Property Tax Relief Available to Registered Charities

Elena Balkos, Toronto

Registered charities in Ontario should take note of a time-limited opportunity to obtain a rebate on property taxes paid in the previous year.

Pursuant to provincial legislation, a registered charity that occupies property in Ontario classified in the commercial or industrial property tax classes may be eligible to claim a rebate of at least 40% of the property taxes that they pay in respect thereof.  Ontario law provides that 40% is the minimum tax rebate that municipalities must offer; however, municipalities are permitted to exceed this minimum and may provide a rebate of up to 100% of property taxes paid.  They may also offer rebates on other classes of property.  Charities should therefore consult the websites of their municipality to determine the availability of and requirements for the rebate in that municipality.

The classes of property in respect of which taxes are paid are set out on the property assessment notice which the charity receives from the Municipal Property Assessment Corporation (MPAC).  Where the class of property is commercial or industrial, charities should consider seeking a rebate.

Applications for the rebate must be made to the municipality in which the property is located.  Applications for rebates in respect of the 2011 taxation year must be filed by February 29, 2012.  A valid charitable registration number issued by the Canada Revenue Agency is necessary to apply. 

Miller Thomson’s property tax specialists can advise and assist in applying for this rebate.

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Canada Not-For-Profit Corporations Act – Planning Continuance

Kate Lazier, Toronto

As we have reported previously in this Newsletter, corporations that are currently incorporated federally under the Canada Corporations Act (CCA) must continue under the Canada Not-For-Profit Corporations Act (CNCA) by October 17, 2014.

Non-share capital corporations not yet continued under the CNCA can still operate under the CCA, the corporation’s current letters patent, supplementary letters patent and bylaws.  Such corporations may still make by-law changes and may apply for supplementary letters patent under the CCA.   Thus, a non-share corporation that wishes to make changes to its structure still has the power to do so before continuing into the CNCA.   For example, a corporation may wish to change the structure of its membership classes before non-voting members have rights to vote or to avoid separate class votes under the CNCA, as discussed in our January 2010 Newsletter

If a corporation needs changes to its governing documents because its objects or by-laws are outdated, then transitioning sooner under the CNCA may make sense.   If the corporation wants a more modern and prescriptive legislation, then the change can be made sooner.   For example, the CNCA allows corporations to amalgamate or to continue out of the federal legislation to another jurisdiction.  The CNCA also provides directors with an objective standard of care, rather than the subjective standard the directors have under the CCA.  These changes will be welcomed by some corporations.

However, if the corporation likes its current governance model and is not in need of change or does not want to change, then the corporation can remain under the CCA for a few years.

Regardless of when the corporation plans to file its continuance, it is a good idea for all corporations to begin preparing for continuance.   Directors should review the corporation’s governing documents and consider whether changes are needed or desired because of operations or the CNCA.   The corporation should ensure the list of its members and directors is up to date.  The corporation needs to prepare articles of continuance.   If the corporation is a charity it should ensure its objects are charitable and consider including the provisions recommended by CRA, here.  The corporation must then have the articles approved by the members and directors before they are filed with the government. 

The corporation must also prepare and file by-laws with the government within 12 months of continuing.  The by-laws of the corporation will have many changes because of the many differences in the CNCA.  Corporations that have a lengthy by-law may find that the new by-law is shorter because the CNCA covers many of the issues that used to be included in the CCA by-law.

The lawyers in Miller Thomson LLP’s Charities and Not-For-Profit Group can assist corporations continuing into the CNCA by providing advice about the new legislation and by preparing the necessary documents to effect the continuance.

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Clergy Residence Deduction – When can Youth Pastors qualify?

Amanda J. Stacey, Toronto

In a technical interpretation released by the CRA on June 27, 2011, the CRA was asked to consider whether a pastor in charge of a children’s ministry qualified for the clergy residence deduction.  Youth pastors often fail to qualify for the deduction because they fail the status test - one of the two tests required to be met to qualify for the deduction.  A brief review of the status and function tests is warranted here.

The status test requires that the individual claiming the deduction be a member of the clergy, a member of a religious order, or a regular minister of a religious denomination.  The taxpayer in this technical interpretation sought to be recognized as regular minister.  In Interpretation Bulletin IT-141R, the CRA confirms that a regular minister is an individual who:

• is authorized or empowered to perform spiritual duties, conduct religious services, administer sacraments and carry out similar religious functions. Religious functions may include participation in the conduct of religious services, the administration of some of the rituals, ordinances or sacraments, and pastoral responsibilities to specific segments of the religious organization;
• is appointed or recognized by a body or person with the legitimate authority to appoint or ordain ministers on behalf of or within the religious denomination; and
• is in a position or appointment of some permanence.

