April 04, 2009

Is this a legitimate Canadian charity?  A Comment by Mark Blumberg

The Federal Court of Appeal (FCA) recently dealt with a case called The Millennium Charitable Foundation (The Millennium Charitable Foundation vs. MNR 2008 FCA 414).  In The Millennium Charitable Foundation case the law firm of Miller Thomson LLP, which represented the Foundation, apparently stated or inferred that the Foundation was a “legitimate charity”.  I am not sure exactly what a “legitimate” charity is, it certainly is not a defined term in the Income Tax Act, but I think it is worth considering whether The Millennium Charitable Foundation is a “legitimate charity”.

The Court noted in its judgement:

The Foundation asserts, in paragraph 14 of its memorandum of fact and law, that “its reputation as a legitimate charity in good standing with all governmental authorities is essential to its attracting and retaining donors in the long term”.

Here is what CRA had to say in their recent press release:

On April 2, 2008, the Minister of National Revenue issued a notice of intent to revoke the charitable registration of The Millennium Charitable Foundation, in accordance with subsection 168(1) of the Income Tax Act. The letter stated, in part, that:

Our audit has concluded that from January 1, 2003 to December 31, 2006 The Millennium Charitable Foundation issued in excess of $169 million in receipts for cash and property received through tax shelter arrangements. The Charity, in turn, directed $114 million of the cash and property to two other registered charities also participating in these arrangements. The audit revealed that the vast majority of the cash sent to the other participant charities was subsequently paid to the promoters. Of the remainder, the Charity itself paid $33 million in fundraising fees to the tax shelter promoters and retained, but did not disburse,  $21 million in net assets. In fact, it appears that beyond these transfers (i.e., those that the Charity is directed to make by the tax shelter promoters), the Charity has only made a single $2,200 gift to another qualified donee.

It is our position that the Charity has operated for the non-charitable purpose of promoting a tax shelter arrangement and for the private benefit of the tax shelter promoters. The Charity has issued receipts for transactions that do not qualify as gifts, issued receipts otherwise than in accordance with the Income Tax Act and its Regulations, has failed to maintain sufficient books and records to support its activities and has used its income for the personal benefit of its trustees. For all of these reasons, and for each of these reasons alone, it is the position of the CRA that the Charity’s registration should be revoked.

I looked for a website on The Millennium Charitable Foundation but could not find one.  I wanted to know is this a legitimate charity?  Is CRA getting this wrong?

Now if a lawyer goes to court and says all sorts of wonderful things about their client I think we have come to think of that as par for the course.  Lawyers aggressively defending their clients rights in court is not a new concept. 

Then in February 2009 a lawyer from Miller Thomson LLP wrote an article entitled “CHARITABLE REGISTRATION REVOCATION PROCESS: RECENT TRENDS” in the Miller Thomson LLP Charities Newsletter February 2009.  The article states:

Over the past year, the Canada Revenue Agency (“CRA”) has adopted an aggressive and quite disconcerting approach to the charitable registration revocation and appeals process. Put simply, where CRA believes that a charity has committed a sufficiently serious violation of its obligations under the Income Tax Act (the “Act”), CRA will now impose sanctions, including revocation, without permitting the charity to exercise its statutory rights of objection and appeal under the Act. Also unfortunate are three recent decisions of the Federal Court of Appeal, all of which have refrained from intervening to prevent CRA from doing this.

The Miller Thomson newsletter also notes:

The result of these decisions is that CRA now appears willing to revoke immediately in “serious cases,” without allowing a charity to exercise its appeal rights, and the Federal Court of Appeal will not prevent this. Thus far, CRA has taken this approach only where the charity in question was involved in tax shelter arrangements which CRA believed were abusive. However, this approach could potentially be taken against any charity, and it remains to be seen whether CRA will broaden this approach. While we are hopeful that future decisions will reverse this trend, pro-active compliance by charities becomes all the more vital in the face of this new aggressive approach by CRA, as it can no longer be assured that a charity will be able to exercise its full appeal rights before being penalized for alleged non-compliance.

The article does not name the cases which I am assuming are Choson Kallah Fund of Toronto v. MNR, International Charity Assn. Network (ICAN) v. MNR, and Millennium Charitable Foundation v. MNR.

Lawyers advocating a position in their newsletter also is not a new concept. 

What I found interesting was that the article does not mention to the readers of the newsletter that two of the lawyers from their firm, Andrew J. Roman and Robert Hayhoe, attended on behalf of The Millennium Charitable Foundation in one of the three unsuccessful and “unfortunate” injunction applications?  Should a lawyer writing about a case mention that their law firm was involved with arguing the case? Should a reader be made aware of that fact?

