Healthcare Philanthropy: Check-Up 2010

Transcription

1 Healthcare Philanthropy: Check-Up 2010 Thursday, June 10, 2010 The Estates of Sunnybrook - Main Ballroom 2075 Bayview Ave Toronto, ON M. Elena Hoffstein Partner Fasken Martineau ehoffstein@fasken.com Theresa L.M. Man Partner Carters Professional Corporation x225 tman@carters.ca Terrance S. Carter Partner Carters Professional Corporation x222 tcarter@carters.ca Paul V. Casuccio Partner Fasken Martineau pcasuccio@fasken.com

2 Index Tab Agenda 1 Overview of Fasken Martineau and the Trusts, Wills, Estates and Charities Group 2 Overview of Carters 3 Presentations 4 Charity Law Update: The Year in Review M. Elena Hoffstein, Partner, Fasken Martineau What the Federal Budget Disbursement Quota Reform Will Mean to Your Charity Theresa L.M. Man, Partner, Carters Professional Corporation The Practical Implications of CRA's Fundraising Guidance: One Year Later Terrance S. Carter, Partner, Carters Professional Corporation The HST: The Impact on Charities and Not-for-Profits Paul V. Casuccio, Partner, Fasken Martineau Fasken Martineau Resource Materials 5 Carters Resource Materials 6 Biographies 7

3 Healthcare Philanthropy: Check-Up 2010 Half-Day Seminar, June 10, 2010 Estates of Sunnybrook Agenda 7:45 am 8:25 am Registration & Breakfast 8:25 am 8:30 am Opening Remarks Terrance S. Carter / M. Elena Hoffstein 8:30 am 9:15 am Charity Law Update: The Year In Review M. Elena Hoffstein 9:15 am 10:00 am What The Federal Budget Disbursement Quota Reform Will Mean To Your Charity Theresa L.M. Man 10:00 am 10:20 am Refreshment & Networking break 10:20 am 11:05 am The Practical Implications Of CRA s Fundraising Guidance: One Year Later Terrance S. Carter 11:05 am 11:50 pm The HST: The Impact On Charities And Not-For-Profits Paul V. Casuccio 11:50 pm 12:00 pm Questions and Closing remarks Terrance S. Carter / M. Elena Hoffstein

4 FACT SHEET At a Glance FACTS Best Lawyers in Canada (2010) directory lists 96 of the firm s lawyers as experts in 37 areas of practice The Canadian Legal Lexpert Directory recognizes 77 of our lawyers and the Lexpert/American Lawyer Guide to the Leading 500 Lawyers in Canada lists 20 of our lawyers Chambers Global 2010 Guide to The World s Leading Lawyers lists 47 of the firm s partners; some of whom are listed for multiple practice areas Thomson Reuters ranks Fasken Martineau #3 among all law firms globally for the number of Canadian M&A transactions announced in 2009, the fourth year in a row that the firm has placed in the top 4 The International Who s Who of Business Lawyers has ranked Fasken Martineau the world s #1 firm in mining law for the past five consecutive years At a Glance Business leaders need legal advice that marries legal expertise with business smarts. The global nature of today s business community demands clear counsel and representation on complex legal issues. Fasken Martineau is a leading international business law and litigation firm with more than 650 lawyers with offices in Canada, the UK, France and South Africa. Our practice includes every sector of business, industry and government. We pride ourselves on going beyond results to focus on your goals and longterm business success. Our Clients Fasken Martineau provides strategic and thoughtful advice in virtually all areas of business law to a broad range of clients including close to half of the Fortune 100 companies. We work with corporate clients, government agencies, regulatory authorities, non-profit bodies and individual clients. Clients benefit from our: Commitment to quality Our legal practice is rooted in the relationships we build with our clients. That means a comprehensive and sustained focus on service at the highest levels throughout our entire firm to meet and anticipate your evolving needs. Quite simply, we start building relationships by listening to you, our clients. We gauge our success from our clients who continue to entrust us with their most pressing matters. Cogent advice Known for our ability to think strategically and deliver practical solutions, we have extensive experience acting for clients on domestic and international issues. Our lawyers are often asked to comment on legal issues affecting business and are quoted regularly in the media. International reach To meet our clients needs in Canada and abroad, we have teams of lawyers and professionals working in our offices across Canada in Vancouver, Calgary, Toronto, Ottawa, Montréal, Québec City, and abroad in London, Paris and Johannesburg. Our Expertise With top-ranked lawyers in a wide range of practice areas and business sectors, clients rely on us for our expertise in: Aboriginal Antitrust/Competition & Marketing Asia Pacific Banking & Finance Class Actions Communications Construction & Procurement Corporate/Commercial Energy, Environmental, Climate Change & Regulatory Financial Institutions & Services Forestry Government Relations & Ethics Health Infrastructure and Public-Private Partnerships Insolvency & Restructuring Insurance International Law (Dispute Resolution & Arbitration and Trade & Customs) Investment Products & Wealth Management Labour, Employment & Human Rights Life Sciences Litigation & Dispute Resolution Mining Privacy & Information Protection Private Equity Product Liability Real Estate Securities and Mergers & Acquisitions Taxation Technology & Intellectual Property Trusts, Wills, Estates and Charities. VANCOUVER CALGARY TORONTO OTTAWA MONTRÉAL QUÉBEC CITY LONDON PARIS JOHANNESBURG [20Apr10]

