Miller Thomson Foundation Announces Recipients for 2012 National Scholarship Programme

The Miller Thomson Foundation is pleased to announce the recipients for its 2012 National Scholarship Programme.  100 high school students will receive entrance scholarships in the amount of $3000 each to support their pursuit of secondary education in Canada.  Over 1600 students in their graduating year applied for the scholarships.

The National Scholarship Programme is a longstanding, ongoing initiative of the Miller Thomson Foundation.  Its purpose is to encourage and promote the attainment of higher education goals for individuals in Canada who have demonstrated a high level of academic achievement and made a positive contribution to their school and their community through extra-curricular and community activities.

Those interested in learning more about the National Scholarship Programme are invited to visit the MT Foundation website.

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CRA Comments on NPO Issues Facing Sports Clubs and Associations

Andrew Valentine, Toronto

Two recent CRA technical interpretations offer guidance into the CRA’s views on issues affecting sports clubs and associations operating as non-profit organizations (“NPOs”).  As part of an ongoing audit project, the CRA is reviewing the operations of a wide range of NPOs to assess compliance issues under the Income Tax Act.  While this project has been ongoing, the CRA has released numerous technical interpretations setting out its views on various aspects of NPO tax exemption.

In order to qualify as a tax exempt NPO under paragraph 149(1)(l) of the Income Tax Act, an organization must be organized and operated exclusively for purposes other than profit, and must not make any income of the organization available to its members.

The first technical interpretation, released on March 30, 2012, addressed sports organizations that receive free or subsidized equipment from local businesses, such as team jerseys, that display the name or logo of the sponsoring business.  This issue arises for many NPO community sports clubs, such as minor league hockey, baseball or soccer teams, or speed or figure skating clubs.  While not explicitly stated, it appears that the CRA is concerned with the receipt of equipment from local businesses in exchange for advertising, which could be argued to constitute a commercial transaction and is indicative of a profit purpose on the part of the NPO.

The CRA stated, however, that the receipt of free or subsidized equipment by a community sports organization or team generally will not jeopardize the organization’s tax exempt status.  It stated that, in general, this type of sponsorship arrangement is intended primarily to support the organization, is closely connected to and furthers the objectives and purpose of the organization, and represents only incidental income to the organization. 

The second technical interpretation, also released on March 30, 2012, addressed an NPO sports association the membership of which consisted of other NPO sports organizations.  The association’s purpose, it appears, was to provide financial assistance to its members through the sale of sponsorship and advertising rights.  The association earned income from a variety of sources and had for at least some years seen a steady increase in members’ equity (as described in the financial statements).  For each of the years reviewed by the CRA, the association recorded a surplus that was distributed evenly to its members.

The CRA confirmed the requirements for NPO status, including the requirement not to have a profit purpose.  While it is acceptable for an NPO to earn incidental profits from activities undertaken to support the organization’s non-profit purposes, earning profit cannot be a purpose of the organization.  The CRA observed that the profits earned by the association were more than incidental and were actively pursued through the use of a professional agency.  It also noted that the income was earned almost entirely from third parties.

The CRA concluded that the organization was likely operating for a profit purpose and for the purpose of making income available to its members.  It stated that an organization generally cannot plan to provide financial assistance to its members out of surplus derived from third parties without having a profit purpose.

While this result is perhaps unsurprising, the CRA did make two noteworthy comments.  It commented first on the possibility that the association is acting as agent of its members.  The CRA stated that if the association were in fact acting as agent – noting in particular that this would require that the members owned the advertising rights being exploited – then it is possible that the income would be viewed as that of the members.  It stated that any such arrangement must be properly documented, and noted that no such documentation was evident in the situation it reviewed.

The CRA also noted that an exception to the general prohibition against making income available to the members applies if the member of the NPO is an organization the primary purpose and function of which is to promote amateur athletics in Canada.  In others words, an NPO the members of which are all registered Canadian amateur athletic associations (RCAAAs) may make its income available for the personal benefit of these members.  This exception is built into the tax exemption in the Income Tax Act.

NPO sports organizations should take note of both these technical interpretations.  Community sports teams and organizations can take some comfort that the use of donated or subsidized equipment from local businesses will not jeopardize their tax exempt status.  Umbrella sports associations that provide financial support to their members should review their operations to determine whether they face a compliance risk.  In particular, they should review the status of their members and the extent to which the organization earns outside income.  It may be necessary to implement structural changes to bring the association into compliance.