Then in April, Miller Thomson reprinted this article or a similar version again in their business newsletter this time.  They however added before most of the article “Miller Thomson Analysis” perhaps implying that the analysis is that of Miller Thomson law firm, not just the particular author.  The newsletter can be obtained at http://www.millerthomson.com/docs/Recent_Developments_-_Business_Law_in_Ontario_Winter_2009.pdf  and the short article is on page 9. 

Why should anyone care what Miller Thomson has to say in court or out of court in their newsletters?  Well Miller Thomson is one of the largest Canadian law firms, with probably one of the largest charity law sections of any law firm, and one of the most involved in lobbying and government relations of any Canadian firm.  Much of that lobbying and government relations takes place on behalf of Canadian non-profits and charities and covers such issues as what regulations of charities and fundraising there should be, what controls should be placed on Canadian charities operating outside of Canada, what is the definition of charity, etc.  In addition, Miller Thomson is involved with many boards of directors of charities and governmental committees. 

When Miller Thomson goes to court arguing that a charity should not lose its status because it is “legitimate” that is certainly interesting.  When it mounts an increasingly public campaign to stop CRA from revoking a few (3 to be exact) very abusive registered charities that are involved with issuing about a billion dollar in receipts that is in my mind even more interesting.  When it does so and does not mention its own involvement with the case that causes me some concern.  When it tries to enlist non-profits and charities in its ideological fight with the Charities Directorate and tries to attach the goodwill of the charity sector to their client, The Millennium Charitable Foundation, I am very concerned.

If the Millennium Charitable Foundation is a “legitimate” charity then I think that the charity sector is going to be having a lot more problems than anything I could ever imagine.  Remember the sector gets about half of its revenue from governments.  Earned income/memberships and donations make up the rest.  Governments are spending money (going into deficit) but they have many different groups competing for those funds and the very positive reputation of the charitable sector is an important part of the charitable sector getting more resources to deal with the great challenges facing many charities and their beneficiaries and clients.  Also, if the public’s perception is that charities think that the Millennium Charitable Foundation is a “legitimate” charity I think many donors may decide to pass next time a charity rings.  In these difficult economic times I think it is important that charity sector, charity subsector representatives, and charities, especially those who have close relationships with Miller Thomson, make it crystal clear to the public that the views of Miller Thomson are the views of Miller Thomson.

Post Script:

By the way if you are a donor or volunteer with a charity, and just happen to read this article, I can assure you that there are many wonderful and legitimate charities out there that are deserving of support and assistance.  There are probably only a handful of the 83,000 who are, or are very involved with, abusive tax avoidance schemes but unfortunately those handful of really bad charities issue about 10% of the value of tax receipts in Canada.  I think it is important to call a spade a spade and the charitable sector will be stronger for it. 

 

 

 

 

April 01, 2009

Understanding Financial Responsibilities of Canadian Charities

I am a lawyer and not an accountant.  Like most lawyers numbers scare me.  After all if we could deal with blood and we would be doctors and if we could add and subtract we would probably want to be accountants.  As much as we lawyers may want to be in denial we know that non-profits and charities need to understand their financial and accounting situation just as they need to understand their legal obligations.  Frequently I run into non-profits who have no idea what they need to do.  So here are some links that may be helpful in understanding a Canadian non-profit or charity’s financial obligations.  By the way I have no idea if these guys know what they are talking about because I am hiding under my computer desk afraid that these books will bite. 

Financial Responsibilities of Not-for-Profit Boards - 74 pages
http://www.culture.alberta.ca/bdp/workbooks/Financial_Responsibilities09.pdf

Building Capacity Through Financial Management: A Practical Guide by John Cammack.  It is published by Oxfam. 
http://www.oxfam.org.uk/resources/downloads/buildfincap_book.pdf  The book covers topics such as Capacity-Building and Finance; Assessing Financial Management Capacity; Building Financial Management Capacity; Planning and Budgeting; Accounts Record-Keeping; Financial Reporting; Financial Controls; External Audit; Organisational Aspects of Financial Management; Moving Toward Sustainability;  Reserves; Core Costs; a ‘Toolkit’ for Financial Management Capacity-Building; and Training for Financial Management Capacity-Building. It was published in October 2007 so it is relatively up to date  

The Canada Revenue Agency has information on the T3010B Registered Charity Information Return at
http://www.cra-arc.gc.ca/E/pbg/tf/t3010b/README.html

Tax Guide for Charities by PWC - 40 pages
http://www.pwc.com/ca/eng/ins-sol/publications/lh0408.pdf

Taxation of Charities (Deloitte) - 32 pages
http://www.deloitte.com/dtt/cda/doc/content/ca_tax_2006%20taxation%20of%20charities%20brochure_en.pdf

Financial Reporting by Not-for-Profit Organizations issued jointly by the Accounting Standards Board and Public Sector Accounting Board
http://www.acsbcanada.org/download.cfm?ci_id=48584&la_id=1&re_id=0 