5 FACT SHEET Selected Experience Advised Addax Petroleum Corporation on its $8.2 billion acquisition by The Sinopec Group, the largest overseas acquisition ever by a Chinese state-owned company. Advising MDS Inc. on the sale of its instrument division to Danaher Corporation for US$650 million. Advised Gold Reserve Inc. before the Ontario Superior Court of Justice in successfully restraining Rusoro Mining Ltd. from proceeding with a hostile takeover bid for the company because of alleged conflicts of interest and confidentiality violations. Advised EnStream LP, a mobile commerce joint venture company owned by Canada's three leading wireless operators, on multiple aspects of the development, structuring and launch of Zoompass, a breakthrough mobile money transfer and payment service. Advising various parties in relation to the high-profile crossborder insolvencies of Nortel, AbitibiBowater and Quebecor World. Advised Kerry (Canada) Inc. in a dispute with former employees over the use of surplus in the employee pension plan by plan administrators, culminating in a landmark decision by the Supreme Court of Canada in favour of Kerry, with wide implications for employers, pension plan administrators and employees of Canadian companies. Advised Export Development Canada which, along with a syndicate of lenders, extended a term credit facility of up to $700 million to Air Canada. Advised ING Canada with respect to its transformation from a Canadian subsidiary of ING Group into an independent Canadianlisted and widely-held company, including advice on regulatory matters and its rebranding as Intact Insurance. Advised The Royal Bank of Scotland on Canadian bank and securities regulatory and antitrust matters in connection with the UK government becoming a 58% majority stakeholder in the bank. Advised a consortium led by The Royal Bank of Scotland on Canadian aspects of its successful competitive bid for Dutch bank ABN AMRO, the largest financial services merger in history. Advised the underwriters led by TD Securities on more than $10 billion in equity and debt offerings for TD Bank Financial Group in 2008 and Advised key parties, including the issuer trusts and Desjardins Group, in the landmark Canadian $32 billion Asset-Backed Commercial Paper restructuring. Advised a syndicate of European banks and a core group of North American banks on the refinancing by Bombardier of US$6.24 billion letter of credit facilities. Advised the Special Committee of Alcan Inc. in Alcan s $38.1 billion acquisition by Rio Tinto, to form the world s leader in aluminum. Advised the lenders for $460 million in financing in support of an agreement between the Government of Alberta and BBPP Alberta Schools to design-build-finance-maintain 18 state-of-the-art schools in Alberta, the largest ever Canadian schools P3 transaction. Advised issuers (including Inmet Mining, IAMGOLD First Quantum Minerals, Gold Wheaton Gold and First Uranium) and underwriters on more than $2.5 billion in mining equity financings in Advised Rohm & Haas on Canadian regulatory law with respect to its US$16.5 billion acquisition by The Dow Chemical Company. Advised Tyco Safety Products in a dispute with one of its competitors before The Federal Court of Canada resulting in a landmark patent decision and a clear victory for Tyco. Advised the lenders for the construction bank financing and long term bond financing for the $759 million Niagara Health System Alternative Financing and Procurement project, Infrastructure Ontario s first full design-build-finance-maintain hospital project. Advised The Bank of Nova Scotia in litigation before the Supreme Court of Canada resulting in the SCC issuing a precedent-setting decision in favour of the bank concerning the recovery of the proceeds of fraud. VANCOUVER CALGARY TORONTO OTTAWA MONTRÉAL QUÉBEC CITY LONDON PARIS JOHANNESBURG [20Apr10]