In this technical interpretation, the individual did not qualify as a regular minister because his job description provided that an individual filling the Children’s Pastor position may not be able to perform most of the duties of a regular minister of the church in question.  This is where many youth pastors fail to qualify for the deduction.  Youth pastors are typically young people who are in training to become full pastors themselves.  As such, their ability to perform spiritual duties, conduct full services and administer sacraments is often limited.  To the extent that an individual is permitted to carry out these functions, and these functions are not reflected in his or her job description, the problem can be easily rectified by updating the job description.  This is an important reminder to ensure that job descriptions are accurate, up to date, and drafted with the individual filling the role in mind.

However, the CRA concluded that the individual in question did meet the status test by virtue of being a “member of the clergy”.  A member of the clergy is an individual who has been set apart from the other members of the church or religious denomination as a spiritual leader.  The CRA confirms in IT-141R that it is not necessary that the process of appointment be referred to as ordination or that the appointment be by someone higher up in the ecclesiastical hierarchy - it can be done by the congregation itself. It is sufficient that there be a formal or legitimate act of recognition, and it requires a serious and long-term commitment to the ministry.

Assuming that a youth pastor meets the status test, the function test is not usually an issue.  To meet the function test, an individual must be:

• in charge of, or ministering to, a diocese, parish or congregation; or
• engaged exclusively in full-time administrative service by appointment of a religious order or religious denomination.

Individuals in a youth pastor role will typically qualify as “ministering to a congregation”.  The CRA and the courts consider “ministering” to be a very broad concept of serving or attending to the needs of a congregation, diocese or parish, or its individual members.

In this particular technical interpretation, the CRA found that the taxpayer was ministering to a congregation because as part of his role as children’s minister, the individual was required to:

• Provide oversight to, and be responsible for all aspects of ministry to children and their families;
• Provide overall direction and leadership to all staff and volunteers involved in the children's ministries;
• Recruit, equip and train teams for the ministry; and
• Coach and mentor team leaders.

The term “congregation” is a broad concept and can include the youth members of a church.  In IT-141R the CRA recognizes specialized ministries such as the youth pastor function and states the following:

Persons who meet the status test performing specialized ministering may satisfy the function test depending on the significance of the ministry in the particular religious denomination. Recognized forms of specialized ministry may include chaplaincies, religious education within a congregation, congregational pastoral responsibilities for music or youth, ethnic focus ministries, ministries with overseas or domestic missions, and ministries to the disadvantaged or disabled…

Based on this, the CRA found that the individual was ministering to a congregation and thus met the function test as well.

Individuals who think they may be eligible for the clergy residence deduction, or charities employing individuals whom they think may qualify, should feel free to contact us to assist them with making this determination.

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Important New Additions to the Canada Revenue Agency (“CRA”) Charities Directorate Website

Rahul Sharma, Toronto

The CRA’s Charities Directorate recently added two new and useful features to its website.  These include a list of “Other Qualified Donees” and a useful “donation credit calculator”.

Other Qualified Donees

A “qualified donee,” for the purposes of the Income Tax Act, is a organization to which a gift may be made by a donor, and in respect of which an official donation tax receipt may be issued for the purposes of allowing the donor to claim a deduction or a tax credit.  While all registered Canadian charities are “qualified donees,” so too are, among others, registered Canadian amateur athletic associations, municipalities, certain prescribed universities outside of Canada and a list of charitable organizations outside of Canada that have received a gift from the federal Crown. 

By consolidating this information on its website, the Charities Directorate has made it easier for prospective donors to determine whether they stand to receive a charitable tax receipt prior to making a donation to an organization.  It should be noted that the list of prescribed colleges and universities outside of Canada is lengthy and includes a large number of institutions located across the United States and the United Kingdom.  A more limited list of prescribed colleges and universities is provided for other countries.  Similarly, there is a limited list of charities to which the federal Crown has made a donation.  These include, amongst others, the Aga Khan Foundation in Switzerland, the Foundation for Canadian Studies in the United Kingdom, the William J. Clinton Foundation in the United States and the British Rhodes Trust Public Purposes Fund.

It is highly recommended that, before deciding to give to a foreign academic institution or other qualified donee, donors carefully consult the list of “other qualified donees” to determine whether they will be able to claim a deduction or charitable tax credit in respect of the donation that they have made.

Donation Credit Calculator

Individuals who make donations to qualified donees are entitled to charitable tax credits in respect of the eligible amount of their donations.  The new “donation credit calculator” permits donors to determine the amount of credit that they stand to receive, depending on the total value of the gift that they intend to or have made to a qualified donee and their province of residence.  Donors will receive an overall tax credit that is the sum of the federal and provincial tax credits applicable to each donation that they make to a qualified donee.  For example, an Ontario resident who made a gift of $1,000.00 to a registered Canadian charity during the 2011 taxation year will receive a federal tax credit of $262.00 and an Ontario tax credit of $99.38, for a combined total tax credit of $361.38, assuming that the donor retains no benefit or advantage whatsoever in respect of the gift.