NCVO Introducing Funding and Finance For voluntary and community organisations
http://www.ncvo-vol.org.uk/uploadedFiles/Sustainable_Funding/Support_for_Infrastructure/Miniguide.pdf
For a more detailed guide see http://www.ncvo-vol.org.uk/uploadedFiles/NCVO/AskNCVO/Finance/2_-_Financial_management.pdf

Mango’s Guide to Financial Management for NGOs
http://www.mango.org.uk/guide/printsection.aspx?id=5
Guide is from UK charity Mango and useful for all charities especially in international development

I noticed that Quickbooks is advertising that “QuickBooks Premier editions designed for your industry” and they include one for
“Non-profits - For religious & member-based organizations, charities/non-profits and arts & education groups, QuickBooks can help make better sense of dollars coming in and going out.
Manage fundraising initiatives, Track donations/contributions & donors, Customize thank you letters, Prepare financial reports for your board & annual report. Select the Non-profits Edition when you Install QuickBooks Premier.”

If anyone has used QuickBooks Premier “non-profit” version I would like to hear your comments.

2009 National Charity Law Symposium In Toronto

The Canadian Bar Association and Ontario Bar Association Charity and Not-for-Profit Law Sections and the Continuing Legal Education Committee are presenting the 2009 National Charity Law Symposium.  You can come and hear me speak about what’s new with foreign activities by Canadian charities.  It is on Thursday, May 7, 2009.  Here is the brochure for the 2009 National Charity Law Symposium

March 22, 2009

CRA’s Factors that will prevent an organization from being registered as a charity

CRA just put out a easy to read and understand list of “Factors that will prevent an organization from being registered as a charity”.  Perhaps CRA put out this list because with 4000 new organizations putting in applications every year to become registered charities, some of whom are not understanding what a charity is or restrictions on the activities of a charity, they wanted to make it clearer what will not qualify and hopefully they will receive better applications, or fewer, and this will reduce the backlog.  I think however that the list has an even more important purpose. 

CRA’s “Factors that will prevent an organization from being registered as a charity” is a great reminder to currently registered charities of what they can and cannot do.  I would recommend that organizations circulate it to all their board members so that they can be reminded in a simple list of what they can and cannot do.  The “can” is as important as the “cannot”.  CRA references some really useful publications on foreign activities, business and political activities that charities should read.  It should be included in board packages for new members or mentioned at orientations for board members. 

My only reservation about the piece is that most of my free time is spent trying to educate Canadian charities about their legal and ethical obligations.  If CRA keeps on putting out good material like this I may be out of my volunteer job.  I don’t play golf or hockey or garden - what will I do with all the extra time? 

http://www.cra-arc.gc.ca/chrts-gvng/chrts/pplyng/ftwp-eng.html

March 20, 2009

Canada Not-for-profit Corporations Act - Fourth Time Lucky? Will Canada get a new fed corporate law?

The Canadian parliament is once again considering passing the Canada Not-for-profit Corporations Act.  If it is passed it will affect 19,000 Canadian federal corporations that are incorporated under federal law.  The Bill is currently in the Industry, Science and Technology Committee. 

Here is the first reading of the bill.

http://www2.parl.gc.ca/HousePublications/Publication.aspx?Language=E&Parl=40&Ses=2&Mode=1&Pub=Bill&Doc=C-4_1

If you actually want to understand what the bill in plain language then you might find this interesting:
http://www.parl.gc.ca/LEGISINFO/index.asp?Language=E&query=5653&Session=22&List=ls

Here are some speeches on the draft bill that you may find interesting:

Sponsor’s Speech at Second Reading (Diane Ablonczy, the Minister of State for Small Business and Tourism)
http://www2.parl.gc.ca/HousePublications/Publication.aspx?Mode=1&Parl=40&Ses=2&Language=E&DocId=3645216&File=0#SOB-2582125

She likes the Bill she introduced!  She thinks that it is an improvement over what we have “The not-for-profit sector has repeatedly said that the current statute no longer meets its needs. For example, under the current statute, the incorporation process is slow and cumbersome. There are no provisions for amalgamating two or more corporations. There are no provisions for modern communications technologies. Financial accountability and transparency is inadequate. Directors do not have adequate defences against unwarranted liabilities. Members have few rights, and the list goes on.” 