6 Charities and Not-for-Profit Group FACTS Members of our group belong to professional bodies such as the Canadian Association of Gift Planners (CAGP), the Association of Fundraising Professionals (AFP), The Society of Trust and Estate Practitioners (STEP), and the Academy of Trusts and Estates (ACTEC). Charities and Not-for-Profit Charities and not-for-profit organizations enrich the lives of people and communities everyday. But managing charitable organizations is a heavy responsibility. Directors, officers and employees of charitable organizations face increased regulations and growing scrutiny of both their operations and governance. Fasken Martineau s Charities Group can help you navigate the complex laws and regulations governing the creation, organization, and ongoing administration of charities and not-forprofit entities. Our Clients Our team has a long history of helping not-for-profit organizations and charities build the right legal foundation for success. We have extensive expertise in all areas of charity and not-for-profit law both nationally and internationally. We advise a large number of hospitals, healthcare service agencies, professional governing bodies and associations, community service agencies, charitable organizations and community foundations as well as private family foundations, non profit corporations including RCAAAs, clubs. Our Expertise in fundraising, donations and legacy planning is further enhanced by our team s: Regulatory expertise We can help you navigate the increasingly complex regulatory environment, including the complex new disbursement quota rules and new privacy legislation that apply to charities and not-for-profits. In-depth tax knowledge Based on in-depth understanding of Canadian and provincial tax legislation, we can help resolve any tax issues that may arise, such as obtaining charitable status, helping charities and donors maximize the tax efficiency of your charitable gifts, and helping to develop investment strategies for donated gifts. Expertise in planned giving Most Canadians contribute to charities throughout their lifetime, but few continue this support through a gift in their will or estate plan. This is a missed opportunity. Our practitioners take the time to understand your values and vision to ensure your legacy planning is fulfilled in a tax efficient manner. International legal expertise We have experience helping charities to carry out their activities abroad in accordance with applicable regulatory rules. Our Expertise We have experience: Other areas of expertise: Establishing and advising hospital foundations and other parallel foundations Advising on amalgamation of hospitals and other charities Advising on foreign operations of operating charities Fundraising issues and charitable gaming Advising charities on CRA audits Advising international charities Advising on donor advised funds Advising donors on effective charitable gifting. Intellectual property Labour and employment law HST General legal matters including real estate Risk management Advocacy Defence and administration of charitable bequests Directors and Trustees duties and liabilities Incorporation organization and regulation of charity. VANCOUVER CALGARY TORONTO OTTAWA MONTRÉAL QUÉBEC CITY LONDON PARIS JOHANNESBURG [20avr10]

7 Contacts TORONTO M. Elena Hoffstein om Corina S. Weigl cw Laura E. West VANCOUVER Edgar A. Frechette fasken.c om MONTRÉAL Louis Tassé fasken.com Hugo Patenaude Howard M. Carr Darrell J. Wickstrom com com Helen Low About Fasken Martineau Fasken Martineau is one of the world's leading international business law and litigation firms with more than 650 lawyers with offices in Canada, the United Kingdom, France and South Africa. Our practice includes every sector of business, industry and government. VANCOUVER CALGARY TORONTO OTTAWA MONTRÉAL QUÉBEC CITY LONDON PARIS JOHANNESBURG [20avr10]

8 CONTACT SHEET Trusts, Wills, Estates and Charities Toronto M. Elena Hoffstein Laura E. West Howard M. Carr Robert W. Cosman Lynne Golding David C. Rosenbaum Corina S. Weigl Calgary Montréal Alex Kotkas Hugo Patenaude VANCOUVER CALGARY TORONTO OTTAWA MONTRÉAL QUÉBEC CITY LONDON PARIS JOHANNESBURG

9 CONTACT SHEET Trusts, Wills, Estates and Charities Vancouver Edgar A. Frechette National Chair Anna Laing Helen H. Low Darrell J. Wickstrom VANCOUVER CALGARY TORONTO OTTAWA MONTRÉAL QUÉBEC CITY LONDON PARIS JOHANNESBURG

