On November 1, the Canada Revenue Agency ("CRA") released for consultation a draft Guidance on Arts Organizations and Charitable Registration, which outlines CRA’s views
on when an arts organization will qualify for registration as a charity. CRA has invited comments from the public on
the draft Guidance, and will consider all comments received by January 13,
2012. Arts organizations operating as
registered charities, or considering applying for registration, should review
the draft Guidance carefully and consider submitting comments.
The Guidance focuses
on arts organizations operated for the purpose of advancing education or to
increase the public’s appreciation for the arts. CRA notes that the Guidance does not apply to
National Arts Service Organizations (a special designation given by the
Minister of Canadian Heritage to certain non-profit arts organizations
promoting arts across Canada) or organizations that seek to further other
charitable purposes through arts programs or activities such as providing art
therapy to relieve conditions associated with illness or disability.
The Guidance notes
that charities must be established for exclusively charitable purposes, and
provides examples of purposes in the arts context that would qualify as
charitable under the second head of charity (advancement of education) and the
fourth head (purposes beneficial to the community). The sample statements of purpose included in Appendices
to the Guidance will likely serve as model objects once the Guidance
Some of the examples
of arts activities that advance education include:
and delivering workshops, seminars, and classroom training or instruction on an
art form/style, or on a related topic such as marketing;
opportunities for students or young or emerging artists to exhibit, present, or
perform their works or develop their crafts or skills before the public, as
long as they are part of a broader educational program; and
or maintaining a resource library for particular art forms and styles.
In the context of
organizations organized under the fourth head of charity, CRA states that arts
organizations tend to fall under one of two categories:
that advance the public’s appreciation for the arts – this includes
organizations that focus on exhibiting, presenting, or performing artistic
works (in a way that meets the public benefit criteria, below); and
that promote commerce or industry in the arts – this includes organizations
that focus on enhancing an art form and style within the arts industry as a
whole for the benefit of the public, as opposed to advancing the interests of
those engaged in the industry.
The Guidance notes
that, in addition to the requirement to be established and operated for
exclusively charitable purposes, an organization must also meet the public
benefit test. In other words, it must
provide a tangible or objectively measurable and socially useful benefit to the
public or a significant segment of the public.
It must also ensure that any private benefits conferred as a result of
its activities are no more than incidental.
Public benefit is presumed in the absence of evidence to the contrary in
the case of educational arts organizations, but must be established when
seeking registration as a fourth head charity (i.e., to increase the public’s
appreciation for the arts).
In order to meet the
public benefit test, the art being exhibited, performed or presented must meet
‘art form and style’ and ‘artistic merit’ criteria. To meet the art form and style criterion, an
arts organization must establish that the art it will present falls within
categories of form (e.g., literature, dance, music, theatre) and style (e.g.,
within music: jazz, classical, choral) that have achieved common and widespread
acceptance within the Canadian arts community.
The artistic merit
criterion requires organizations to demonstrate that the art being presented is
of sufficiently high quality to qualify as a benefit to the public. CRA acknowledges the subjectivity involved in
such an assessment, and states that in order to demonstrate artistic merit, the
organization should be able to show:
showing that the selection by the organization of artistic works and artists
for presentation is, and will continue to be, controlled through open, unbiased
adjudication/audition processes, which apply predetermined quality standards;
more documents demonstrating that independent and expert sources (e.g.,
academic journals, professional art reviews, professional arts associations
etc) have accepted that the art or performer in question is of high quality.
The organization must
also ensure that it does not confer an excessive private benefit on private
beneficiaries in the course of its activities.
Examples of organizations conferring unacceptable private benefits would
that promote the commerce and industry of the arts mainly by offering support
services and advice to artists, significantly promoting the interests of
individuals engaged in the industry; and
with purposes or activities that are focused on promoting the careers of
artists, rather than on advancing the public's appreciation of art, resulting
in an advantage to a non-charitable recipient.