Hyperbole Alert: “Bill C-4 springs from the need to replace an 18th century piece of legislation with a modern framework that reflects the imperatives of the Canadian economy’s diversity and the changes that have come about in recent years. It directly addresses these issues, and what is more, provides a solid basis on which healthy, dynamic, well-run not-for-profit corporations may flourish.”  It was a 1917 act, not 18th century. To imply that the Canadian government does not care about non-profits and would wait 120 years to revamp the act is unfair.  They only waited 92 years. Also Minister Abloncy I hope you have something more up your sleeve - this Act by itself does not “provide[s] a solid basis on which healthy, dynamic, well-run not-for-profit corporations may flourish”.  Except for a corporate or charity lawyer in a field of dreams this Act will have only a minor benefit to non-profits and unfortunately it may take 10-15 years to really see the benefit.  In the first 5 years the amount of time, distraction, resources, effort to convert etc will probably do more to promote the corporate legal bar and assorted consultants than actually improve the capacity of charities.  It is a nice try but I hope that the government will not consider that it has done its bit by passing this legislation.  It is, minus a few concerns, a positive piece of legislation but it is not a panacea to the many problems undercutting the charitable sector. 

Liberal Speech at Second Reading - Mr. Marc Garneau (Westmount—Ville-Marie, Lib.) 
http://www2.parl.gc.ca/HousePublications/Publication.aspx?Mode=1&Parl=40&Ses=2&Language=E&DocId=3655358&File=0#SOB-2588256
His comments defy gravity.  Ok no more astronaut jokes.  He likes the bill ” If passed, Bill C-4 will implement new rules on financial reporting based on the organization’s annual revenue and sources of funding, new rules on standard of care for directors and new rules for direction liability, new rules that permit written resolutions in place of meetings and allow corporations to avail themselves of technological advances, also new rules permitting members access to certain information to monitor director activities and enforce their rights within the organization and a streamlining of the incorporation process and a reduction in the regulatory burden for the not for profit sector.”
Hyperbole Alert: ” In other words, with this new bill, the sometimes endless and often complicated incorporation process will be streamlined and simplified.”  Are you kidding me, there are 19,000 federal non-share capital corporations.  Yes you have to wait 20 business days to get an incorporation under the current Canada Corporations Act (CCA) but that is nothing compared to waiting one year for a charity application to be processed or 1.5 years for CIDA to approve an application that used to take 6 months. 

Bloc Québécois Speech at Second Reading (Mr. Robert Vincent (Shefford, BQ))
http://www2.parl.gc.ca/HousePublications/Publication.aspx?Mode=1&Parl=40&Ses=2&Language=E&DocId=3655358&File=0#Int-2588298
He likes the Bill but has a concern about the Federal government to some extent legislating in an area of provincial jurisdiction.  “As well, section 154 of the Canada Corporations Act currently stipulates that the federal minister may grant a charter of incorporation if the corporation thereby created pursues objects “to which the legislative authority of the Parliament of Canada extends, of a national, patriotic, religious, philanthropic, charitable, scientific, artistic, social, professional or sporting character, or the like objects.”  But it appears that the proposed new legislation would not require a not-for-profit organization to include in its statutes the objects it intends to pursue, thus sidestepping the whole notion of specifying what action an organization can take in accordance with its goals.  Since we know that the federal Parliament only has jurisdiction over organizations that do not have provincial goals, this raises the following question: Why does the bill not include some provision to oversee what falls under federal jurisdiction? The Bloc Québécois feels that this question should be studied in committee. These are legitimate issues that the Bloc Québécois is trying to defend.  Under section 92 of the Constitution, managing the social economy, volunteering and community activities falls within provincial jurisdiction. As set out in that section, all matters of a merely local or private nature fall under Quebec’s exclusive jurisdiction.  I repeat; it is important to note that the federal Parliament has jurisdiction over only those organizations that do not pursue provincial objects. Section 92, subsection 11 of the Constitution Act, 1867 grants the incorporation of companies with provincial objects specifically to the provinces.  Accordingly, there seems to be a serious flaw in the bill and it must be carefully examined to avoid any potential conflict between the provinces and the federal government. The bill must be amended to limit its application to not-for-profit corporations that operate in several provinces, that have offices in several provinces or whose object comes under federal jurisdiction.  Adding these limitations is not mandatory per se. Constitutionally, the federal government does not have the authority to legislate in areas of Quebec jurisdiction. However, to avoid any confusion that could arise from the new wording of the legislation, it would be wise to include provisions limiting the scope of its application.”

New Democratic Party Speech at Second Reading (Ms. Libby Davies, Vancouver East, NDP)
http://www2.parl.gc.ca/HousePublications/Publication.aspx?Mode=1&Parl=40&Ses=2&Language=E&DocId=3655358&File=0#Int-2588360
She has concerns about the length ie. 170 pages.  ” The not-for-profit sector and our non-profit organizations have had to rely more and more on voluntary contributions and donations. They are always scrambling for money. The biggest issue facing the voluntary sector is not 170 pages of Robert’s Rules of Order and a regime of putting everyone under one size fits all, it is the question of stable long-term funding. Long gone are the days when non-profit organizations could rely on core funding to continue with their core operations and then expand to whatever programs they were doing. Now every organization, I dare to say, spends probably one-quarter or more of its time writing grant applications, chasing down every small bit of money that they can in order to develop their programs.  In my riding of Vancouver East there are organizations that are literally on the front line. They are literally dealing with life and death situations. These organizations are democratic. They are transparent. Everything that they do is out there for people to see and to become involved in.  In looking at the bill, I have some very serious questions as to why we are so focused on a regulatory regime for not-for-profits when we are completely missing the point of what is the real crux of the issue for non-profits in this country. The NDP, in going through this 170 page bill clause by clause and looking at the incredibly detailed micromanagement requirements that are in there, these organizations will now have to go through various hoops and there are processes and regulations involving a lot of paperwork and reporting requirements. It is absolutely incredible. It is 170 pages of things they have to note and make sure are followed up.”