10 Trusts, Wills, Estates and Charities Members of the Trusts, Wills, Estate and Charities group practising in the Charities and Not-For-Profit sector provide legal services related to the effective creation, organization and ongoing governance and administration of charities and not-for-profit entities. We advise donors with respect to effective charitable giving as well as the establishment, maintenance and operation charities and not-for-profit entities. Our Estate Planning services includes wills, domestic contracts, business succession planning, planned giving, powers of attorney and trusts. We can assist you with your responsibilities in the administration of an estate, a trust or if you are acting as a power of attorney. When your estate planning requires additional expertise, we are able to partner with other experts to ensure all your options are explored. Our Personal Tax Planning practitioners offer a broad range of services to assist clients in developing effective strategies for minimizing taxes including probate taxes, within the framework of the will or estate plan. We can provide both cross border and international tax planning. If you have a trust, will or estate related or a related dispute, we act as a fiduciary or as a beneficiary members of our Estate Litigation group can represent your interests in the pursuit of an effective solution. Charities and Not-For-Profit Every day people's lives are enriched by the work of charitable and not-for profit organizations. The role these organizations play in our society is growing. That growth has been accompanied by a growth in the regulation of these organizations and a greater scrutiny of their governance, including the actions of their directors and officers. The laws around fundraising, donations and legacy planning are complex. If you are involved in the management and operation of one of these organizations, our team of skilled lawyers can help you in understanding and complying with the law as it applies to the management and operation of your organization. At Fasken Martineau, we work extensively with the charitable sector, providing legal services related to the effective creation, organization and ongoing governance and administration of charities and not-for-profit entities. We assist with the efficient maintenance of the legal affairs of the organization, including advising on administrative and governance matters, compliance and regulatory issues, taxation matters, directors' duties and obligations and members' rights. Research has indicated that while most Canadians contribute to charities throughout their lifetime, very few continue this support through a gift in their will or estate plan; this is a missed opportunity. Consideration should be given to the tax advantages of testamentary charitable gifts as part of the estate planning process. The two most common types of planned gifts are bequests in wills and gifts of life insurance. Other types of donations include: pledges; payroll deductions; gifts in kind; charitable remainder trusts; charitable gift annuities; gifts of appreciated securities and bonds; in memoria and special occasion gifts. If your estate plan involves leaving a social capital legacy, we can assist you in effectively implementing this legacy. We count among our clients a large number of hospitals, healthcare service agencies, professional governing bodies and associations, community service agencies, not-for-profit organizations and community foundations as well as private family foundations. If you are in need of advice concerning the establishment of such an organization or the making of a charitable gift, our practitioners will take the time to understand your values and vision to ensure your legacy planning is fulfilled in a tax efficient manner. Members of our group belong to professional bodies such as the Society of Trust and Estate Practitioners (STEP), Academy of Trusts and Estates (ACTEC), the Canadian Association of Gift Planners (CAGP) and the Association of Fundraising Professionals (AFP). Estate Litigation Members of our practice group have specialized expertise to assist in resolving contentious matters relating to wills, trusts and the administration of estates. We are able to provide effective guidance and, where appropriate, skilled counsel abilities to negotiate, mediate, arbitrate or litigate the matter. Our expertise is recognized by other members of the legal community and we often assist other lawyers in litigation matters concerning wills, estates and trusts and their administration. Estate and Trust Litigation We act for executors/administrators/trustees, heirs and beneficiaries, including charitable beneficiaries and persons who feel they have been wrongfully excluded from a share of an estate. We both prosecute and defend claims and seek court direction as best serves the needs of our clients. 1 VANCOUVER CALGARY TORONTO OTTAWA MONTRÉAL QUÉBEC CITY LONDON PARIS JOHANNESBURG

11 We have extensive experience in matters concerning the validity of a will or trust where concerns arise about the maker's mental capacity, undue influence or knowledge or approval of the document. We also act on behalf of family members and dependants of a deceased who seek to vary a will under legislation that allows for the court to give a greater share of the estate to them than they have been given under the will. We act on matters where property has been transferred through joint tenancy or outright transfer during a person's lifetime that may not have been intended as a true gift and where a resulting trust arises. We act on matters where an unjust enrichment or compensation claim for benefits is made for benefits one person has provided to another. We assist family members where a power of attorney appointment or a court appointment of a legal representative for an incapable adult is required to assist with the person's financial and legal affairs or personal care decisions. We also advise families where there are vulnerable elderly members who require financial protection and act to recover assets for persons who have suffered a loss because of financial abuse or improvident transfers of assets. Where a person is in a position of trust or serves as a fiduciary to another, we bring proceedings to recovery losses resulting from the breach of trust or breach of fiduciary duty. Estate Administration We advise estate trustees/executors/administrators as to their responsibilities and obligations in the administration of estates and trusts. This may include court applications to determine the appropriate heirs and beneficiaries of an estate and their respective entitlements (both where there is a will and where a person dies leaving no will), to have persons appointed to administer estates and trusts and to replace executors and trustees appointed under a will with others. We also defend claims by creditors or claimants against an estate or bring claims by the estate for recovery of assets. We can provide advice and seek court direction where there are questions regarding the proper interpretation of the document, where an amendment to the trust terms is required or where there are issues about how the administration of a trust or the estate is to be undertaken. We give advice on matters relating to the proper preparation of estate/trust accounts, the process of obtaining court approval of the estate/trust accounts, the appropriate remuneration for the trustee/executor/administrator and their ultimate discharge. Regardless of the specific estate, will or trust issue, our strength is that we will apply our expertise to bring the most effective solution to achieve the goals of our clients. Estate Planning An effective estate plan requires a thorough understanding of your values and objectives for your wealth. Once we have worked with you to clarify what these are, our acknowledged leaders in estate planning can develop a well-designed plan to fulfill those values and objectives. The plan we develop with you may include wills, domestic contracts, a succession plan for your business, a charitable giving strategy to fulfill your social capital legacy, powers of attorney and trusts. We will work independently or with your other advisers to develop an integrated estate plan which meets your values and objectives, while minimizing the impact of income taxes and probate fees. Our services also include assisting with the administration of the estate or trust including advising executors and trustees and, in many cases, acting as their agents in the day-to-day administration of the estate. We can also attend to fiduciary accounting, gathering information on the assets and liabilities of an estate, applying for grants of probate or letters of administration, making all necessary filings with the Canada Revenue Agency and distributing assets to beneficiaries. The multi-jurisdictional property interests of our clients often require the development of a co-ordinated plan to leverage differing legal and tax regimes. Through our international offices and the reputation of individual members of our group, we have access to experts in other jurisdictions who can assist in this regard. Our experience includes the following: Assisting clients with marriage contracts and family law planning; Advising on the use of trusts and powers of attorney to protect clients' assets and ensure safeguarding of those assets and care of clients in the event of long term illness or incapacity; Using tax-planned trusts and wills to accomplish one's primary personal and financial objectives while minimizing tax consequences; Advising on trust variations and migrations; Planning to effectively reduce probate taxes within the framework of the will or estate plan; Developing and facilitating succession plans to transfer family business between generations; Cross-border will and trust planning for clients who are U.S. citizens or dual residents of Canada and the United States or Canadians who own U.S. situs property; Assisting new immigrants to Canada to establish trusts to take advantage of the five-year Canadian tax holiday; 2 VANCOUVER CALGARY TORONTO OTTAWA MONTRÉAL QUÉBEC CITY LONDON PARIS JOHANNESBURG

