2012 National Charity Law Symposium

Robert Hayhoe will be among the speakers presenting at this year’s Canadian Bar Association and Ontario Bar Association National Charity Law Symposium.  Robert will be providing an update on charity law issues arising from the 2011 and 2012 Federal Budgets.  The Symposium will be held in Toronto on May 4, 2012, at the Metro Toronto Convention Centre.  The Symposium is co-chaired by Kate Lazier. 

Information and registration details are available here.

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CRA Releases Updated Fundraising Guidance

Andrew Valentine, Toronto

CRA has just released an updated version of its guidance on fundraising activities by registered charities.  The new Guidance GC-013 Fundraising by Registered Charities, was issued on April 20, 2012, and replaces former Guidance CPS-028, which was originally released on June 11, 2009.  We reported on CPS-028 in the July 2009 issue of this Newsletter.

CRA indicates that the new Guidance does not reflect any substantive change in CRA’s policy, but is intended rather to respond to feedback received from the charitable sector by clarifying certain concepts and making the Guidance more intuitive to use.  Structurally, the new Guidance is simpler than CPS-028.  Unlike CPS-028, which was split into two parts – a short summary document and more detailed background document – GC-013 consolidates this information into a single document.  This step alone will make the new Guidance much easier for charities and advisors to follow.

The Guidance addresses the same issues as were covered in CPS-028, setting out CRA’s position on when an activity will be considered to be a fundraising activity, the circumstances in which CRA will consider a fundraising activity to be unacceptable, and the factors that CRA will consider when evaluating a charity’s fundraising practices.  As before, the Guidance includes a list of best practices to which charities should pay particular attention.

Some new or updated aspects of the Guidance are as follows:

• There is additional clarity on when a fundraising activity will be considered to have delivered an unacceptable amount of private benefit. CRA states that such benefits will only be acceptable when they are incidental to the achievement of a charitable purpose. CRA states that in order to be considered “incidental”, the benefit must be necessary, reasonable and proportionate to the public benefit achieved.
• CRA has provided additional detail on when a fundraising activity will be considered illegal or contrary to public policy.  CRA states that fundraising will be illegal when the activity itself contravenes federal or provincial law, or where it is associated with illegal activities (such as, for example, an abusive tax shelter).  It notes that a violation of public policy will be found where the activity fails to comply with “legislation or some equally compelling public pronouncement” evidencing public policy, or where it is found to harm the public interest (as where, for example, fundraising contracts provide more than 70% of funds raised to third party fundraisers).
• CRA has provided some additional clarity on the allocation of expenses to fundraising, and the circumstances under which expenses should be allocated 100% to fundraising, 100% to charitable expenditures, or on a pro-rated basis between different types of expenditures.  The Guidance includes details on the characteristics of charitable, fundraising, management/administration, and political expenditures, so as to help charities distinguish these and allocate costs.
• CRA comments on how it will evaluate charitable gaming activities (e.g., lotteries and bingos).  Such activities are regulated provincially, and cost to revenue ratios of 70% or higher may be acceptable.  CRA states that it will accept higher fundraising ratios in respect of gaming activities that comply with provincial regulations.
• CRA has reduced the prominence of the “fundraising ratio” in its evaluation of a charity’s fundraising practices.  The fundraising ratio (i.e., the ratio of fundraising costs to funds raised) is now one of several factors that CRA will consider.

The updated Guidance is helpful for its added clarity and explanation of CRA’s position.  Charities should review the new Guidance carefully.  Miller Thomson’s Charities and Not-for-Profit Lawyers can assist charities to understand their legal obligations related to fundraising and to assist them in ensuring that such activities do not expose charities to unnecessary regulatory risk.

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Ontario Court Confirms Costs Consequences of Litigation Positions

Robert B. Hayhoe, Toronto

In our December 2011 issue we wrote on the decision of the Ontario Superior Court in VON Canada v. Greater Hamilton Wellness Foundation.  The Court found that the Foundation, which had been established under the name of the Victorian Order of Nurses Hamilton Wentworth Foundation to support the Hamilton branch of the VON, had breached its fiduciary duty.  As a result of a dispute between VON Canada and the Foundation over centralisation of VON Canada, the Foundation decided that it wished to fund non-VON charitable activities.  The Court concluded that the refusal of the Foundation to support VON Canada was a breach of fiduciary duty by the Foundation and its directors. 