Hyperbole Alert:   “I certainly have a concern that the bill in its current form will make it very difficult to attract new directors and volunteers in the not-for-profit sector. Anybody faced with this massive regulation would say, “I came here to do good work. I came here to make a contribution to my community. I came here to make good decisions. I came here to help people,” and all of a sudden that person is faced with having to deal with a massive bureaucratic regime, where one size fits all right across the country.  We have to seriously question whether or not the bill, if it is adopted in its current form, would have a counter-effect. Maybe it is being put forward from the point of view of transparency and accountability, but it may have the effect of turning people right off and asking why on earth they would get involved in doing this work when there are so many requirements and responsibilities.”  Ms Davis people don’t read the CCA, because it is long and incomprehensible to most directors, I don’t think this new legislation is going to make it worse.  It is hard to get people to volunteer for boards and actually attend the meetings and come prepared because people are working too hard (60 hour weeks), they do not have access to adequate child care solutions like universal day care and right now they are worried about their own jobs.  I am sure you will not disagree that those are factors!  Finally and most importantly a whole industry has been created of scaring directors into thinking that being on a non-profit or charity board is very risky and the likelihood of litigation is great (and providing advice to those anxious directors).  We all deal with risk everyday.  Serving on a non-profit board is a lot less risky than skiing or playing hockey - two things I try hard to avoid because skiing is plain dangerous, especially if you don’t have a helmet, and also I don’t skate. 

Clarification needed alert:  “Another concern that we have about the bill is that it does not address the relationship between charity status, Revenue Canada and the issue of advocacy. This has been a long-standing debate. There are organizations that are very concerned about the severe limits that are put on them to do advocacy work. Somehow advocacy has become a negative word. It has become a negative component to the work that is done. However, what I see in my community is that the advocacy work, which does not mean that it is partisan, to uphold people’s rights, whether it is in legal aid, housing or groups that have been very marginalized, is very important for the not-for-profit sector. This issue has not been dealt with at all.”  This made no sense but Libby if you want to call I would be happy to discuss.  Read the CRA Policy Statement on Political Activities (CPS-022) if you want to understand what political activities a Canadian charity can undertake with the blessing of CRA.  Canadian charities currently spend $50 million on political activities, even though by my calculation under the CRA rules they are allowed to spend about $15 billion.  Don’t blame CRA because many Canadian charities have not read CPS-022, don’t want to take the time to understand the political process, don’t want to allocate real resources to political activities, don’t appreciate the important role that government plays in so many aspects of our lives etc.  It is vital that Canadian charities be engaged in allowable political activities as set out in CPS-022, but this corporate statute is not the place to deal with it. 

 

There was some interesting back on the forth on the bill:

Superior North, NDP): 
  Mr. Speaker, we understand the need for bringing our corporations act into the 21st century. However, we are rather disappointed that a fairly straightforward six page present act has been expanded into a rather bloated a one hundred and seventy page document. We believe there will be need for amendments to the bill.  We are particularly concerned that the bill would increase the record keeping and regulatory burden on non-profits, especially the small non-profits. It seems to treat the average legion social club the same as it treats the Red Cross of Canada. We are concerned that the record keeping requirements will become onerous.  We hope there will be some trimming down and some thought given to that sort of thing. What we seem to have is a 170 page expansion and legalization of Robert’s Rules of Order.

Mr. Marc Garneau: 
  Mr. Speaker, I take note of the member’s comments. It is a large document, but the consensus that has been reached in consultations over a period of six to eight years is this is in fact a document that streamlines and clarifies the responsibilities and the processes involved with being a non-profit corporation.  However, I take note of the member’s comments. It would be important to ensure that small organizations would not burdened to the same extent as larger organizations. I welcome the member’s input to the committee discussions that will take place in due course to move toward a ratification of the bill.