12 Advise individuals in planning for emigration from Canada; Advising on the appropriate use of insurance; Advising on and implementing sophisticated estate freezing and income splitting schemes; Assisting executors and trustees with estate and trust administration, and executors' and trustees' accounts; Planning to deal with the succession of recreational properties (within and outside Canada) for both Canadian residents and nonresidents and minimizing taxes with respect to such succession. Members of our group belong to professional bodies such as the Estate Planning Council (EPC), Family Firm Institute (FFI), the Society of Trust and Estate Practitioners (STEP), Canadian Association of Family Enterprises (CAFE), Academy of Trusts and Estates (ACTEC), the International Academy of Trusts and Estates Lawyers, the Canadian Association of Gift Planners (CAGP) and the Association of Fundraising Professionals (AFP). When your estate planning requires additional expertise, we are able to partner with the firm's specialists in taxation, insurance and business law and can also assist in resolving estate-related disputes through litigation or mediation see Estate Litigation). Personal Tax Planning & Wealth Management The enhancement, accumulation and preservation of wealth require a combination of acumen and insight. Through an organised and effective tax planning, you will reduce, minimize or defer your Canadian and global income tax burden. Our acknowledged leaders in the personal tax planning group can assist you and your advisers to realise and fulfill your objectives in a manner complying with your behaviours and respecting your values. We can assist you in the elaboration of strategies to minimize or defer the tax payable upon your death or by your estate or heirs, including probate taxes within the framework of your will and estate plan. In the context of closely held companies, we can assist you in customizing your compensation, elaborating income splitting strategies, developing your retirement plan and putting in place other tax efficient plannings. We can assist you in the orderly transfer of your wealth to family members, the planning of your business succession plan and its transfer to family members, employees or other persons. The multi-jurisdictional property interests of our clients often require the development of a co-ordinated plan to leverage differing legal and tax regimes. Through our international offices and our experience in this field, you benefit from a broad network of professionals both in Canada and abroad who can assist you in all of your planning-related needs. Our services also include assistance in responding to audit inquiries from tax authorities, negotiating on your behalf, preparing notices of objection and appeals against tax assessments and litigating tax disputes at all judicial levels, including provincial courts, the Tax Court of Canada, the Federal Court of Canada, the Federal Court of Appeal, and the Supreme Court of Canada. Specific areas of personal tax expertise include the following services, in both domestic and international contexts: Developing and facilitating succession plans to transfer family business between generations while promoting business' growth and family harmony; Advising and implementing sophisticated estate freeze and income splitting schemes; Advising on compensation and retirement plan, including deferred income plans and employment benefits; Structuring investments and transactions in a tax effective manner; Advising on derivatives, tax shelters investments and any other type of investment products or vehicles; Advising on the appropriate use of insurance and insurance based products; Advising on the use of trusts to minimize the income tax payable or to achieve non-tax objectives; Advising on the use of trusts and powers of attorney to ensure the safeguard's continuity of your assets in the event of long term illness or incapacity; Advising client on asset protection strategies in a tax effective manner; Litigating tax disputes or claims arising out of family business disputes; Assisting clients with marriage contracts and family law planning; Advising clients having assets or families in multiple-jurisdictions, such as recreational property; Advising on cross-border trust planning for US and Canadian citizens or dual residents; Structuring non-resident trusts for Canadians or foreigners; Establishing trusts for new immigrants in Canada, in order for them to take advantage of the five year Canadian tax holiday or other opportunities; Assisting emigrants to properly order their departure from Canada and take advantage of tax planning opportunities; Advising on charitable giving including the use of private charitable foundations (see Charities and Not-For-Profit); 3 VANCOUVER CALGARY TORONTO OTTAWA MONTRÉAL QUÉBEC CITY LONDON PARIS JOHANNESBURG

