On November 1, the Canada Revenue Agency (“CRA”) released for consultation a draft Guidance on Arts Organizations and Charitable Registration, which outlines CRA’s views on when an arts organization will qualify for registration as a charity. CRA has invited comments from the public on the draft Guidance, and will consider all comments received by January 13, 2012. Arts organizations operating as registered charities, or considering applying for registration, should review the draft Guidance carefully and consider submitting comments.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 is finalized.
Some of the examples of arts activities that advance education include:
- organizing and delivering workshops, seminars, and classroom training or instruction on an art form/style, or on a related topic such as marketing;
- providing 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
- establishing 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:
- organizations 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
- organizations 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:
- Documents 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;
- Two or 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 include:
- organizations 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
- organizations 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 Guidance
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 venues.
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:
- the paragraph number of the section you are commenting on;
- the issues with the paragraph in question; and
- a solution 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.