...
Mr. Paul Szabo (Mississauga South, Lib.): 
  ...    The area I want to comment on is with regard to the coming into force of the regulations. The member may want to comment on this. The bill has a substantial section on the regulations. One of the regulation provisos indicates that the governor in council, basically the cabinet, can establish regulations. It gives cabinet the power to define certain terms used in the bill but they are not defined in the bill, which I find very unusual.  The bill provides substantive latitude and causes me a bit of concern with regard to the facility to be able to change the scope of legislation through regulation rather than through the legislation itself. In normal cases, regulations are enabled by the legislation itself. I raise this from the standpoint that I hope the committee will look at the extensive provisions allowing for regulations to be put forward. In my own view, they appear to be fairly broad and sweeping and there may be items here that should be incorporated into the legislation as it exists rather than at some other time at the discretion of cabinet.

 

———-

PRESENTATION BY THE CANADIAN RED CROSS SOCIETY  TO

THE STANDING COMMITTEE ON INDUSTRY, SCIENCE AND TECHNOLOGY

CONCERNING: BILL C-4 AN ACT RESPECTING NOT-FOR-PROFIT CORPORATIONS AND CERTAIN OTHER CORPORATIONS

TUESDAY, MARCH 10, 2009

APPEARING FOR THE CANADIAN RED CROSS:

Main speaker:  Alan D. Reid, Q.C., General Counsel
Witness:  Pam Aung Thin, National Director of Public Affairs and Government Relations

Monsieur le Président et membres du comité,

Au nom de la Croix-Rouge canadienne, je tiens à vous remercier de nous permettre de comparaître devant le Comité permanent de l’industrie, des sciences et de la technologie.

Permettez-moi tout d’abord de vous parler brièvement du mandat de la Croix-Rouge canadienne, avant de laisser la parole à notre conseiller juridique, M. Alan Reid, qui présentera nos commentaires concernant le projet de loi C-4 régissant les organisations à but non lucratif et certaines personnes morales..
La Croix-Rouge canadienne est un organisme humanitaire à caractère bénévole sans but lucratif, qui se consacre à améliorer la condition des plus vulnérables au Canada et partout dans le monde grâce à l’appui et le dévouement de plus de 30 000 bénévoles et membres, ainsi que de ses 3 500 employés.  La Société est dotée d’un mandat unique – celui d’auxiliaire des pouvoirs publiques à tous les échelons au Canada.  En ce sens, la Croix-Rouge canadienne joue un rôle essentiel en assurant le lien entre les gouvernements, la société civile et les collectivités qu’elle dessert..

La Croix-Rouge canadienne est membre du plus important réseau humanitaire au monde qui comprend plus de 100 millions de bénévoles et membres à travers le monde..  Elle fait partie du Mouvement international de la Croix-Rouge et du Croissant-Rouge, qui est formé du Comité international de la Croix-Rouge, de la Fédération internationale des Sociétés de la Croix-Rouge et du Croissant-Rouge et de 186 Sociétés nationales de la Croix-Rouge et du Croissant-Rouge..

Aujourd’hui, au nom de la Croix-Rouge canadienne, nous tenons à vous assurer de notre appui global au projet de loi C-4.  Je vais maintenant laisser M. Reid, présenter de manière plus détaillée nos commentaires et recommandations.

Mr. Chair,
Members of the Committee,

The Canadian Red Cross recognizes the need for new legislation governing not-for-profit corporations in Canada. Moreover, the Society participated in consultations organized by Industry Canada in 2002, and those consultations have influenced in many respects the form and content of Bill C-4.
In particular we welcome:

• Specific authority for telephonic and electronic meetings and voting;
• Authority to make binding unanimous resolutions without meeting;
• Tighter conflict of interest requirements;
• Broadening of indemnification authority, including indemnity advances, which may become increasingly relevant given the current public appetite for enforcing governance accountability;
• Overall, the increased deference Bill C-4 extends to corporate by-laws on many issues that were formerly regulated by the CCA and Ministry policy directives.

In 2005, the Canadian Red Cross appeared before the Committee to express its support for Bill C-21, a forerunner to Bill C-4, as well as to make some general observations, which we believe still largely apply.

While we support the “as of right” approach to incorporation, and welcome the fact the new corporate model will eliminate “up front” government regulation (e.g. no Ministerial approval of articles or by-laws), we note that the new corporate model places a large emphasis on self-regulation, and on checks and balances resting upon enhanced legal rights and access to courts. Bill C-4 is detailed and difficult legislation, and will be complemented by lengthy regulations. It will pose compliance challenges, not just for small not-for-profits that operate without legal departments and/or sizeable legal budgets, but even for large organizations such as the Canadian Red Cross, with easier access to legal assistance.  Every new comprehensive piece of legislation presents interpretive and operational issues, and Bill C-4 is no exception. It calls upon not-for-profits to address many new challenges: e.g. - systems for tracking and allowing access to a large and changing membership (in the case of the Society); procedures to meet enhanced accountability thresholds; adjustments to new financial procedures; re-doing of by-laws - all of which will require careful efforts to ensure that governance provisions and practices measure up to the new standards. Because there is a lot of room for error, and for disputes, in adapting to this new model, we encourage the government to support and build upon current Industry Canada initiatives to educate the not-for-profit, in particular the voluntary sector, through publications, websites, model by-laws, workshops, non-binding administrative opinions on key issues, all of which will assist not-for-profits, both large and small, in their due diligence and other compliance efforts.