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Receipting for Fundraising Events Held by Individual Supporters

Amanda J. Stacey, Toronto

The CRA released a technical interpretation on May 23, 2012 (2010-0391511E5) concerning whether a donation receipt can be issued by a charity to an individual who has agreed to host a fundraising dinner on behalf of a charity and to the individuals who purchased the right to attend the fundraising dinner.  In the hypothetical situation put before the CRA, an individual agreed to host a fundraising event in her home on behalf of a charity.  The individual acquired catering services from a third party and donated a selection of fine wines for consumption by the dinner participants. The individual requested a donation receipt in respect of the wines and the catering expenses for the dinner. 

The CRA stated that whether a registered charity can issue an official donation receipt to an individual who incurs expenses on behalf of the charity is a question of fact.  The CRA confirmed that generally a charity can reimburse an individual for expenses incurred on behalf of the charity and later accept the return of the payment as a gift, if the amount is returned voluntarily.  The CRA also noted that Policy Commentary CPC-012 states that provided a volunteer has a right to reimbursement for expenses incurred on behalf of a charity, the charity may treat the right to reimbursement as a gift and issue a receipt.  Thus, in a case where expenses are incurred by an individual who hosts a fundraising dinner for the benefit of a charity, the host must have the right to be reimbursed under the terms of the arrangement with the charity.   Where such is the case, the charity can issue a receipt to the host in lieu of reimbursing the expenses. 

With respect to a gift-in-kind such as the gift of wines, a charity may issue a receipt; however, subsection 248(35) of the Income Tax Act may be applicable.  That subsection provides that the fair market value of the gift of property is the lesser of the fair market value of the property otherwise determined and its cost to the donor.  This subsection would be applicable where a taxpayer acquires the property that is gifted to the charity less than three years before the day that the gift is made, or less than ten years before the gift is made and it is reasonable to conclude that at the time that the taxpayer acquired the property, one of the main reasons for the acquisition was to make a gift of the property to charity. 

The CRA also confirmed that the charity may issue receipts to individuals who purchase the right to attend such a fundraising dinner for the benefit of the charity.  The charity must ensure that it complies with the proposed split receipting rules and only issue a receipt for the eligible amount of the gift.  The CRA noted that Income Tax Technical News No. 26 provides guidelines concerning receipting issues with respect to fundraising dinners.  Generally, the eligible amount of the gift in the fundraising dinner scenario will be equal to the fair market value of the amount paid to attend the dinner less the fair market value of dinner and beverages enjoyed by the donor.  The charity must look at the value of a comparable meal provided by a comparable facility when determining the amount to be allocated to the fair market value of the dinner.

The CRA notes that it is the responsibility of the charity to substantiate amounts reported on its donation receipts, including ensuring that the fair market value of property donated is properly reflected.  The charity is also responsible for determining the value of any advantage provided in respect to the gift.  When advantage cannot reasonably be ascertained, the charity cannot issue a receipt.

This particular technical interpretation should provide guidance to charities that have supporters who host such events. However, charities must ensure that they are in compliance with the receipting rules as they apply in these scenarios.  We would be pleased to provide charities with further guidance with respect to these issues.

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Court Upholds Diocese’s Control of Property

Kate Lazier, Toronto

The Ontario Superior Court of Justice recently decided a case involving two groups that each claimed to be the proper trustees of the property of a congregation of the Serbian Orthodox Diocese of Canada (the “Diocese”).  

The congregation was not incorporated and, therefore, it was subject to the Religious Organizations Land Act in Ontario which provides that trustees can hold land on behalf of a congregation.  The members of the Serbian Orthodox Church–School Congregation of St. Nicolas in Unity (the “Congregation”) had, according to its by-law, elected an executive board to administer and manage property of the Congregation as trustees.

Several issues arose between the Congregation and the Diocese.  In one incident, the members of the Congregation walked out of a service in protest when the Bishop introduced a new priest to take over the Congregation.   The next week the Bishop removed the Congregation’s elected executive board and replaced it with temporary trustees.  Thus, for the past six years the Congregation has not had the ability to manage its property.

The Congregation’s by-laws were enacted in 1979 and had been approved by the Bishop, as required by the Church. 

