent. Some changes such as revisions to information returns will take some time to implement. Complete details on all of the proposals can be found at http://www.budget.gc.ca.

Our Client Services Section is ready to answer questions about the new measures and can be reached at 1-800-267-2384. In addition, questions and answers on the new proposed measures will be posted on our Charities and Giving Web pages, and more information will be provided as it becomes available.

Please continue to check the Charities and Giving Web pages for updates.

Cathy Hawara
Director General
Charities Directorate”

Here is the CRA contact information:

“Client services - General enquiries Our toll-free telephone service is available weekdays (except statutory holidays) from 8 a.m. to 8 p.m. Eastern Time. Our client service representatives are available to:

•provide general information to the public about registered charities;
•confirm whether an organization is a registered charity;
•handle requests for public documents such as a registered charity’s annual information return and/or financial statements;
•provide operational guidance to existing registered charities such as how to complete the annual information return (Form T3010) and how to issue official donation receipts; and
•provide information to potential applicants on how to apply for registration and how to complete the application (Form T2050).
You can contact us by telephone, by fax, or in writing at:

Telephone:
1-800-267-2384

TTY service for persons with a hearing or speech impairment:
1-800-665-0354

Fax: 613-954-8037

Address:
Charities Directorate
Canada Revenue Agency
Ottawa ON K1A 0L5 “

CRA FAQ on Federal 2012 budget “Transparency and accountability” provisions

CRA has posted an FAQ on the Transparency and accountability provisions relating to registered charities in the 2012 budget.

“Transparency and accountability
1.What are the new rules for registered charities engaged in political activities?
2.Will charities have to submit more information to the CRA?
3.What action can the CRA take if a registered charity exceeds the allowable limit for political activities?
4.What action can the CRA take if a registered charity fails to provide required information?
5.When do the new rules apply?
6.Do these rules apply to Registered Canadian Amateur Associations (RCAAAs)?
7.Where will I find more information on the new rules?
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Registered charities are required to operate exclusively for charitable purposes and to devote their resources exclusively to charitable activities. A registered charity is, however, allowed to engage in a limited amount of non-partisan political activity (generally, this represents a maximum of 10% of resources) provided that these activities are ancillary and incidental to the organization’s charitable purposes and activities.

Registered charities can also make gifts to qualified donees.  Where a charity makes a gift to a qualified donee, the Income Tax Act (ITA) treats the amount of the gift as having been devoted to charitable purposes and activities, even if the gift was in respect of political activities.

Further information on what is generally considered a political activity, and the associated limitations, can be found in the CRA guidance document titled “Political Activities” (CPS-022).

Q1. What are the new rules for registered charities engaged in political activities?
A1. The budget proposes that when a charity makes a gift to a qualified donee and a purpose of the gift is to enable the recipient to carry on political rather than charitable activities, that gift will be considered an expenditure made by the charity on political activities.  As a result, the gift would count against both the donor charity and the recipient organization’s existing limits allowed for political activities.

Q2. Will charities have to submit more information to the CRA?
A2. Yes. The CRA will be revising the registered charity information return form to collect more information about political activities.

Q3. What action can the CRA take if a registered charity exceeds the allowable limit for political activities?
A3. The budget proposes that if a registered charity exceeds the allowable limit for political activities, the CRA may suspend its tax-receipting privileges for one year.

Q4. What action can the CRA take if a registered charity fails to provide required information?
Q4. The budget proposes that if a registered charity fails to provide complete and accurate information in relation to any aspect of its annual return, the CRA may suspend its tax-receipting privileges until complete and accurate information is provided in the prescribed manner.  For example, if information is missing from the public portion of the return, the return must be amended so that the public display is complete and accurate before the suspension will be removed.

Q5. When do the new rules apply?
A5. These rules will come into effect upon Royal Assent.

Q6. Do these rules apply to Registered Canadian Amateur Associations (RCAAAs)?
A6. Yes. RCAAAs are subject to the same provisions for political activities as registered charities and could be subject to the same actions by the CRA for exceeding the limit or for failing to provide required information.