While it is noted in the accompanying explanatory text that the Bill provides directors with an express “due diligence” defence against potential liability, we note also that the Bill equally promises to enhance and protect member rights and gives members additional power to enforce their rights and to oversee the activities of their organizations, as well as to monitor the directors’ activities. Finding ways of satisfying due diligence will become even more challenging and critical for directors than it is today. Arguably, this Bill may heighten tension between membership and directors, increasing the risk of liability rather than reducing it. While we have no doubt that well-qualified directors will continue to come forward to serve the not-for profit and charitable sectors, it will be interesting to see how insurance underwriters will assess the balance of risk and rights, and what impact this legislation will have on already steep premiums for directors’ and officers’ liability insurance.

In part, this question may be influenced by the extent to which the new corporate model stimulates resort to courts to resolve corporate governance issues. Given our concern that enhanced members’ rights, coupled with broader judicial remedies, could elevate dispute resolution costs for not-for-profits and charitable organizations, we would have preferred to see overt legislative encouragement of administrative process and alternative dispute resolution mechanisms. Section 293 gives the Director authority to “make inquiries of any person relating to compliance with this Act,” but for the most part the Director, like everyone else in the new model, may feel compelled to rely on courts to enforce compliance. We hope that the legislative model will prove flexible enough to allow for less formal and less costly means of resolving member/board/management tensions, as well as compliance issues raised by the Director, and we would encourage the government to create and finance a mandate for Industry Canada to assist not-for-profits in developing efficient and humanitarian approaches to resolving compliance issues, in lieu of engaging the courts.

The Canadian Red Cross, in preparing for this presentation, has chosen not to single out particular sections and clauses of Bill C-4 for specific criticism. Doubtless there are sections that might be improved, but a lot of work has gone into this Bill over many years by many experts in the field, and we choose not to repeat before this Committee comments we may have made in the reform process that have not found their way into Bill C-4. Notwithstanding small concerns that we may have about some of the details of certain provisions of the Bill, our primary message to the Committee today is that we view Bill C-4 as an important legislative initiative, and support the change it will bring. We will undoubtedly gain a deeper understanding of its complexities as we work through our governance and financial procedures in an effort to bring the Society into compliance with the new regime.

We would like to see the Bill move through the legislative process as quickly as possible. Reform of this area has been a long time in coming, and we are anxious to get on with the task of adjusting to the new regime.

Thank you once again for inviting us to appear before you.
Merci.

——-

March 18, 2009

Canadian National Avoid a Charity Scam Day

For those interested in celebrating National Avoid a Charity Scam Day you might find this interesting.

Charity Scams in Canada - Costing Us All A Lot

Here is some statistical information on Charity Scams - Costing Us All A Lot.  Just to give some perspective far more funds flow to charity tax avoidance schemes in Canada than to all the money spent by Canadian charities on relieving poverty in the developing world!! 

March 17, 2009

Tax Havens Cause Poverty

If you are interested in assisting reduce or eliminate extreme poverty and you want more than writing a cheque to fix a symptom of a problem then you might find this note interesting.  Various groups have highlighted the importance of tax havens in undermining foreign governments in their development work by being a mechanism by which the wealthy can avoid paying taxes.  What does government in Canada provide to us?  Schools, hospitals, universities, social safety net, police.  Imagine what Canada would look like if we had almost no tax revenue.  Within a decade or two there would be no schools, hospital, universities, social safety net, police etc. 

From Oxfam:

http://www.oxfam.org/en/pressroom/pressrelease/2009-03-13/tax-haven-could-deliver-120bn-year-fight-poverty

Tax haven crackdown could deliver $120bn a year to fight poverty
13 March 2009
“Developing countries are losing billions every year that would provide a vital boost to their economies and could be spent on reducing poverty.”

Sebastien Fourmy, Policy and Advocacy Director
Oxfam FranceDeveloping countries miss out on up to $124 billion every year in lost income from offshore assets held in tax havens, international agency Oxfam said today ahead of the G20 Finance Ministers’ meeting on Saturday.

A new analysis conducted for Oxfam by James Henry, former Chief economist at McKinsey & Co, found that at least $6.2 trillion of developing country wealth is held offshore by individuals, depriving developing countries of annual tax receipts of between $64-124bn. If money moved offshore by private companies was included this figure would be much higher.

The scale of the losses could outweigh the $103bn developing countries receive annually in overseas aid. And capital flight is a growing problem with an additional $200-300 billion being moved offshore each year.