The Diocese enacted a Statute in 1996.  The Statute provided that a congregation could have its own by-law, provided that it was consistent with the Statute and approved by the Bishop.   The Statute also allowed the Diocese to appoint temporary trustees where a congregation was not serving according to the precepts of the Church.  The Diocese required all congregations to update their by-law in 1996.   The Congregation did not do so.   In 2006, the temporary trustees prepared a new by-law for the Congregation, but it was not adopted by the Congregation.  In 2007, the Diocese held that all by-laws not brought into compliance with the Statute would be superseded by the Statute. 

The Court noted that the Church had a hierarchical structure in which the Diocese and Bishop are superior to the Congregation.   The Court held that the Congregation’s 1979 by-laws were no longer in effect because the Diocese had superseded it.  The Court found that the actions of the Diocese in removing and replacing the trustees were within its administrative authority.  Thus, the Court dismissed the action of the Congregation to regain control of its property.

While the courts are generally reluctant to address issues of religion, this case is an example of how the courts will intervene where the dispute involves property.  In this case, the Court upheld the Church’s hierarchical structure and its ability to override the by-laws of individual congregations.

Churches should consider their structure before a dispute arises.  The lawyers at Miller Thomson’s Charity and Not-For-Profit Group can assist groups to structure their corporations to achieve either centralized control or diffuse ownership.

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Recent Case Reminds Charities about the Risks with False Donation Receipts

Andrew Valentine, Toronto
Barbara Prikrylova, Summer Student, Toronto

The recent decision of the Tax Court of Canada in Grosset v. The Queen offers a reminder to charities and their donors to beware the risks involved with false receipts.  

The case involved two taxpayers, Oneil and James Grossett, appealing from a CRA reassessment.  They were reassessed for four past taxation years on the basis that they had claimed charitable tax credits for gifts that were never made. 

Both appellants had used the services of the same accountant.  The accountant had previously pled guilty to selling false donation receipts.  He had sold receipts for approximately 10% of the amount of the donation shown on the receipt.  The accountant had admitted to selling a total of $39 million in false receipts between 2002 and 2005.  He had issued the false donation receipts for several charities in which he was a director.  The CRA began investigating the appellants after searching the accountant’s office and discovering receipts for the apparent sale of donation receipts.

The appellants' filed tax returns that included claims for charitable donations in amounts ranging from $3,590 up to $23,039.  The Court noted that the donation amounts were well outside of their financial position (some donations equalled one quarter to one half of their respective incomes).  The Court also noted that these donations were inconsistent with their previous donation history (or lack thereof).  The Court confirmed the reassessment. 

The Court stated that, as the taxpayers had knowingly purchased false charitable donation receipts, they had clearly included a misrepresentation in their tax returns.  In knowingly doing so the Minister could therefore look outside of the normal assessment 3-year period and reassess the appellants for the years in question.

This case serves as a warning to charities to make sure they have an account of their tax receipt booklets and have adequate policies and procedures in place to ensure that all receipts are issued properly.  For charities, issuing false receipts can result in deregistration, and potentially further sanctions under the Income Tax Act.   For donors, the use of false donation receipts will justify reassessment for taxation years beyond the normal reassessment period, plus potential interest and penalties.  Advisors too should take account of the very significant penalties that can apply for issuing false receipts or contributing to a misrepresentation on a tax return, as well as the possibility of civil exposure to their clients.

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Dernières nouvelles

Amanda Stacey presented “The Essentials of Wills & Charitable Gifting – What Everyone Needs to Know” at the Toronto Public Library Foundation on June 1, 2012.

Kate Lazier presented on “Legal Eagles – Not-for-Profit Corporations Act and Risk Management” at the Ontario Association of Food Banks on June 8, 2012.

Robert Hayhoe presented on “Social Enterprise” at the STEP Canada Annual Conference held in Toronto on June 11, 2012.

The Toronto Charities and Not-for-Profit Group held a breakfast seminar on June 13, 2012 regarding developments relevant to our charities and not-for-profit clients.  The following individuals presented:

• Kate Lazier “Ontario Not-for-Profit Corporations Act – Are you ready?”
• Amanda Stacey “Updated CRA Fundraising Guidance”
• Susan Manwaring “CRA Audit Initiative – A Status Report”
• Robert Hayhoe “2012 Federal Budget Charity Changes”

Susan Manwaring presented “Are You on the Qualified Donee List?” at a Webinar hosted by The Circle of Philanthropy and Aboriginal Peoples in Canada on June 22, 2012.

The Toronto Charities and Not-for-Profit Group held a Charities Webinar on June 26, 2012 for individuals who were unable to attend the breakfast seminar held on June 13.

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