The CRA yesterday released its guidance on ineligible individuals (CG-024). The new rules were announced in the 2011 Federal Budget and it is good to see CRA finally providing its guidance on ineligible individuals.
Here is the CRA summary:
The ineligible individual provisions in the Income Tax Act came into force on January 1, 2012. These provisions give the CRA the authority to refuse or revoke the registration of a registered organization and to suspend an organization’s receipting privileges when an ineligible individual is a board member or controls or manages the organization.
Previously when organizations were revoked for serious breaches of the Act, including issuing false receipts and participating in abusive tax shelter schemes, those who were in charge when the breaches occurred could apply for re-registration and establish new entities, and the CRA could not refer to this history as part of its decision-making process. Although the new legislative provisions give the CRA the discretion to determine which organizations will be registered, and which will have their registration revoked or suspended the CRA intends to act in a balanced way, recognizing that most organizations comply with the Act’s requirements.
The CRA recognizes that people with similar life experiences may provide important programming insights into the welfare, needs, and issues of certain beneficiary communities. It may, therefore, be appropriate in some cases for an organization to welcome an ineligible individual into its operations. The onus is on the organization to explain the role and contribution of the ineligible individual if the CRA expresses concern about him or her. For example, a registered organization that provides counselling services may explain that many people in its anger-management group have been convicted of assault. As such, a board member who is an ineligible individual because of a conviction of a similar criminal offense may be integral to helping the organization in hiring staff with appropriate skills and to designing effective programs for the group.
It is also important to note that the legislation does not require registered organizations to do searches or to proactively determine whether an ineligible individual is a member of the board or controls and manages the organization. Furthermore, there will always be an opportunity to explain why it is necessary to keep the ineligible individual or to outline what internal measures have been put in place to protect vulnerable beneficiaries and assets of the organization.
When the CRA intends to take action because of an ineligible individual, it will explain how the person is an ineligible individual, the ineligible individual’s position in the organization, and why an ineligible-individual provision is being invoked. The organization will have an opportunity to respond.
The guidance that follows describes in more detail who is an ineligible individual; when an ineligible individual’s position in an organization may threaten the registration or receipting privileges of an organization; and how the CRA will use its discretion.
Generally, an individual is ineligible if he or she:
has been convicted of an offence:
related to financial dishonesty; or
relevant to the operation of the organization; or
was connected to an organization whose registration was revoked for a serious breach of the requirements for registration. The connection was as
a director, trustee, officer, or like official;
an individual in a position of management or control; or
a promoter of a tax shelter, and participating in that tax shelter caused the revocation of an organization’s registration.
Although the Act defines ineligible individual, it does not prohibit such an individual from being a director or employee. Rather, the Act allows the CRA to consider whether or not to take action in relation to a registered organization or an applicant in such circumstances.
There are some interesting schedules including:
• Appendix A – Self-assessment questionnaire – Am I an ineligible individual?
• Appendix B – How can a registered organization protect its beneficiaries and assets?
• Appendix C – Questions and Answers
• Appendix D – Checklist for registered organizations regarding ineligible individuals
These schedules have some helpful suggestions in terms of risk management.
We have covered the topic of ineligible individuals extensively in 2011 at "2011 Budget and new “ineligible individual” category: How this can affect your Canadian registered"
There is little that is new in this guidance but I would point out a few interesting points:
1) It is obvious that a person who signs an application to register a charity is considered to have made the application. However CRA goes further "39. Aside from a signature on an application form, an application for registration is not complete until the CRA has all the information it needs to determine the applicant’s eligibility for registration. Therefore, anyone who provides information to the CRA about the applicant organization—its authorized representative or the contact person authorized to answer the CRA’s questions—will also be considered to have made the application." Therefore, charity applications may run into a stumbling block if the person or professional advisor putting in the application or answering questions on the application is an ineligible individual.
2) CRA notes "If you are a board member, work for, or volunteer with a registered organization, you may want to consider telling the board of directors that you are an ineligible individual. Then, if the CRA contacts the organization to express concerns, the organization will be able to explain what it has done to protect its beneficiaries and assets. Your registered organization may already have policies in place to deal with such a situation."
You can read the CRA guidance on Ineligible Individuals at: http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/cg-024-eng.html
Do you require legal advice with respect to Canadian or Ontario non-profits or charities?
Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.