Other comments in the
The draft Guidance
makes several other important points regarding the registration and operation
of arts organizations. It notes that
when an organization uses third parties (e.g., performers) to conduct
activities on its behalf, the organization must be sure that it enters into a
written agreement with the third party that establishes the charity’s direction
and control over the use of its funds. CRA refers readers to its Guidance on working with intermediaries.
The Guidance also
addresses issues specific to the registration of cultural organizations –
noting that promoting a culture as such is not charitable, but that education
in or presentation of particular cultural art forms may be charitable. It also addresses issues specific to the
registration of arts councils, museums, art galleries and performing
With respect to public
comments, CRA notes that it will accept both general comments on the usefulness
and readability of the Guidance, as well as specific comments on particular
aspects of the Guidance. When making
specific comments, CRA requests that the comments include the following:
paragraph number of the section you are commenting on;
with the paragraph in question; and
or alternative that could be considered, if possible.
Arts organizations with
comments or questions arising from the Guidance are encouraged to send their
comments to CRA by January 13, 2012.
Directions on how to submit comments are set out at the front of the Guidance.
The CRA Charities Directorate has useful
information on its website for charities that are incorporated pursuant to the Canada Corporations Act that will be
required to continue under the Canada Not-for-Profit
Corporations Act (the “CNCA”).The
CNCA was proclaimed into force on October 17, 2011 and requires corporations incorporated under the Canada
Corporations Act (among others) to continue under the CNCA within three
years of this date.
Registered charities that have completed their
continuance under the CNCA are required to file the following documents with
the Charities Directorate:
a copy of the Certificate of
a copy of Form 4031, Articles
of Continuance (transition);
a list of current directors (if
a copy of the current By-laws
(if amended); and
a statement of current
activities (if the purposes have changed and have not been previously reviewed
by the Charities Directorate).
Charities continuing under the CNCA must
also complete and attach the Charities Directorate’s “continuance
(transition) checklist”. This
checklist confirms that all required documents have been included.
The Charities Directorate also provides a
helpful “questions and answers” page concerning the transition process into theCNCA.
This page can be found here.
CRA notes that corporations that fail to
file their Articles of Continuance by October 1, 2014 will be dissolved as
corporations. CRA advises that charities that have had their corporate status dissolved will receive a letter from CRA
warning that their registered status is in jeopardy. To avoid being revoked, charities will have
90 days from the date of receiving the warning letter to provide CRA with proof
of its status as a legal entity. This
could include a Certificate of Revival from Corporations Canada.
Charities incorporated federally should
start to think about the continuance process as soon as possible. The Miller Thomson Charities and
Not-for-Profit Group has begun to work with its clients on this process and
will be pleased to help any charities or not-for-profit organizations looking
for assistance with this process.
It has been more than a decade since the
federal government embarked on a course of making it easier to donate
significant amounts to charities, with changes ranging from increasing the
annual basic limit of donations from 20% to 75% and, more importantly, over time
introducing many rules to facilitate in kind transfers such as stock, stock
options and certain types of real estate.
While major gifts often require
sophisticated tax planning involving both the donor and donee, there are some
basic types of gifts of a small scale which would be beneficial to both donor
and donee. Indeed, smaller charities (and those who would donate to them) often
miss out on some very basic benefits simply because the organizations are not
familiar with the gifting options available.
We were considering, in particular, the
situation where a donor would like to donate listed stocks to a charity. The
tax rules have for many years exempted from capital gains tax the gain on a
transfer of listed stocks to a charity, thus allowing donors to avoid capital
gains tax while still receiving a donation receipt for the fair market value of
Consider the portfolio
of a “small” investor who among other things has shares with an adjusted
cost base of about $14 a share. They are now worth about $60 a share. He also
has many other “safe” investments, blue chips, which he had held for about ten
years including other bank stocks and oil stocks. This year he has some cash flow problems but
did not want to cut back on donations to some of his
favourite charities. He would
normally give between $1,000 and $2000 to each of a half dozen organizations,
including his church.