We ended our December article with the observation that "It will be interesting to see what the cost consequences of this litigation are."  We now know and the costs awarded against the Foundation in the Court's subsequent costs decision are significant.  As a result of "the Respondent's [the Foundation] reckless and sustained allegations of dishonest and deceitful behaviour against the Applicant [VON Canada], the Respondent's serious misrepresentations of fact and the early Offer to Settle", the Court awarded substantial indemnity costs to VON Canada in the amount of $454,686.19.

The Court stated that:

"I find that the Respondent's continued attempts to justify its behavior by making reckless allegations against the Applicants to be deserving of condemnation. Respondent's counsel... suggests a distinction must be made with regard to litigation that simply turns out to be misguided. This was more than misguided litigation. This was litigation that was prompted by a stubborn refusal to consider a voluminous 20-year evidentiary record and the relevant law. This was "malicious and counter-productive" litigation that attacked the integrity of a national non-profit, registered charity that has existed since 1899. ... . In the light of my findings of multiple breaches of fiduciary duties on its part and the part of its Directors, the Foundation cannot seek immunity from costs as a public interest litigant."

Furthermore, in addition to the awarding of costs against the Foundation, the Court concluded its costs decision by confirming that its "Order is without prejudice to the Applicants and the PGT to claim the unpaid amounts of such costs awards against the insurer for the Respondent Foundation, the Directors for the Respondent Foundation and/or their insurer."

What are the lessons from the costs decision?  First, sustained litigation is very expensive.  We know that VON Canada's costs were in excess of $454,686.19.  We expect that the Foundation's costs would have been similar.  Second, charities and their lawyers must always keep in mind that courts will award successful litigants some portion of their legal costs (and where the Court wishes, as it did here, to condemn misbehaviour, the portion may be high). It is also possible for costs to be awarded against the directors of a charity personally. Litigation should therefore not be entered into lightly and without thought of the consequences.

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BC Legislative Assembly Introduces New Community Contribution Company

Susan M. Manwaring, Toronto
Kenneth N. Burnett, Vancouver

Social enterprise and social finance are topics of great interest today to many charitable and non-profit organizations in our communities.  In addition, governments at all levels have started to talk about revenue generation by organizations in the charities and non-profit sector, particularly in light of increasing deficits and decreasing revenues.  Many of the discussions have been at a high level and are often focused on changes we need in the regulatory environment to facilitate these social enterprise or social finance activities.

One province has now introduced legislation which will bring some of these discussions closer to a reality.  The Legislative Assembly in British Columbia introduced Bill 23 — 2012 Finance Statutes Amendment Act, 2012 which proposes changes to the Business Corporations Act of British Columbia (the “BCBCA”).  These changes will result in a new category of share capital corporation known as a “Community Contribution Company” or “CCC”.   At the time of writing, the Bill has not yet received 2^nd reading in the BC Legislature.

The proposal introduces the new Part 2.2 of the BCBCA, entitled “Community Contribution Companies”.  It defines a CCC as follows:

A company is a community contribution company if its notice of articles contains the following statement:

“This company is a community contribution company, and, as such, has purposes beneficial to society.  This company is restricted in accordance with Part 2.2 of the Business Corporations Act, in its ability to pay dividends and to distribute its assets on dissolution or otherwise.”

“Community purpose” is defined for the purposes of Part 2.2 of the BCBCA to mean:

a purpose beneficial to:

a) society at large, or

b) a segment of society that is broader than the group of persons who are related to the community contribution company,

and includes, without limitation, a purpose of providing health, social, environmental, cultural, education or other services, but does not include any prescribed purpose.

Many readers will have heard of the “community interest corporations”, or CICs, which were introduced a few years ago in the United Kingdom, as well as low-profit limited liability companies, otherwise known as L3Cs, which have been introduced in a number of states in the United States.  The community contribution company is BC’s suggestion for a similar entity.  The new proposals include an asset lock on the assets of the CCC and will only permit limited return of assets to shareholders.  The provisions also suggest that there will be limits on the dividends that could be paid to investors.  It is unclear whether the proposals will require a cap on dividends paid or whether the restrictions will act as a floor.  We know that both models were being considered.

Much of the detail surrounding the rules, and what investments in a community contribution company will look like, are left to the Regulations under the BCBCA.  To date, none of the Regulations have been released, or perhaps even drafted.

The one thing the new rules do not do is provide any type of special tax benefit to the community contribution company.  If tax benefits are to accrue to the CCC’s, they will need to be enacted, either under the provincial taxation statute or through the Income Tax Act (Canada).  There has been talk of the BC Ministry of Finance introducing a special tax credit for investors in CCCs, but all is speculation at the moment.

There is no doubt that there is great interest from all levels of government and in the sector itself in establishing greater flexibility from a regulatory perspective around revenue generation.  Whether or not the CCC will effective in doing so is a question that will only be answered once the Act is enacted and the Regulations are published in detail.