13 Advising on estate planning (see Estate Planning). Assisting clients in these areas requires a thorough knowledge of challenges and obstacles to the ownership and transfer of property. This includes knowledge of tax law, family law, elder law, probate and estate law, wills and wills variation law, trust law, creditors' rights and remedies, corporate law, and the rules of litigation procedures, negotiation and advocacy skills. Our knowledge enables us to fully understand the problems you are facing and to find the appropriate solutions for your particular situation, whether it is of a mundane or sophisticated nature, and to deliver those services in a highly professional and efficient manner. 4 VANCOUVER CALGARY TORONTO OTTAWA MONTRÉAL QUÉBEC CITY LONDON PARIS JOHANNESBURG

14 Carters Professional Corporation Société professionnelle Carters Barristers, Solicitors & Trade-mark Agents Avocats et agents de marques de commerce FIRM OVERVIEW OF CARTERS A FULL SERVICE LAW FIRM WITH A FOCUS ON CHARITIES AND NOT-FOR-PROFIT ORGANIZATIONS Carters Professional Corporation (Carters) is one of the leading firms in Canada in the area of charity and not-for-profit law and is able to provide a full range of legal services to its charitable and not-forprofit clients, as well as to individuals, corporations and businesses. With offices in Mississauga, Ottawa and Orangeville, Ontario, as well as meeting facilities in Toronto, Guelph and Vancouver, Carters provides assistance to clients across Canada and internationally with regard to all aspects of charity and not-for-profit law. The lawyers and staff at Carters are committed to excellence in providing clients with complete legal solutions for their unique needs. WITH INTERNATIONAL AFFILIATIONS Carters has full access to specialized national and international legal services through its relationships with other law firms. In this regard, Carters has an informal association with Fasken Martineau DuMoulin LLP (Fasken Martineau), one of the world s leading international business law and litigation firms with more than 650 lawyers in offices in Toronto, Ottawa, Montreal, Quebec City, Calgary and Vancouver, as well as offices internationally in London, England, and Johannesburg, South Africa. Fasken Martineau DuMoulin has been named the top Canadian Law Firm in London by a publication of the "International Centre for Commercial Law". Terrance S. Carter of Carters also acts as legal counsel to the Charities Practice Group at Fasken Martineau. This informal association with Fasken Martineau benefits Carters and its clients in a number of ways: Access to the legal research resources of one of Canada s leading law firms The opportunity to confer both informally and formally with more than 650 lawyers located in offices across Canada, London, England and Johannesburg. Access to highly skilled lawyers to whom very technical or specialized matters can be referred Joint seminars and articles on charity and non-profit organization issues For more information about Fasken Martineau DuMoulin LLP, visit their website at: In addition, Carters also has relationships with other firms that specialize in charities and non-profit organizations in other countries. Ottawa Office / Bureau d Ottawa 70 Gloucester Street Ottawa, Ontario, Canada, K2P 0A2 Tel: (613) Fax: (613) Main Office / Bureau principal 211 Broadway, P.0. Box 440 Orangeville, Ontario, Canada, L9W 1K4 Tel: (519) Fax: (519) Toll Free / Sans frais: Mississauga Office / Bureau de Mississauga 2 Robert Speck Parkway, Suite 750 Mississauga, Ontario, Canada, L4Z 1H8 Tel: (905) Fax: (905) Tel: (416) Fax: (416)

