August 15, 2009

Upcoming Charity Law Presentations in Canada by Mark Blumberg for CapacityBuilders

For a list of some of my upcoming workshops for CapacityBuilders you can visit http://www.capacitybuilders.ca/clip/clip.php

In September, October and November I will be delivering workshops in a number of different cities across Canada.

Mark Blumberg is a lawyer at Blumberg Segal LLP in Toronto, Ontario.  He can be contacted at .(JavaScript must be enabled to view this email address) or at 416-361-1982. To find out more about legal services that Blumbergs provides to Canadian charities and non-profits please visit http://www.canadiancharitylaw.ca or http://www.globalphilanthropy.ca

August 11, 2009

CRA Announces 2009 Charities Information Sessions (formerly Roadshows)

The CRA has begun announcing their free 2009 Charities Information Sessions (formerly Roadshows) at http://www.cra-arc.gc.ca/chrts-gvng/chrts/cmmnctn/sssns/nvttns/menu-eng.html

July 31, 2009

CRA releases fillable T2050 Application to Register a Charity Under the Income Tax Act

The Charities Directorate of the Canada Revenue Agency just released a fillable T2050 Application for charitable status which will make it easier for organizations to complete the form and presumably make it more legible.  You can obtain a copy of the form at http://www.cra-arc.gc.ca/E/pbg/tf/t2050/README.html  Although the form may look simple, and is now easier to fill in, it is actually a form covering many different areas of charitable law and it is often a good idea to get some legal advice and assistance with incorporation and applying for charitable status.

Revised CRA questions and answers on applying for registered charity status

Here is a revised CRA “Questions and Answers” for charitable registration http://www.cra-arc.gc.ca/chrts-gvng/chrts/pplyng/fqr-eng.html

July 27, 2009

Charity Law Information Program (CLIP) - Annotated T3010B Registered Charity Information Return

Here is a copy of the Annotated T3010B http://www.capacitybuilders.ca/clip/clip-resources.php from CLIP.  It will be updated periodically to include different information from different sources.

The Charity Law Information Program (CLIP) is a project of Capacity Builders, funded by 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.  CLIP will provide plain-language resources, tools and practical training so you can quickly get the information you need to ensure you are meeting your charity’s legal obligations. Special emphasis will be placed on supporting small and rural charities. 

July 26, 2009

Gifts by Canadians to US Charitable Organizations - Some general CRA comments

Here is a copy of a recent letter from CRA with respect to gifts by Canadians to U.S. charitable organizations.  It summarizes CRA’s views on the subject.

LANGIND E

DOCNUM 2009-0322801E5

AUTHOR Danis, Sylvie

DESCKEY 25

RATEKEY 2

REFDATE 090717

SUBJECT Gift to U.S. Charitable organizations

SECTION 110.1(1)

SECTION 118.1(1)

SECTION 118.1(9)

SECTION Canada-US Treaty Article XXI

$$$$

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.

Prenez note que ce document, bien qu’exact au moment émis, peut ne pas représenter la position actuelle de l’ARC.

PRINCIPAL ISSUES: Guidance requested with respect to gifts to U.S. Charitable organizations
POSITION:  General comments provided.
                         

2009-032280

XXXXXXXXXX                             Sylvie Danis
                                    (613) 957-3496

Attention:      XXXXXXXXXX
     
July 17, 2009

Dear XXXXXXXXXX :

Re:  Principal-Protected Loans (“PPLs”)

This is in response to your request for an advance income tax ruling dated May 11, 2009 concerning charitable gifts to a U.S. organization. 

We are unable to provide an advance income tax ruling since written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance income Tax Rulings, dated May 17, 2002.  Accordingly, a refund of your deposit will be sent to you under separate cover.  Notwithstanding the above, we are prepared to provide the following general comments, which may be of assistance.

Section 118.1 of the Income Tax Act (the “Act”) provides that individual taxpayers may claim a credit against taxes payable, within specified limits, for an eligible amount of a gift made to a qualified donee, if supported by an official receipt.  Section 110.1 of the Act permits a corporation to claim a deduction, within specified limits, in computing taxable income in respect of an eligible amount of a gift made by the corporation to a qualified donee, if supported by an official receipt.  Generally donors can claim gifts in the year of the gift or in any of the five years immediately following, up to a limit of 75% of net income.

A qualified donee as defined in subsection 149.1(1) of the Act includes a registered charity which is defined in subsection 248(1) of the Act as a charitable organization, private foundation or public foundation that is resident in Canada and was either created or established in Canada that has applied to the Minister in prescribed form for registration and that is at that time registered as a charitable organization, private foundation or public foundation.

