CRA Announces Completion of Joint Action Plan for Small and Rural Charities Initiative

Andrew Valentine, Toronto

The Canada Revenue Agency (“CRA”) announced on September 20, 2012, that it has completed its Joint Action Plan as part of CRA’s Small and Rural Charities Initiative.  This Initiative, which began in 2007, involved a government consultation with small and rural charities to better understand the unique compliance challenges they face.  The findings were reviewed by a panel composed primarily of individuals from small and rural charities in Canada.  The panel then worked with CRA to develop a joint action plan to address some the challenges facing small and rural charities.

The joint action plan was set out in the 2008 Report on Small and Rural Charities prepared by the Small and Rural Charities Panel and included 66 recommendations to the Charities Directorate on how it could improve its service to these organizations.  These recommendations for action are intended to target the unique compliance challenges that confront smaller charities, which must frequently rely on the services of volunteers with limited expertise or time, and rural charities, which have more limited access to resources and personnel.

CRA has released a chart setting out the recommendations received under the Joint Action Plan and its progress in implementing each recommendation.  The recommendations range from better training of CRA staff to respond to questions from charities, the publication of more resources to assist charities in understanding their obligations, improvements to the CRA website, and attempts to simplify the T3010 returns for smaller charities.

As a result of these recommendations, CRA has published a number of resources that are of particular value to charities that may have limited access to legal and accounting expertise on their ongoing compliance obligations.  These resources include:

• resources to assist charities in completing their T3010 returns, including resources on avoiding common mistakes,  sample T3010s, financial statements and receipts;
• checklists to provide a quick reference for charities of their obligations and timelines;
• a simplified form of T3010 return for smaller charities;
• a GST/HST checklist for charities to assist them in understanding and meeting their GST/HST obligations.
• a list of frequently asked questions related to registering and operating a charity;
• the publication of CRA webcasts on various compliance topics.

Charities, and particularly those charities that may have limited access to compliance advice and expertise, should familiarize themselves with these resources.   Charities face a range of complex compliance obligations, and small charities will always face unique difficulties in keeping up with these requirements.  The resources available on CRA’s website, and particularly those listed above, can help charities to avoid some of the most common compliance errors.

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Replacing Donation Receipts

Kate Lazier, Toronto

From time to time a charitable tax receipt needs to be replaced.  The procedure for issuing replacement receipts depends on whether the first receipt was lost, spoiled or needs to be cancelled due to a return of the gift.

Lost receipt

Where a donor has lost the first receipt issued, the charity can issue a replacement receipt.   The replacement receipt must contain all the required information for a receipt plus the serial number of the lost receipt.  The replacement receipt should state that it "cancels and replaces the lost receipt."

A charity must keep duplicate copies of the receipts issued.  The charity's copy of the donor’s lost receipt should be kept and marked "cancelled."  The charity should keep copies of the new and old receipts in the charity's books and records.  The CRA does not require a report of this transaction. 

Spoiled receipt

Where there is a mistake on the first receipt issued and therefore the first receipt is spoiled, a charity can issue a new receipt.  The charity should collect the original receipt back from the donor and keep both copies (the donor’s and charity’s) in its records.  The original receipts should be marked "cancelled".

The replacement receipt should state that it "cancels and replaces the lost receipt." CRA does not require a report of this transaction. However, the charity should keep the copies of the spoiled and new receipt in the charity's books and records.

Returned Gift

Under common law, it is rare that a charity can legally return a gift. See our March 2011 newsletter for more on this topic. 

However, if the charity does return a gift and the gift is worth at least $50.00, then the charity has an obligation to report the return of gift to CRA not later than 90 days after the property is returned. Currently, there is no CRA form for this report.  However, the Regulations to the Income Tax Act state the information return shall include the following information:

• a detailed description of the property;
• the fair market value of the transferred property at the time of the transfer;
• the date of which the property was transferred;
• the name and address of the transferee of the property including, in the case of an individual, their first name and initial; and
• if the transferor of the property, or a person not dealing at arm's length with the transferor, issued the original receipt, then include the information contained in the original receipt.

The lawyers in the charities group at Miller Thomson LLP can assist charities with issues around receipts and reporting to CRA.

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Receipting for Services

Amanda J. Stacey, Toronto

Charities are reminded that it is not permissible to issue receipts for donated services.  This is based on the common law definition of gift.  Charities can only receipt for donations that legally qualify as gifts.  A gift is defined as a voluntary transfer of property without consideration.  Because services (for example, time, skills, or effort) do not qualify as property, a donation of services does not qualify as a gift and is thus not eligible for a receipt.  This is confirmed by CRA Summary Policy CSP-S03 and CRA Policy Commentary CPC-017.

According to CRA policy, where a charity is faced with a donor who wishes to donate his or her services to the charity, it may be possible to issue a receipt under certain circumstances.  For instance, where a charity pays a service provider for services rendered, the service provider may choose to donate the payment back to the charity.  In such a case, the charity can receipt for the cash gift to the charity.  It is essential that the charity actually pays the service provider for the service and that the same service provider makes a voluntary gift back to the charity.  The charity should keep a copy of the invoice, the payment to the service provider, and the gift back from the service provider for its records.  We recommend that payments in both cases be made by cheque.

