Sahel Crisis Matching Fund

The Government of Canada has recently announced the establishment of the Sahel Crisis Matching Fund.  The Government of Canada will contribute one dollar to this Fund for every eligible dollar donated by individual Canadians to Canadian registered charities that are responding the food and nutrition crisis in the Sahel region in West Africa. 

The Fund is managed and administered by the Canadian International Development Agency (CIDA).  In order to qualify for the matching program, a donation must meet the following criteria:

• must be made by an individual Canadian
• must be monetary, not exceeding $100,000 per individual
• must be made to a registered Canadian charity that is receiving donations in response to the crisis in the Sahel
• must be specifically earmarked by such organizations for the purpose of responding to the crisis, and
• must be made between August 7 and September 30, 2012.

Charities that receive eligible donations are required to submit a Sahel Crisis Matching Fund Declaration to CIDA, declaring the amount of eligible donations received, in order for the Government to match these donations.  The form is available by emailing CIDA through CIDA’s website.  The form must be submitted no later than October 15, 2012.

Charities will not directly receive matching contributions from the Government.  The government contributions will be made to the Fund, which is administered by CIDA.  The Fund will be used to support the work of experienced Canadian and international humanitarian organizations.  Organizations with capacity to respond to the crisis can submit proposals for support from the Fund. 

Details on the program are available on the CIDA website.  Charities engaged in responding to the Sahel Crisis should make sure that their donors are aware of this matching program.  

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CRA Releases Updated Guidance on Community Economic Development: Expands Acceptable Program Related Investments

Susan M. Manwaring, Toronto
Andrew Valentine, Toronto

On July 26, CRA released CG-014, an updated Guidance on community economic development activities and charitable registration.  The new Guidance replaces CRA’s former published policy on the subject, RC4143, which was originally released in 1999.  In the 13 years since the original policy statement was published there have been dramatic changes in the range of economic development activities conducted by registered charities, and the sector has lobbied CRA for some time to update its policies in this area.  The new Guidance provides additional clarity on CRA’s current policies and in some cases expands CRA’s position on when certain forms of activities will be considered charitable.

The Guidance covers much of the same territory as the former policy statement.  It states that while community economic development is not a charitable purpose per se, development activities may be found to further a recognized charitable purpose (e.g., relief of poverty).  It then reviews various categories of development activities – including employment training, the provision of individual development accounts, loans and loan guarantees to eligible beneficiaries, etc. – and sets out CRA’s views on when the activity will be found to be charitable.

An area of particular focus in the Guidance is “program related investments”.  PRIs, broadly speaking, are investments (as opposed to outright grants or expenditures) that directly further an organization’s charitable purpose.  While a PRI may involve a financial return to the investor charity, the purpose of the investment is not to earn a financial return but to further a charitable goal.  CRA cites examples of program-related investments that include:

• share purchases in a corporation that operates a commercial apartment complex but has agreed to provide a set number of units to low income individuals at reduced rates;
• low-interest loans made to a not-for-profit entity that provides job training to unemployed individuals or those facing imminent unemployment, pursuant to an agreement with the investor charity; and
• lease of a building owned by a charity to an arm’s length organization at less than fair market value, for use by the lessee to teach language skills to help students develop skills necessary for employment, pursuant to an agreement with the investor charity.

In each example, the investment is made at less than “market” rates.  The investor charity seeks to further a charitable rather than or in addition to a financial purpose through the investment.  Also, the organization in which the investment is made in each example is a non-qualified donee.

The most significant change in the Guidance is its recognition that charities can make PRIs in non-qualified donees.  CRA addressed the subject of PRIs in RC4143.  However, it stated that because PRIs typically involve investments at less than market rates – which would confer a benefit on the entity in which the investment is made – charities could only make PRIs in entities that are qualified donees.  This effectively limited the entities in which PRIs could be made to other Canadian registered charities.  CRA previously suggested that investments in non-qualified donees – including non-profit organizations and even commercial organizations carrying out social purpose programs or businesses – could only be made at market rates.

In the new Guidance, CRA states that charities are permitted to make PRIs in non-qualified donees at less than market rates of return provided that the investor charity retains direction and control over the use of its investment.  In this way, CRA is adopting an approach to PRIs in the new Guidance that is similar to the approach it takes the use of non qualified donee intermediaries under CRA’s policies related to international and domestic charitable activities.  Indeed, CRA cites these Guidance as providing detail on the elements of control – i.e., written agreements providing instructions on the use of the investment, reporting mechanisms to confirm proper use, etc. – that must be shown in order for a PRI in a non-qualified donee to be acceptable.  CRA also confirms that the PRI must not confer an excessive private benefit and must include an “exit mechanism” allowing the charity to withdraw from the PRI or turn it into a normal market rate investment when and if the holding of the investments ceases to achieve the organization's charitable purpose.