A gift of twenty
shares in this example would be worth about $1,200. We use this simple example
to illustrate the gifting options.
Suppose that in order to
give $1,200, he sold twenty shares of the stock. If he did this, we would get
the following result.
Cost of stock for tax purposes (20 times $14)
Proceeds of sale
Taxable capital gain (50% of full gain)
Tax liability (46% of $460)
Assuming he gifted a
full $1,200 to the charity, the value in cash of the tax credit would be
$552. Thus, after the gift had been
made, he would have $340 to offset other tax liabilities.
All the facts are the
same but the donor gifts twenty shares to the charity. The capital gain is exempt from
Cost of stock for tax purposes (20 times $14)
Proceeds of sale
Taxable capital gain
The value of the gift of course is still
$1,200, but he ends up with tax credits of $552; and equally important, he has no cash flow problem because he needn’t
make up any shortfall in cash to give the charity the $1,200.
The major problem we
have found is that because many charities do not have investments of their own,
they do not have a brokerage account to which the donated stock can be gifted.
As a consequence some charities simply do not want to take the gift of
stock. This is not a unique situation but it helps to explain the genesis of
the criticism that smaller charities do not benefit from the incentive. The
fact is that many would and could benefit if they were aware of the options and
took steps to accommodate different types of gifts.
There is no doubt that
which encourages the smaller charities to become familiar with the incentive
and to use it to enhance gifts and benefit donors would be desirable. It is not only the so-called “rich” who own
appreciated shares. More modest givers can get significant tax
benefits for comparatively modest gifts if they have the opportunity and if the
process were facilitated by the organizations which might get the gifts.
*A version of this
article was originally published in the December 2011 issue of Canadian Not-for-Profit News
In Canada, registered charities can only
carry on limited political activities.
The Income Tax Act provides that a charity may
devote a part of its resources to non-partisan political activities that are
ancillary and incidental to its charitable activities. A charity’s political activities cannot
include the direct or indirect support of or opposition to any political party
or candidate for public office.
Thus, a registered charity’s political
activities must be connected to the charity’s purpose and utilize less than 10%
of the charity’s financial, physical and human resources. This allows for limited lobbying activities
on the part of registered charities.
There is lobbying registration legislation
federally and in many provinces. A
charity that engages in lobbying a provincial or federal government should consider
if it has an obligation to file as a lobbyist with that government body.
Federally, under the Lobbying Act,a
corporation is required to file lobbying returns if the corporation employs one
or more individuals whose duties include communicating with public office
holders on behalf of the employer (or on behalf of any subsidiary or parent
corporation of the employer), in respect of:
the development of any
legislative proposal by the Government of Canada or by a member of the Senate
or the House of Commons;
the introduction of any Bill or
resolution in either House of Parliament or the passage, defeat or amendment of
any Bill or resolution that is before either House of Parliament;
the making or amendment
of any regulation;
the development or amendment of
any policy or program of the Government of Canada;
the awarding of any grant,
contribution or other financial benefit by or on behalf of Her Majesty in right
the awarding of any contract by or on behalf of Her Majesty in right of Canada; or
arranging a meeting between a public office holder and any other person.
These activities also include appeals made
by a charity to persuade the public to communicate directly with a public
office holder in an attempt to persuade the public office holder to endorse a
A public officer includes any officer or
employee of the government of Canada.
This term is quite broad and includes officers or employees of the
Senate, the House of Commons, a federal board, commission or other tribunal, Canadian Armed Forces, and Royal
Canadian Mounted Police. It also includes a person who is appointed to any
office or body by or with the approval of the Governor in Council or a minister
of the Crown, other than a judge or the lieutenant governor of a province.
A corporation must register if these
lobbying activities constitute a significant part (at least 20%) of the duties
of one employee or would constitute a significant part of the duties of one
employee if they were performed by one employee.