Given its usefulness to prospective donors, charities may want to consider including a link to the new “donation credit calculator” on their websites.

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National Arts Service Organizations

Andrew Valentine, Toronto

In the November issue of this Newsletter, we reported on the draft Guidance issued by the Charities Directorate concerning the registration of arts organizations.  Arts organizations should be aware that, in addition to the option of applying for registration as a charity using the normal application procedure, another option exists by which an arts organization can obtain status as a qualified donee under the Income Tax Act, which would make it tax exempt and capable of issuing donation receipts.

The Income Tax Act provides that organizations that are registered under the Act as “national arts service organizations” (NASO) are treated as registered charities that are designated as charitable organizations.  In order to be so registered, organizations must proceed through a two step process.

First, the organization must apply to the Ministry of Canadian Heritage for designation as a NASO.  In order to be eligible for this designation, it must meet three criteria:

• It must be a non-profit organization
• It must have as its purpose the promotion of the arts on a nation-wide basis through activities such as sponsoring arts exhibitions or performances, conducting workshops and development programs relating to the arts, or organizing and sponsoring conferences, competitions and special arts events.
• It must demonstrate that its membership represents, in one or both official languages of Canada, the community of artists in one or more recognized sectors of the arts (including theatre, dance, opera, music, painting, sculpture, drawing, crafts, design, photography, literary arts, film, sound recording).

The applicant must also meet the other criteria applicable to registered charities designated as charitable organizations.  Specifically, more than 50% of the directors, trustees and officers of the organization must be at arm’s length with each other, and not more than 50% of the property of the organization can have been contributed by one person or members of a related group.

If the Minister of Heritage determines that the organization qualifies as a NASO, the organization must then apply to the Canada Revenue Agency for registration.  As a practical matter, the Ministry of Heritage will forward the necessary documentation to CRA for consideration upon determining that the organization qualifies.  CRA will review the application to determine whether it meets certain additional requirements under the Income Tax Act.  In addition to being designated as a NASO by the Minister of Heritage, the organization must meet the following requirements:

•  It must be resident in Canada and formed in Canada; and
• The activities of the organization must be confined to one or more of a list of activities that includes the following:
  • promoting or conducting research into one or more art forms;
  • sponsoring arts exhibitions or performances;
  • representing the interests of the arts community or a sector thereof (but not of individuals) before government, judicial, quasi-judicial or other public bodies;
  • conducting workshops, seminars, training programs, etc., relating to the arts for members of the organization;
  • educating the public about the arts community or the sector represented by the organization;
  • organizing and sponsoring conventions, conferences, competitions, and special events related to the arts community;
  • conducting arts studies and survey of interest to members of the organization relating to the arts community;
  • acting as an information centre or maintaining a resource databases relating to the arts community.

 If an organization is registered as a NASO by CRA, it is treated for income tax purposes as a registered charitable organization.  This means that it is exempt from income tax, it can issue donation receipts to donors allowing them to claim donation tax credits or deductions, and it is eligible to receive gifts from other registered charities.

A link to the Ministry of Canadian Heritage website which contains information on the application process, as well as the necessary application forms, is available here.

Arts organizations should consider whether registration as a NASO, or registration through the normal charitable registration process, may be right for them.  Miller Thomson’s Charities and Not-for-Profit lawyers can advise on and assist with either of these registration processes.

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What's Happening at Miller Thomson

Kate Lazier wrote "Ontario Government Website on the New Corporate Act” in Charitable Thoughts, a publication of the Ontario Bar Association Newsletter, Charity and Not-for-Profit Law Section, in January 2012.

Amanda Stacey wrote "What Happened Over the Summer – An Update on Recent CRA Publications and Cases for the Charities and Not-for-Profit Law Practitioner” in Charitable Thoughts, a publication of the Ontario Bar Association Newsletter, Charity and Not-for-Profit Law Section, in January 2012.

Andrew Valentine wrote "Recent Case Highlights Importance of Proper Receipting” in Charitable Thoughts, a publication of the Ontario Bar Association Newsletter, Charity and Not-for-Profit Law Section, in January 2012.

Iain Benson gave a closing public presentation on "Religion and Creed in the Public Square” to a Policy dialogue on “Creed Freedom of Religion and Human Rights” sponsored by the Ontario Human Rights Commission and The University of Toronto Religion in the Public Sphere Initiative on January 13, 2012.

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