The CRA cautions that a charity should not issue a donation receipt to a service provider in exchange for an invoice marked “paid”.  The CRA states that this procedure raises questions as to whether any payment has been made from the charity to the service provider and whether any payment has been made back to the charity.

Charities wishing to structure a gift of services in this manner are encouraged to contact us if they have any questions about this policy.

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The Case of the Missing Records – Part 2

Hugh M. Kelly, Toronto

This is second in a series of articles about how to deal with deficiencies in corporate records. 

In Part 1, we addressed the importance of conducting thorough searches of any available records and evidence of past corporate decisions and actions.  It cannot be overemphasized that all remedial steps depend upon such searches.  But it should be expected that whatever information is found will be incomplete – gaps, something missing, garbled or half-done paperwork (or, in more extreme cases, nothing at all). This is where it is necessary to determine whether the omissions are material or unnecessary.  In this task, the "Outline Guide to Corporate Minutes" below may be useful.

What happens next is a process that is divided into three parts: Reconstruction, Ratification, and Confirmation.

Reconstruction

Once the available information and records have been collected, the task is then to select from the collected information those facts that are material for the purpose of proper corporate records.  The assistance of legal counsel can be valuable in determining what information is material.  The goal is to reconstruct, as closely as possible to the actual events, what are known or reasonably understood to have taken place. Material corporate events to be captured would include corporate actions which have, or may have had, policy or financial implications, or which serve to identify members, directors and officers. Each of these events should be coupled to a relevant date with as much accuracy as possible, at the very least including the year.

Ratification — By Way of Resolutions

Once satisfied that the reconstruction corresponds as much as possible to the actual events, it is then necessary to prepare one or more omnibus resolutions to ratify past corporate actions. In a sense, this is "pulling ourselves up with our own bootstraps" in an effort to re-create a record that corresponds to real history as it actually unfolded.

The subject matter of the past actions being ratified will determine whether the resolution(s) must be enacted by the directors, or the members, or both. Even when it may be unnecessary in the strictly corporate sense to seek the approval of the members, there is great merit in the finality or closure resulting from the member sign-off on the reconstruction. Admittedly, there can be internal political considerations in making this decision.

Although this would be a situation-specific judgment call, we generally recommend that the resolution(s) include a series of recitals ("Whereas" clauses) that should do three things:

first, frankly acknowledge the previous deficiencies in record-keeping;

second, confirm the extent of the current efforts to seek out the information that underlies the resolutions: and

third, indicate an assertion that, to the best of the knowledge, information and belief of the directors and/or members, the conclusions and decisions reflected in the resolutions correspond to the actual events that they respectively record.

These recitals can have a powerfully persuasive effect upon the directors and members when asked to approve the reconstruction, and upon third parties who may have reason to examine the corporate proceedings.

Notice of a meeting to consider those resolutions should include the text to be presented. Although the notice might include further explanations, we recommend that any such explanations should be included the recitals.

Confirmation - At Directors' and/or Members' Meetings

The meetings of the directors and/or members will determine whether the reconstruction resolution(s) will pass. Experience suggests that it is most likely that the organization will desire to update its records and the directors and members will approve the reconstruction. Just as the method of cure for incomplete records is based upon common sense, so too the approval of the reconstruction will likely be driven by the common sense of those voting.

Whether Such Process Is Effective

Even acknowledging that this process is "pulling yourself up by your bootstraps", the results of this process leave the organization much better off than before. Most corporate law statutes confirm that “unless the contrary is proved”, minutes recorded in a minute book are taken as proof of their contents.  Once the reconstruction resolutions are recorded in the minute book, it may very well be possible to rely upon the resolutions to confirm that past corporate actions have been duly sanctioned and directors, officers and members have been duly appointed or elected.

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What's Happening at Miller Thomson

Robert Hayhoe spoke on "What Happened Over the Summer" with Camille Kam of BLG for the OBA Charities Section in Toronto on September 11, 2012.

Robert Hayhoe and Andrew Valentine presented “Charity Law” at Altruvest’s BoardMatch Leaders Course on September 19, 2012

Susan Manwaring presented with Brad Offman on "Understanding Endowments - Everything You Need to Know! - From Policy to Practice" at the CAGP GTA September Education Session on September 20, 2012.

Susan Manwaring presented with Sean Moore of the Advocacy School on "Managing Risk by Knowing the Advocacy Rules" at the CCIC Workshop on Lobbying and Advocacy for NGOs in Ottawa on September 25, 2012.

Robert Hayhoe presented “Charity and NPO Audits” at the CBA BC Charities Section on September 25, 2012

Susan Manwaring presented at a Webinar offered by BDO for Non Profit Organizations on "New Federal Rules for Incorporated Non Profit Organizations" on September 26, 2012. 

Robert Hayhoe presented a workshop on “Continuance under the Canada Not-For-Profit Corporations Act” at the Canadian Council of Christian Charities 2012 Annual Conference held in Richmond, BC on September 26, 2012.

Susan Manwaring presented "Introduction to Social Enterprise - Legal Issues" as part of the (SECC) Social Enterprise Council of Canada / Imagine Canada / (ENP) enterprising nonprofits Canada Webinar Series on September 28, 2012

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