The Lobbying Act
defines employee as including an officer who is compensated for the performance
of their duties. Thus, the Lobbying Act does not
require the registration of duties performed by volunteers.
Failure to file a return is an offence and
could result in substantial fines and prohibition against the Charity from
communicating with public officials for a period of up to two years.
Charities engaged in politics should ensure
their activities are within the scope allowed by the Income
Tax Act and that the charity is in compliance with the relevant lobbying
legislation. This article has provided a
brief overview of some of the federal lobbying legislation. However, lobbying legislation in the province
The lawyers in Miller Thomson LLP’s Charity
and Not-For-Profit Group can assist charities to understand and comply with the
rules on political activities.
Rachel Blumenfeldspoke at the Jewish Foundation of Greater Toronto on “Planned Giving” with David Brown on November 2, 2011.
Kellymade presentations in October 2011 to
four groups of soon-to-retire school principals, vice-principals and
teachers on Powers of Attorney and Wills.
Robert Hayhoespoke at New York University Law School National Center on Philanthropy and the Law, 23rd Annual Conference (New York) on October 2011 on the topic “Border Patrol Around the World: Private and Public Benefit in Canadian Charity Law.”
Robert Hayhoeand Susan Manwaringparticipated in a panel at Osgoode Hall Law School, York University (with T. Carter, E. Hoffstein and D. Stevens) (Toronto) on October 2011 on the topic of “Roundtable: Looking Ahead to the Biggest Legal Challenges,” in The Intensive Short Course on Legal and Risk Management for Charities and NPOs.
Rupert Baudais wrote "Saskatchewan's Charitable Fundraising Businesses Act" in the November 2011 issue of Charity Talk, a publication of the Canadian Bar Association's Charities and Not-for-Profit Law Section.
Robert Hayhoeand Andrew Valentine wrote "Recent cases on charity law issues” in the November 2011 issue of Charity Talk, a publication of the Canadian Bar Association's Charities and Not-for-Profit Law Section.
Kate Lazier wrote “Canada Not-for-Profit Corporations Act proclaimed in force”in the November 2011 issue of Charity Talk, a publication of the Canadian Bar Association's Charities and Not-for-Profit Law Section.
Kate Lazier presented on "Understanding Your Legal Obligations: Child Protection Policies" for Winning Kids on November 29, 2011
Kate Lazier and Amanda Stacey spoke on "Maintaining a Stellar Public Image" at the Association of Fundraising Professionals, Greater Toronto Chapter Congress on November 28, 2011.
Susan Manwaringspoke at the Imagine Canada Risk Management Conference for non-profits held November 8, 2011 on the topic "Governance Checkup in Light of New Legal Requirements".
Susan Manwaringspoke with Larry Whatmore at the Imagine Canada Risk Management Conference for non-profits held November 8, 2011 on the topic “Governance Models - Is Carver Right for Us?”
Susan Manwaringspoke and participated by videoconference in the Mount Royal University Nonprofit Research Forum held November 25, 2011 on the latest “Legal interpretations concerning social enterprises; a state-of-the-art review of social enterprise developments across Canada”.
Susan Manwaringis participating in Imagine Canada’s National Summit for the Charitable and Nonprofit Sector being held November 28-30, 2011 in Ottawa.
Susan Manwaringand Robert Hayhoe spoke at a series of Grant Thornton LLP Not-for-Profit Organizations and Charities seminars held in October and November 2011 on the topic “Evolving CRA Views on Charities/Non-Profits Involved in “Business” Activities”
This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice.
Miller Thomson LLP uses your contact information to send you information electronically on legal topics, seminars, and firm events that may be of interest to you. Click Subscribe to see a full range of firm publications or to make changes to your contact information. If you no longer wish to receive electronic communications from Miller Thomson LLP you may Unsubscribe at any time. If you have any questions about our information practices or obligations under Canada's anti-spam laws, please contact us at email@example.com.