Recent CLIP communique on disbursement quota (DQ) reform, fraud and cases
Published under: What's New from the Charities Directorate of CRA
Here are some recent items from the Charity Law Information Program (CLIP) Communique.
Canadian Budget 2010 Announces Disbursement Quota Reform for Canadian Charities
The Canadian federal government announced disbursement quota reform in the 2010 Budget to remove the 80/20 expenditure requirement for Canadian registered charities.
This change will make it easier for donors and charities to more flexibly endow or create a reserve for either a foundation or a charitable organization. In the past, in general, if a person donated a million dollars to a charity and received an official donation receipt either the charity needed to have those funds subject to a ten year direction where the capital cannot be spent for ten years or the charity would need to spend by the end of the following year 80% of the million dollars or $800,000. After the March Federal Budget there is now greater flexibility. A donor can donate money to the charity or foundation, and the charitable organization will only have to spend 3.5% of the average value of their reserves, endowments, investments, buildings owned by a charity but not used in charitable programs or administration to the extent the amounts are over the $100,000 mark. For foundations it is the 3.5% of the amount over the $25,000 mark. This change will make it easier for small charities to accumulate a reserve or have some investments. Charities and foundations however are not precluded from spending more than 3.5% and many will of course spend all of the funds on charitable activities. But this change does provide the donor and charity some flexibility to for example decide to spend 33% in the first year, 33% in the second year and the rest in the third year.
Keep in mind that any previous ten year directions or trust restrictions still need to be complied with. Charities need to carefully review their donation/endowment agreements to make sure that they reflect the current DQ regime.
CLIP Provides Over 20 Hours of Free Webinars until March 30
CLIP is providing over 25 different archived online webinars. They will be free until March 30, 2010 and you can see the list of webinars at http://www.capacitybuilders.ca/clip.
Canadian Charities and Embezzlement - When the River Runs Dry, the Jagged Rocks are Revealed
Recently, a US Report on major embezzlements by Marquet International was released. The report covers only one type of fraud namely embezzlement or the misappropriation of resources by an employee or agent of an organization for his or her own purposes. What is interesting is first the high number of non-profits who suffer from embezzlements. “Non-profit and religious organizations accounted for more than 11 percent of all the incidents, consistent with our 2008 findings.” For more information, please see http://www.globalphilanthropy.ca/index.php/blog/comments/canadian_charities_and_embezzlement
CRA Issues Tax Alert on Voluntary Disclosure Program (VDP) - “Come to us, before we go to you”
The CRA recently put out a Tax Alert - they identified that in the last fiscal year (2008-2009) they had “reassessed over 20,000 individuals who had participated in at least 1 of 20 unacceptable tax shelter gifting arrangements.” Also, they noted in the Tax Alert that when they prosecuted for fraud or tax evasion “Convictions were obtained in 98% of the cases prosecuted.” Consider the use of the voluntary disclosure program if you have made an incorrect or inappropriate filing.
Important Recent Case - International Pentecostal Ministry Fellowship of Toronto v. The Queen - (FCA)
In International Pentecostal Ministry Fellowship of Toronto v. The Queen (FCA) located at http://decisions.fca-caf.gc.ca/en/2010/2010fca51/2010fca/51.htmlthe Federal Court of Appeal confirmed CRA’s jurisdiction over Canadian charities registered under the Income Tax Act (Canada). In quite a strongly worded statement the decision states “We have not been persuaded that there is any merit to the Appellant’s argument that the provisions of the ITA [Income Tax Act] dealing with the registration and deregistration of charities are an unconstitutional infringement on provincial legislative authority. In our view, these provisions relate, in their pith and substance, to federal taxation, and accordingly they are intra vires the Parliament of Canada under subsection 91 (3) of the Constitution Act, 1867. Both the advantages of registration and the drawbacks of revocation relate solely to the tax treatment of charities and their donors. They do not impermissibly affect the affairs of charities in any other way, nor do they impede provinces from otherwise regulating charities.” The court also rejected the charity’s argument that CRA by going to revocation did not follow its own guidance. The court noted that CRA’s “decision falls squarely within the range of acceptable outcomes.” and that “it was reasonably open to the Minister to find the breaches sufficiently serious as to warrant revocation.”
Follow-up to the CLIP Conference Held in Toronto - February 22 and 23, 2010
We had a great Being Good at Doing Good conference in Toronto. CLIP had about 180 delegates and speakers from a number of countries. Thank you to the Canada Revenue Agency and Mackenzie Financial for sponsoring the event. Thank you to Joni Brunton, Susie Colbourn, Lisa Rideout, Cynthia Armour, Nancy Bell, Mark Blumberg, Sue Davidson and Susan Thorning from the OCSA/Capacity Builders/CLIP team for working so hard on the conference.