Q7. Where will I find more information on the new rules?
A7. As further information is developed, it will be available on the CRA’s Charities and Giving Web site. “

Here is a link to the FAQ:
http://www.cra-arc.gc.ca/gncy/bdgt/2012/qa01-eng.html

CRA FAQ on Budget 2012 and Gifts to foreign charitable organizations

Here is the CRA FAQ on “Gifts to foreign charitable organizations”

“Gifts to foreign charitable organizations
1.What are the new requirements for registration of a foreign charitable organization that is the recipient of a gift from Her Majesty in right of Canada?
2.Does “charitable organization” still include public and private foundations for the purposes of this provision?
3.Does a “charitable organization” need to be “charitable” according to Canadian law or of the country where the foreign entity is established?
4.Must the foreign organization devote its resources exclusively to disaster relief, urgent humanitarian aid, or activities in the national interest of Canada?
5.What would be considered activities in the national interest of Canada?
6.When do these new rules apply?
7.What is the new process for a foreign organization to obtain qualified donee status?
8.What will be the new validity period for qualified foreign organizations once the rules come into force?
9.Where will I find more information on the proposed measures?
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Currently, to be considered a qualified donee as an organization outside Canada to which Her Majesty in right of Canada has made a gift, the federal department that made the payment, or the recipient organization itself, should forward the following information to the Charities Directorate, Canada Revenue Agency:
•a copy of the governing documents of the foreign entity;
•a description of the foreign entity’s activities;
•a copy of the letter or certificate issued by the appropriate foreign authority granting the foreign entity charitable status;
•copies of correspondence, agreements, or other documents related to the Crown gift; and
•proof that the gift has been made (for example a copy of the cheque).
The Charities Directorate will then consider whether the foreign entity qualifies based on a two-part test. First, the organization must demonstrate that it was the recipient of a gift. Second, the organization must demonstrate that it would meet the requirements for registration as a charitable organization in Canada.

Q1. What are the new requirements for registration of a foreign charitable organization that is the recipient of a gift from Her Majesty in right of Canada?
A1. Budget 2012 proposes that only those charitable organizations carrying on certain types of activities may be registered. An organization must be:
•carrying on relief activities in response to a disaster;
•providing urgent humanitarian aid; or
•carrying on activities in the national interest of Canada.
Q2. Does “charitable organization” still include public and private foundations for the purposes of this provision?
A2. No. The proposed changes will now clearly exclude public and private foundations.

Q3. Does a “charitable organization” need to be “charitable”according to Canadian law or of the country where the foreign entity is established?
A3. As before, the foreign organization must be charitable according to Canadian law. It must have exclusively charitable purposes and devote all its resources to charitable activities.

Q4. Must the foreign organization devote its resources exclusively to disaster relief, urgent humanitarian aid, or activities in the national interest of Canada?
A4. No. However, all the activities of the foreign organization must be charitable and one or more of the current activities must be related to disaster relief, urgent humanitarian aid, or activities in the national interest of Canada.

Q5. What would be considered activities in the national interest of Canada?
A5. Guidance on the revised provisions will be developed by the CRA in consultation with the Department of Finance and will be posted on the CRA’s Charities and Giving Web site.

Q6. When do these new rules apply?
A6. The new rules apply to applications made on or after the later of January 1, 2013, and Royal Assent. Applications made before that time will continue to be subject to the current rules.

Q7. What is the new process for a foreign organization to obtain qualified donee status?
A7. The budget proposes that the Minister of National Revenue, in consultation with the Minister of Finance, may register a qualifying applicant. A three-part test will be applied in order to assess an applicant’s eligibility for registration. The foreign organization must demonstrate that it:
•was the recipient of a gift from Her Majesty in right of Canada;
•would meet the definition of a charitable organization under Canadian law (with the exception of the residency requirement); and
•will carry on activities in at least one of the following areas: disaster relief; urgent humanitarian aid; or, activities in the national interest of Canada.
Q8. What will be the new validity period for qualified foreign organizations once the rules come into force?
A8. A foreign organization’s qualified donee status would be for a 24 month period and will generally start as of the date of the gift. The Canada Revenue Agency will confirm the exact start date once it is determined that the entity qualifies.

Q9. Where will I find more information on the proposed measures?
A9. As further information is developed, it will be available on the CRA’s Charities and Giving Web pages.”

Here is a link to the FAQ:
http://www.cra-arc.gc.ca/gncy/bdgt/2012/qa02-eng.html