Tighter regulation of tax havens will be a key item on the agenda of G20 Finance Ministers meeting ahead of the London Summit on April 2 and is the subject of a public seminar and demonstrations on Jersey today.

Oxfam is calling for reform of tax havens and wider reform of the financial system to reduce volatility, increase accountability and give developing countries a greater say in the management of the global economy. It is also pressing G20 leaders to agree a bailout for poor countries to help them escape the worst affects of the financial crisis.

British Prime Minister Gordon Brown has recently spoken of the need for action on tax havens, which include British territories such as Jersey, Isle of Man and the Cayman Islands, but has not yet come up with any concrete proposals. France and Germany have been leading calls for a crackdown.

Sebastien Fourmy, Policy and Advocacy Director from Oxfam France said: “Developing countries are losing billions of pounds every year that would provide a vital boost to their economies and could be spent on reducing poverty.

“This money could pay for health and education services, for protection against the deepening impact of the economic crisis such as safety nets to help those who have lost jobs and for projects to protect poor people already affected by climate change. $16bn a year would be sufficient to give every child a school place and $50bn a year is needed to help poor countries protect their people from climate change.

“The current financial crisis shows our leaders can no longer afford to stand idly by whilst tax havens take billions of pounds from the pockets of taxpayers in rich and poor countries alike.

”Reform of tax havens would be an easy win for our leaders that would benefit ordinary people at home and abroad alike. There is no longer any excuse for delay.”

Oxfam is calling for new rules requiring tax havens to disclose information on money entering their jurisdiction and for multinational companies to report the taxes they pay in each country in which they operate. This would allow countries to identify individuals and organizations that illegally avoiding tax and take action to recover it.

From the Tax Justice Network website:

TAX HAVENS CAUSE POVERTY
The Tax Justice Network promotes transparency in international finance and opposes secrecy. We support a level playing field on tax and we oppose loopholes and distortions in tax and regulation, and the abuses that flow from them. We promote tax compliance and we oppose tax evasion, tax avoidance, and all the mechanisms that enable owners and controllers of wealth to escape their responsibilities to the societies on which they and their wealth depend. Tax havens lie at the centre of our concerns, and we oppose them.

Take a look at our core themes:

We support sustainable finance for development
We support international co-operation on tax, regulation and crime
We oppose tax havens and offshore finance
We support transparency and we oppose corruption
We support a level playing field in competitive markets
We support progressive and equitable taxation
We support corporate responsibility and accountability
We support tax compliance and a culture of responsbility
These issues affect rich and poor countries, and, like the fight against corruption, our approach does not fit easily into either of the old political categories of left and right. We do not argue generally for high or low taxes (that is for voters to decide) but we note the often better human development outcomes in higher-tax countries and oppose the demonisation of tax that is fashionable in some circles. What we do support is progressive and equitable taxation, which is what voters around the world have chosen. We wish to see nations’ sovereignty restored, so that electorates are given back the power to get the tax systems they vote for. To this end we advocate much stronger co-operation between states on tax and regulation. This will help us address the growing tension between global integration and a shortage of credible international governance.

For more information visit:

http://www.taxjustice.net/cms/front_content.php?idcat=2

Other information that may be of interest:

Christian Aid
http://www.christianaid.org.uk/resources/policy/tax.aspx
http://www.christianaid.org.uk/Images/The-morning-after-the-night-before.pdf

Inter Pares
http://www.interpares.ca/en/story/gone_offshore.php

 

 

 

 

 

 

 

 

 

March 10, 2009

Canadian Charities

There are over 83,500 Canadian registered charities.  If you want to find out about a registered charity the first place to look is the CRA’s website to see if they are registered and their T3010 Registered Charity Information Return at http://www.cra-arc.gc.ca/chrts-gvng/chrts/menu-eng.html  Google also provides often useful information.  The Globe and Mail, Toronto Star and Vancouver Sun have also written interesting articles on the charity sector.  Canadiancharitylaw.ca has information on the legal requirements and ethical standards for Canadian registered charities at http://www.canadiancharitylaw.ca.  CharityVillage has lots of information on jobs within the charity sector as well as articles on different charity related subjects at http://www.charityvillage.com  If you want to donate to any Canadian charity online, even if they do not have a website, you can do so through http://www.canadahelps.org 

February 25, 2009

OECD Report on Abuse of Charities for Money Laundering and Tax Evasion - Canada does very poorly

The OECD Report on Abuse of Charities for Money Laundering and Tax Evasion is well worth reading for anyone who cares about the Canadian charitable sector.  On my quick read of the report it seems that Canada has probably more charity tax evasion than any other country.  The complete report is at: http://www.oecd.org/dataoecd/30/20/42232037.pdf  I will be writing an article on the ethics of professional advisors, especially charity lawyers, being involved with advising and defending charity tax evasion schemes.