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Transition Under the Ontario Not-For-Profit Corporations Act, 2010

Kate Lazier, Toronto

Non-share capital corporations incorporated in Ontario under the Corporations Act (Ontario), or under their own special legislation, will soon be governed by the Not-for-Profit Corporations Act, 2010 (ONCA).   The ONCA will come into force on a day to be named.   The Ontario Ministry of Consumer Services website states that it anticipates that the in-force date will be in late 2012.

On the day that the ONCA comes into force, the ONCA will immediately apply to corporations without share capital incorporated by or under a general or special Act of the Ontario Legislature.  These corporations will not need to take any action to have the ONCA apply to them on the day that is named.  This process is different from that which applies to federally incorporated non-share corporations, which need to apply for a Certificate of Continuance in order to come under the new Canada Not-For-Profit Corporations Act.

While the ONCA will apply immediately on the in-force date, Ontario corporations will still need to take action in order to ensure full compliance with the ONCA.  The ONCA is significantly different from the Corporations Act (Ontario) and thus an Ontario non-share corporation will need to revise its governance documents (letters patent and by-laws) to accord with the ONCA.

Once the ONCA is in force, a corporation may obtain Articles of Amendment and revise its by-laws to conform to the ONCA.  If a corporation does not do so within three years, the ONCA deems the governing documents to be amended to the extent necessary to conform to the ONCA.

After the ONCA is in force and before the governing documents are amended, issues may arise as to what rules the corporation must follow.   In law, typically a statute prevails over governance documents.  However, the ONCA deems the by-laws into compliance only after three years and thus this provision of the ONCA implies that corporations should continue operating on the basis of their current bylaws until they are amended or the three-year deadline expires.  This view is echoed by the Ministry of Consumer Services website which states that the corporations will have three years after the ONCA comes into force to amend their letters patent, by-laws and special resolutions to conform with the ONCA.  Thus, each corporation should adapt its governing documents within three years of the ONCA coming into force.  However, corporations that want to conform with the ONCA, and especially those corporations that regularly experience governance challenges, are encouraged to amend their governance documents sooner. 

Miller Thomson LLP’s Charities and Not-for-Profit Group can assist corporations to transition under the ONCA.

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Privacy Law Primer for Alberta Charities and Non-Profits

Megan A. Koper, Edmonton
Laura R. Shylko, Edmonton

In Alberta, both federal and provincial privacy statutes govern the collection, use and disclosure of personal information.  These are the Personal Information Protection and Electronic Documents Act (PIPEDA) and the Alberta Personal Information Protection Act (PIPA), which impact for-profit entities as well as charities and not-for-profit organizations.  When an organization falls within the scope of either PIPEDA or PIPA, it must obtain an individual's consent before collecting, using and disclosing that individual's personal information (subject to certain exceptions). 

In addition, the Alberta Charitable Fund-raising Act (CFA) affects the way that charitable organizations and fund-raising businesses deal with personal information.  It is important that charities and non-profits be aware of each of these statutes and how they apply.

What is Personal Information?

The definition of “personal information” is broad and refers to information about an identifiable individual.  Examples of personal information include personal descriptors such as an individual's name; health information; identification numbers; financial information and other information such as marital status. 

Personal information does not include the name, title or business address or telephone number of an employee of an organization. 

When do PIPEDA and PIPA apply to charities and not-for-profit organizations?

PIPEDA applies to all private sector organizations, including charities and not-for-profit organizations, that collect, use or disclose personal information in the course of "commercial activity", unless a "substantially similar" provincial law is in effect.  Because PIPA has been declared substantially similar to PIPEDA, PIPA will instead apply where the collection, use and disclosure of personal information occur within Alberta.

Similar to PIPEDA, PIPA applies to personal information that is in the custody or control of a non-profit organization if it is collected, used or disclosed by the organization in connection with a commercial activity carried out by the non-profit organization.

Unlike PIPEDA, PIPA has separate rules that apply to "non-profit organizations", which are defined as organizations incorporated or registered under specific Alberta legislation – the Societies Act, the Agricultural Societies Act, or Part 9 of the Companies Act.  These rules confirm that PIPA applies only to non-profit organizations to the extent that the organization collects, uses or discloses personal information in connection with commercial activities.

It is possible for a given charity or not-for-profit organization to be subject to one, both or neither of these Acts.  This will depend on the activities of the organization, particularly whether it engages in "commercial activity" and the way in which that commercial activity is carried out.

What is Commercial Activity?