CRA notes that PRIs may take the form of loans, loan guarantees or share purchases.  CRA also notes that specialized entities that facilitate the making of PRIs (for example, a property manager that leases and manages low cost housing properties owned by a charity) may themselves qualify as registered charities.  CRA also provides detail on how PRIs are to be accounted for in a charity's books and records and on its annual information returns.

CRA’s revised approach to PRIs is welcome.  By clarifying its view on when charities can make PRIs in non-qualified donees, CRA is providing greater certainty to organizations in our communities. While requiring that the charity maintains direction and control over the use of the investment may be cumbersome and some may question the need for it, in effect, CRA has moved closer to the “expenditure responsibility” concept used in the United States.  Under this approach, charities may make PRIs to non-charities provided that steps are taken to ensure that the recipient applies the funds for charitable purposes.  This approach allows for greater flexibility in the types of social purpose investments that a charity can make, and enables charities to leverage the services of a wider range of organizations in pursuing development goals.

We will continue to monitor the application of this Guidance in practice to determine the parameters of the new policy and CRA’s treatment of PRIs in particular.  While these comments are made in the context of economic development work, all charities should review the new Guidance carefully to understand CRA’s most current positions.  Miller Thomson’s lawyers would of course be pleased to assist any organizations considering PRIs in their work.

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Ontario Lobbyist Registration Changes May Impact Non-Profits and Charities

Kate Lazier, Toronto

On July 25, 2012, the Ontario government announced its plan to amend the Lobbyists Registration Act to ensure greater transparency and accountability among lobbyists, government and the public.  The government plans to introduce a bill when legislature resumes in the fall to enhance the existing Lobbyists Registration Act by:

• giving the Integrity Commissioner more enforcement powers, including the ability to prohibit individuals from lobbying;
• giving the Integrity Commissioner new investigative powers, including the ability to compel testimony and obtain key documents;
• requiring lobbyists to identify the specific Members of Provincial Parliament and ministers' offices they lobby;
• preventing lobbyists from accepting additional fees for preferred outcomes;
• pohibiting lobbyists from providing paid advice to a ministry and lobbying on the same subject matter;
• providing the Integrity Commissioner with the ability to establish a lobbyist code of conduct; and
• incorporating for-profit and not-for-profit organizations under the same category of 'in-house' lobbyists; treating both classes of lobbyists the same and capturing more lobbying activity.

The Office of the Integrity Commissioner issued a report in May 2012 recommending these changes. The report noted that the two categories of in-house lobbyists is unnecessarily confusing and does not promote maximum transparency. All jurisdictions, except Nova Scotia, require a single registration for each for-profit (and not-for-profit) entity engaged in lobbying.

An in-house lobbyist is an employee who spends a significant part of his/her duties lobbying for the employer.  The Lobbyist Registration Act has separate classifications for in-house lobbyists for commercial entities and those for non-commercial entities such as charities and non-profits.  Currently, all in-house lobbyists employed by not-for-profit entities register together in a single return and the "significant part of duties" test is calculated using an aggregate of all time spent by all in-house lobbyists at the non-profit or charity.  

As single registration per organization (rather than a registration from each employee) is the norm in most provinces, we expect that this requirement will not change for non-profits and charities.   However, when the categories are merged, there may be changes to the way lobbyists are defined and to the reporting requirements. The lobbyist code of conduct could also impact charities and non-profits. Therefore, charities and non-profits engaged in lobbying in Ontario should stay tuned for these changes. 

The lawyers in Miller Thomson’s charity and Not-For-Profit Group can assist organizations to assess whether they need to register under the provincial or federal lobbying rules.

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The CRA Releases New Guidance on Charitable Organizations Outside Canada That Have Received a Gift From the Crown

Amanda J. Stacey, Toronto

On August 10, 2012 the Canada Revenue Agency (the “CRA”) released a new Guidance on charitable organizations outside Canada that have received a gift from Her majesty in Right of Canada (CG-015).  This Guidance replaces Policy Commentary CPC-030 and Information Circular IC84-3R6. 

The CRA maintains a list of organizations outside Canada that have received a gift from the Government of Canada.  These organizations qualify as qualified donees for a specified period.  They are eligible to issue official donation receipts to donors and to receive gifts from registered charities during that period.