15 FIRM OVERVIEW Through these professional relationships, Carters is able to provide its charitable and not-for-profit clients, as well as other clients, with specialized legal services as necessary. PROVIDING PROACTIVE ADVICE TO CLIENTS Carters strives to provide clients with Proactive Advice in our integrated approach to legal services. Our lawyers are committed to assisting clients in developing short-term and long-term strategic plans in order to avoid legal problems before they occur in all areas of the law. As part of this commitment, Carters has made numerous resource materials available through its websites and WITH SOLICITORS TO HELP YOU AVOID LEGAL LIABILITY The focus of the solicitors at Carters is in serving charities and not-for-profit organizations through an effective legal risk management approach to the practice of law, and providing legal services in the areas of charity and not-for-profit law, including charitable registrations, fundraising, taxation, and the development of national and international structures, as well as corporate law, intellectual property and technology, i.e. trade-marks and copyrights, labour, employment, human rights, immigration law, estates and trusts, tax audits, opinions and appeals, real estate, and the evolving area of privacy law. Two of the lawyers at Carters have been recognized by Lexpert as leaders in the area of charity and not-for-profit law in Canada. AND A LITIGATION DEPARTMENT TO ASSIST YOU WHEN PROBLEMS ARISE The litigation lawyers at Carters are experienced in representing clients before all levels of the federal and Ontario courts, before various administrative tribunals and in mediation and other alternative dispute resolution proceedings. Carters litigation practice encompasses all aspects of litigation and dispute resolution, including mediation, human rights litigation, civil litigation, employment, immigration appeals, family law, municipal, corporate-commercial, tax appeals, personal-injury, medical malpractice and product liability, criminal, intellectual property, and real estate disputes, as well as undertaking litigation audits, policy reviews and liability risk management in an effort to limit exposure to liability for clients. CONVENIENCE AND ACCESSIBILITY The lawyers and staff at Carters strive to be as accessible to our clients as possible. We can be reached by telephone, fax or , with a complete listing of our staff and lawyers contact information available at as well as through our office phone system. Client meetings can be held by telephone conferences, by appointment at our offices in Mississauga, Ottawa or Orangeville, as well as our national meeting locations in Toronto, Guelph and Vancouver, or at the client s location as required. When necessary, evening and weekend appointments are possible.

16 FIRM OVERVIEW PUBLICATIONS & RESOURCES In accordance with Carters commitment to keep clients abreast of changes in the law, the firm regularly publishes articles, checklists, newsletters, and seminar materials concerning a number of areas of the law. All of these materials are made available free of charge at our websites and LEGAL FEES Legal fees are charged on a fee for services basis, reflecting competitive hourly rates and commensurate with the results achieved. Bills are rendered on a timely basis, normally monthly, to keep the client fully informed of costs as they are being incurred, utilizing an itemized invoice. Legal work is only undertaken when a client has requested that the work be done and, where possible, estimates of the cost of the legal work are provided in advance. The lawyers at Carters want to ensure that their clients fully understand how legal costs are arrived at, and therefore are available to discuss legal fees at any time without charge.

17 GENERAL OVERVIEW OF LEGAL SERVICES FULL RANGE OF LEGAL SERVICES Carters is committed to assisting clients, whether they are individuals, corporations, businesses, charities or not-for-profit organizations by providing a full range of legal services. In this regard, we can provide legal services in the following areas: Charity & Not-for-Profit Law Services listed separately in next section Corporate & Commercial Asset Management and Protection Business Acquisitions and Transfers Business Organizations Business Strategic Planning Commercial Leasing Contracts Corporate Record Maintenance Corporate Reorganizations Franchising Incorporation Internet Business Law Joint Ventures Legal Risk Management Partnership Agreements Tax Opinions & Appeals Family Law Custody Applications Divorce / Collaborative Family Law Domestic Contracts Separation Agreements Intellectual Property & Technology Trade-mark Registration and Licensing Copyright Registration and Licensing Official Mark Registration Protection and Management of Internet Domain Name Portfolios Privacy Policies and Audits Labour, Employment & Human Rights Employment & Human Resources Employment Compliance Human Rights Compliance & Litigation Wrongful Dismissal Litigation & Dispute Resolution Administrative Tribunals Civil Litigation Corporate & Commercial Litigation Criminal Law Employment Litigation Estate Litigation Family Law & Collaborative Family Law Hearings & Inquests Insurance Claims Mediation & Dispute Resolution Medical Malpractice Personal Injury & Fatality Litigation Tax Litigation Trade-mark & Copyright Litigation Real Estate Leasing Municipal & Planning Law Real Estate Purchase & Sale Real Estate Developments Wills & Estates Estate Administration Powers of Attorney Wills and Estate Planning

18 CHARITY AND NOT-FOR-PROFIT LAW SPECIFIC LEGAL SERVICES FOR CHARITIES AND NOT-FOR-PROFIT ORGANIZATIONS As a law firm experienced in serving charities and not-for-profit organizations, Carters is able to provide specialized legal services in the following areas of charity and not-for-profit law: Anti-terrorism Policy Statements Charitable Audits Charitable Foundations (Public and Private) Charitable Organization Charitable Registrations Charitable Trusts Church Discipline Procedures Church Incorporation Corporate Record Maintenance Corporate Restructuring for Charities Director and Officer Liability Dispute Resolution Dissolution and Wind-Up of Charities Domain Name Portfolio Management Ecological Gifts Employment Issues for Charities Endowment Agreements Foreign Charities Commencing Operations in Canada Fundraising and Gift Planning Gift Acceptance Policies Human Rights Litigation Incorporation and Organization of Charities and Not-For-Profits Insurance Issues for Charities and Not-For- Profit Organizations Interim Sanctions International Strategic Planning & Operations International Trade-Mark Licensing Investment Policies for Charities Legal Risk Management Assessments Litigation Counsel for Charities Marriage Office Clergy Registration Multiple Corporate Structures National and International Structures Privacy Policies and Audits Religious Denominational Structures Sexual Abuse Policies Special Incorporating Legislation for Charities Strategic Planning Tax Compliance for Charities Tax Opinions and Appeals Trade-Mark and Copyright Protection and Registration