“Commercial activity” refers to any particular transaction, act or conduct or any regular course of conduct that is of a commercial character, including the selling, bartering or leasing of donor, membership or other fundraising lists.  Other examples of commercial activity include the sale of merchandise or services and events or performances for which an admission fee is charged.  The acceptance of donations or the provision of free services would not fall within the definition of commercial activity.

Sometimes it will not be clear whether a charity or non-profit organization is collecting, using or disclosing personal information in the course of or in connection with a commercial activity such that PIPDEA of PIPA will apply.  For this reason, it may be practical for organizations to use a consent process in relation all personal information that it collects, uses or discloses.

When PIPEDA or PIPA apply, how must consent be obtained?

PIPEDA and PIPA contain similar requirements for obtaining consent to the collection, use and disclosure of personal information.  Organizations must generally obtain the consent directly from the individuals whose information they will collect, use or disclose.  Personal information can only be collected from another source if the individual consents to the collection of the information from the other source.

Consent may be given in writing or orally and may be given subject to reasonable terms, conditions or qualifications.  Consent may be withdrawn or varied by an individual who gives reasonable notice to the organization.  This can be done in the same manner in which consent was given.

Both PIPEDA and PIPA describe situations in which an organization may collect, use or disclose personal information without an individual's express consent, though these rules will only apply in limited circumstances.

An organization may not, as a condition of supplying a product or service, require an individual to consent to the collection, use or disclosure of personal information beyond what is necessary to provide the product or service.  Consent cannot be obtained by providing false or misleading information or using deceptive or misleading practices.  Any consent provided or obtained under those circumstances will be void.

What must an organization do with the information it has collected?

Once collected, organizations are limited to using personal information for purposes that are reasonable. Generally, an organization cannot use or disclose personal information for any purpose other than the particular purposes for which the information was collected.

An organization must protect personal information that is in its custody or under its control by making reasonable security arrangements to prevent unauthorized access, collection, use, disclosure, copying, modification, disposal or destruction of the information.  Recent amendments to PIPA require organizations subject to this Act to notify the Privacy Commissioner without unreasonable delay in the event of loss or unauthorized access to or disclosure of such information where there is a "real risk of significant harm to an individual as a result".  Failing to do so will constitute an offence and the organization could be liable for a fine of up to $100,000.00.

Application of Charitable Fund-raising Act to Personal Information

In Alberta, the fundraising activities of certain charitable organizations and fundraising businesses are also subject to the CFA.  While the CFA primarily deals with how these organizations can conduct fund-raising activities (including the solicitation of donations and the keeping of records) and the information that must be provided to donors and potential donors, it also impacts how these organizations must handle the information that they collect in the process. Most notably, sections 4 and 5 of the Standards of Practice created pursuant to the CFA provide that:

4. Charitable organizations and fund-raising businesses must give donors the opportunity to have their names removed from lists that are sold, rented, or exchanged with other organizations.

5. Charitable organizations and fund-raising businesses must not disclose any personal and confidential information about donors or prospective donors outside the work environment, and within the work environment only as appropriate. 

The CFA and Standards of Practice must be followed by organizations formed for a charitable purpose, regardless of whether they are a registered charity.  Organizations that fail to comply risk suspension or cancellation of their registration (in the case of a charitable organization) or license (in the case of a fund-raising business).  Alternatively, terms and conditions may be imposed on the organization's registration or license.

Conclusion

Miller Thomson’s lawyers would be pleased to assist with all privacy related questions and issues.

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Dernières nouvelles

Iain Benson was invited by the Ontario Human Rights Commission and the York University Centre for Law and Public Policy to be a "special expert" at a two day Workshop discussing revisions to the "Creed" document (1996) that guides human rights adjudicators in Ontario held on March 29, 2012 and March 30, 2012.  This was the second in an ongoing series of events. Iain's article on "Reading Religion Down" will be published in an upcoming issue of Canadian Diversity Magazine – this is a bilingual journal published by the Association for Canadian Studies and widely read by those involved in Human Rights across Canada.

Susan Manwaring was a guest speaker at the Schulich School of Business in Toronto, Ontario on April 5, 2012, on "Legal Issues and Corporate Governance"

Susan Manwaring and Kate Lazier presented "Social Enterprise" at the 19^th Annual Canadian Association of Gift Planners National Conference (“CAGP-ACPDP”) in Victoria, BC on April 18, 2012.

Sandra Entricknap spoke on "Donations of Land to Registered Charities in Canada", with co-presenter Grant Monck of Ducks Unlimited, at the CAGP-ACPDP conference in Victoria, BC on April 19, 2012.

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