A qualified donee also includes a charitable organization outside Canada to which Her Majesty in right of Canada has made a gift in the year or in the 12 months immediately preceding that year.  A list of such charitable organizations is available in IC84-3R5 - attachment.  This Information Circular and other Canada Revenue Agency publications can be accessed on the internet at http://www.cra-arc.gc.ca.  According to the IC84-3R5 attachment revised May 7, 2009, Her Majesty in right of Canada has not made a gift to XXXXXXXXXX in recent years.

The term “gift” is not defined in the Act and therefore assumes its common law meaning. Under common law, a bona fide gift is a voluntary transfer of property from a donor, who must freely dispose of his or her property, to a donee, who receives the property given with no right, privilege, material benefit or advantage conferred on the donor or any person designated by the donor in exchange for the donor making the gift.  However, proposed subsections 248(30) to (32) of the Act allow for the recognition of a gift for tax purposes in certain situations where a donor, or a person who does not deal at arm’s length with the donor, receives consideration or other advantages for property transferred.  Pursuant to proposed subsection 248(31) of the Act, the eligible amount of a gift is the excess of the fair market value of the property transferred to a qualified donee over the amount of the advantage provided. 

Where a taxpayer makes a loan to an organization, the loan is not a gift. However, where the loan is interest bearing, the taxpayer may subsequently transfer the interest earned on the loan to the organization.  In such a case, the eligible amount of the gift made by the taxpayer for purposes of the donation tax credit or deduction will, subject to the limitations discussed above, be the amount of the interest transferred provided that the organization is a qualified donee.  The taxpayer will, however, be required to include the amount of the interest earned in the calculation of income. 

Where the loan is interest free, the taxpayer will not be in receipt of income and will not be entitled to a donation tax credit or deduction.

To the extent that any portion of the principal is forgiven, the forgiven amount can generally be considered a gift to the donee.

Under subsection 118.1(9) of the Act, an individual who resided in Canada near the Canada and U.S. border throughout a taxation year and commuted to his or her principal place of employment or business in the United States may claim a tax credit for gifts made to a religious, charitable, scientific, literary or educational organization created or organized under U.S. law that would be allowed as a deduction under the United States Internal Revenue Code.  Such gifts are not limited to U.S. source income but are included in the individual’s “total charitable gifts” for purposes of section 118.1(1) of the Act and are treated in the same manner as gifts to Canadian registered charities.  To qualify under this provision, the individual’s chief source of income for the year must be from that employment or business.

The Convention Between Canada and The United States of America With Respect to Taxes on Income and on Capital Signed on September 26, 1980, as Amended by the Fifth Protocol signed on September 21, 2007 (the “Canada-U.S. Treaty”) also provides limited tax relief with respect to gifts made by Canadian residents to certain U.S. organizations.  Pursuant to paragraph 7 of Article XXI of the Canada-U.S. Treaty, for the purposes of Canadian taxation, gifts by a resident of Canada to an organization that is a resident of the United States, that is generally exempt from United States tax and that could qualify in Canada as a registered charity if it were a resident of Canada and created or established in Canada, shall be treated as gifts to a registered charity to the extent they do not exceed 75% of the taxpayer’s income from U.S. sources.

We trust the above comments are of assistance.  However, as stated in paragraph 22 of Information Circular 70-6R5, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Revenue Agency in respect of any particular situation.
Yours truly,

Terry Young, CA
A/Manager
Charitable and Financial Institutions Sectors
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

July 25, 2009

New T2050 (09)  from CRA for charity status applications

In late July 2009 CRA changed the 2008 T2050 form to the new T2050 (09) - they added a few blank pages to the 2008 revised application form for example for the description of activities.The new form can be found at: http://www.cra-arc.gc.ca/E/pbg/tf/t2050/ 

July 04, 2009

CRA publishes warning on issuing official donation receipts for gifts of services by Charities

CRA has just published a reminder to charities that “Issuing receipts Caution: Gifts of services.  A registered charity is not permitted to issue an official donation receipt for a gift of service. At law, a gift is a voluntary transfer of property. Gifts of services (donated time, skills, or efforts) provided to a charity are not property, and therefore do not qualify as gifts for the purposes of issuing official donation receipts.”