Such organizations are eligible to becoming qualified donees under the Income Tax Act for 24 months from the date that they received the gift.  The CRA maintains a list of these organizations here.  To be added to this list, an organization that has received a gift from the Government of Canada must send the following information to the CRA Charities Directorate:

• a copy of the organization’s governing documents;
• a description of the organization’s activities;
• a copy of the letter or certificate granting charitable status to the organization from a relevant authority in the country in which the organization is established;
• a copy of correspondence, agreements or other documents related to the gift from the Canadian Government; and
• proof that the gift was made, e.g. a copy of the cheque.

The CRA will then use the following two-part test to decide whether the organization qualifies as a qualified donee:

1. The information given must clearly show that the organization received a gift from the Government of Canada.
2. The organization must meet the Canadian common law definition of “charitable” and generally be eligible for registration in Canada, if it were established in Canada.

The CRA confirms that it will send a letter to the organization confirming whether it meets both parts of the test.  If it does, its name will be added to the list of qualified donees.

An organization that obtains qualified donee status must ensure that it meets certain requirements under the Act and is required to:

• properly issue official donation receipts; and
• keep books and records to support any official donation receipts it issues and provide these to the CRA upon request.

Sanctions are applicable to any such organization where it fails to meet these requirements, including suspension and revocation of the organization’s receipting privileges.

Organizations that would like to obtain further information about this process or have gained qualified donee status and have questions regarding the receipting and record-keeping rules are encouraged to contact a member of our Charities and Not-for-Profit Group.

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CRA Comments on Treatment of Donated Employment Income

Andrew Valentine, Toronto

In a technical interpretation released on July 26, 2012, CRA commented on the tax treatment of income earned abroad by employees of a charity that is transferred to the charity pursuant to an employment requirement. 

In the situation addressed in the technical interpretation, an individual who is resident in Canada is employed by a Canadian registered charity (“Canadian Charity”) to provide teaching services overseas. While working overseas for the Canadian Charity, the employee becomes engaged in a contract to provide teaching services for another company (second contract) and is required to transfer all amounts received under the second contract to the Canadian Charity. This requirement is stated in the Guiding Rules of Canadian Charity.

CRA was asked to consider whether the transferred income should be reported as income on the employee’s tax returns, and also whether this income would qualify as a charitable donation for which the Canadian Charity could issue an official donation receipt.

CRA confirmed that the first issue is a question of fact.  If the employee was working on behalf of the Canadian Charity when operating pursuant to the second contract with the foreign organization, it may be that this income is not in fact income of the employee.  Any money receivable from a third party in respect of work performed by an employee acting in the course of his or her employment generally belongs to the employer.  If, however, the employee was acting on his or her own behalf in providing services under the second contract, then this income may be attributable to the Canadian employee and therefore required to be declared.  The terms of employment under the second contract would be key in determining how the income would be treated.

CRA then moved on to consider whether the transfer of income would constitute a charitable gift.  It noted the legal requirements that must be met in order for a transfer of funds to qualify as a gift for which an official receipt can be issued.  There must be a voluntary transfer of property from the donor to the charity, made without expectation of a return.

CRA noted that where it is determined that the amounts received under the second contract belong to the employer and are not included in the income of the employee, the transfer of those amounts to the employer would not be a voluntary transfer of the employee’s property and would therefore not be a gift.  Although CRA did not say so explicitly, there is some question whether CRA would accept that this transfer constitutes a gift even if the income is considered income of the employee, given that the employee’s contract with the Canadian Charity appeared to include a requirement to make this transfer.

This technical interpretation is a reminder to charity employers that they must be careful in their treatment and accounting of donations out of income from employees.  In order for an official donation receipt to be issued, each donation must qualify as a gift, meaning that the income must be the employee’s prior to the gift and must be given voluntarily to the charity.  Failure to meet these requirements can lead to sanctions against the charity and a potential reassessment of the donor.

Charities with questions on the proper recognition and receipting of donations should feel free to contact us.

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What's Happening at Miller Thomson

Hugh Kelly delivered a lecture to the registrants in the Supervisory Officers Qualification Course on July 12, 2012 on “Constitutional Questions for Educators”.

Hugh Kelly delivered a lecture to the registrants in the Supervisory Officers Qualification Course on “Current Legal Issues for Educators” on July 13, 2012.

Susan Manwaring presented “Charities and Social Enterprises” at the CBA Canadian Legal Conference in Vancouver on August 13, 2012.

Gail P. Black, Donald Carr, Robert B. Hayhoe, Susan M. Manwaring and Martin J. Rochwerg from Miller Thomson’s Charities and Not-for-Profit group that have been included in the recent Best Lawyers listing.   Best Lawyers is the oldest and one of the most highly-respected peer review guide to the legal profession worldwide.

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