You can see the CRA page on receipting at:

http://www.cra-arc.gc.ca/chrts-gvng/chrts/prtng/rcpts/menu-eng.html

Mark Blumberg is a lawyer at Blumberg Segal LLP in Toronto, Ontario.  He can be contacted at .(JavaScript must be enabled to view this email address) or at 416-361-1982. To find out more about legal services that Blumbergs provides to Canadian charities and non-profits please visit http://www.canadiancharitylaw.ca or http://www.globalphilanthropy.ca

This article is for information purposes only. It is not intended to be legal advice. You should not act or abstain from acting based upon such information without first consulting a legal professional.

July 01, 2009

Is transfer of proceeds to Canadian registered charity a gift? CRA discusses one situation

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.

Prenez note que ce document, bien qu’exact au moment émis, peut ne pas représenter la position actuelle de l’ARC.

PRINCIPAL ISSUES: Whether a transfer of proceeds to a registered charity is a gift by an individual

POSITION: No

REASONS: The transfer is made by a third party.

XXXXXXXXXX 2009-031403

Sylvie Danis

(613) 957-3496

May 25, 2009

Dear XXXXXXXXXX:

Re: Fundraising Strategy

This is in response to your e-mail of March 13, 2009, wherein you requested our comments on whether an amount transferred to a charity can be considered a gift by an individual for the purposes of the donation tax credit under subsection 118.1(3) of the Income Tax Act (“the Act”) in a situation where an individual posts information on a website operated by a taxpayer, such information is purchased by a third party for a fee, and the proceeds net of the taxpayer’s commission are sent to a registered charity of the individual’s choice. In this scenario, the taxpayer sets the sales price and the amount to be transferred to the charity .

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office.

Section 118.1 of the Act provides that individual taxpayers may claim a credit against taxes payable, within specified limits, for an eligible amount of a gift made to a qualified donee (which includes a registered charity ), if supported by an official receipt.

The term “gift” is not defined in the Act and therefore assumes its common law meaning. Under common law, a bona fide gift is a voluntary transfer of property from a donor, who must freely dispose of his or her property, to a donee, who receives the property given with no right, privilege, material benefit or advantage conferred on the donor or any person designated by the donor in exchange for the donor making the gift. A charitable gift must be made out of affection, respect, charity or like impulses, and not from the constraining forces of any moral obligation or legal duty.

Proposed subsections 248(30) to (32) of the Act allow for the recognition of a gift for tax purposes in certain situations where there is expectation by the donor that in return for the contribution, a benefit of any kind will be provided to the donor or a person designated by the donor. However, pursuant to proposed subsection 248(31) of the Act, the eligible amount of a gift is the excess of the fair market value of the property transferred to a qualified donee over the amount of the advantage provided to a donor.

In the situation presented to us, it is our understanding that the individual posting the information on the website will not be entitled to receive any proceeds from the sale of the information. It is our view that if the individual has no legal entitlement or right to receive proceeds from the sale, then it is not possible for the individual to voluntarily choose to transfer proceeds to a charity and as such, a gift has not been made by the individual for purposes of subsection 118.1(3) of the Income Tax Act.

We trust the above comments are of assistance. However, as stated in paragraph 22 of Information Circular 70-6R4, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Revenue Agency in respect of any particular situation.

Yours truly,

F. Lee Workman

Manager
Charitable and Financial Institutions Sectors
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

June 30, 2009

Consultation on the Proposed Guidance on Activities Outside of Canada for Canadian Reg. Charities

CRA has just released “Consultation on the Proposed Guidance on Activities Outside of Canada for Canadian Registered Charities”. CRA is seeking input and comment by September 30, 2009.  The Consultation was at http://www.cra-arc.gc.ca/chrts-gvng/chrts/cnslttns/ccrc-eng.html [It has now moved to ]http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cnslttns/ccrc-eng.html]  Here is a permanent copy of the Consultation on the Proposed Guidance on Activities Outside of Canada for Canadian Registered Charities   Proposed Guidance on Activities Outside of Canada for Canadian Registered Charities in PDF and here is a larger font printable version

I recently prepared a paper on an earlier draft of the guidance at:
http://www.globalphilanthropy.ca/index.php/blog/cra_consultation_on_foreign_activities_-_some_key_points/

If any readers of this website has comments on the guidelines I would be interested in hearing them.

Mark Blumberg is a lawyer at Blumberg Segal LLP in Toronto, Ontario.  He can be contacted at .(JavaScript must be enabled to view this email address) or at 416-361-1982. To find out more about legal services that Blumbergs provides to Canadian charities and non-profits please visit http://www.canadiancharitylaw.ca or http://www.globalphilanthropy.ca