19 CHARITY AND NOT-FOR-PROFIT LAW EXPERTISE IN CHARITY AND NOT-FOR-PROFIT LAW Carters has developed extensive expertise in charity and not-for-profit law in support of its work with charities through participation in various forums for professional development, including: Development and maintenance of the websites and Contributing as authors to publications including authoring Halsbury s Laws of Canada - Charities, Associations and Not-for-Profit Organizations (Butterworths, 2008), Branding & Trade-Marks Handbook for Charitable and Not-For-Profit Organizations (Butterworths, 2006), Charities and Not-for-Profit Fundraising Handbook 2 nd Edition (Butterworths, 2006), Non-Share Capital Corporations (Carswell), The Law of Charitable and Not-for-Profit Organizations 3 rd Edition (Butterworths, 2002), Charities and Not-for-Profit Administration and Governance Handbook (Butterworths, 2001), The Law of Charitable and Casino Gaming (Butterworths, 1999), and Public Law in Canada, co-editing Charities Legislation & Commentary, 2009 Edition (Butterworths, 2008), and contributing chapters to both The Management of Charitable and Not-for-Profit Organizations in Canada (LexisNexis Butterworths, 2006) and the Primer for Directors of Not-for-Profit Corporations (Industry Canada, 2002); Contributing articles on charity and not-for-profit legal issues for various periodicals, including The Lawyers Weekly, The Philanthropist, Canadian Fundraiser, Canadian Association ezine, Canadian Journal of Law and Technology, U.S. Journal of Tax Exempt Organizations, The International Journal of Not-for-Profit Law, The International Journal of Civil Society Law, Estates and Trust Quarterly and The Bottom Line; Publication of newsletters: Charity Law Bulletin, Charity Law Update, Church Law Bulletin, and the Anti-Terrorism and Charity Law Alert, distributed across Canada by ; Participating as conference speakers at seminars, nationally and internationally, for the Law Society of Upper Canada, the Ontario Bar Association, The National Society of Fund Raising Executives, The Canadian Association of Gift Planners, the Canadian Society of Association Executives, the Canadian Cancer Society, Pro Bono Law Ontario, The American Bar Association, The Christian Legal Fellowship, The Canadian Tax Foundation, Osgoode Hall Law School, Insight Information, the University of Ottawa Faculty of Common Law, Ryerson University s Voluntary Sector Management Program, the University of Waterloo, the Ontario

20 CHARITY AND NOT-FOR-PROFIT LAW Institute of Chartered Accountants, the University of Iowa, and the New York University School of Law; Teaching the Law of Charities and Non-Profit Organizations at the University of Ottawa, Faculty of Law. Participating in consultations with Canada Revenue Agency (CRA) and the Public Guardian and Trustee on charitable matters; and as agent of the Attorney General of Canada and outside counsel to the Corporate Law Policy Directorate of Industry Canada to provide legal advice on the reform of the Canada Corporations Act; Hosting the annual Church & Charity Law Seminar in Toronto for more than 600 church leaders, members of religious charities, accountants and lawyers; and co-hosting the annual Health & Charity Law Seminar Series with Fasken Martineau; Participating as members of Canada Revenue Agency s Charities Advisory Committee, the Technical Issues Committee of CRA s Charities Directorate representing the Canadian Bar Association (CBA), the Uniform Law Conference of Canada s Task Force on Uniform Fundraising Law, the Liability Working Group of the Insurance Bureau of Canada and Voluntary Sector Forum, the Government Relations Committee of the Canadian Association of Gift Planners; the Anti-terrorism Committee and the Air India Inquiry Committee of the CBA, and in consultations with Finance Canada; and Participating as members of the Canadian Bar Association and Ontario Bar Association Sections and Committees in areas of relevance to charities and not-for-profit organizations.

21 CHARITY AND NOT-FOR-PROFIT LAW EXPERIENCE WITH CHARITIES AND NOT-FOR-PROFIT ORGANIZATIONS Some of the categories of charities and not-for-profit organizations that Carters has acted for in relation to charity and not-for-profit law include the following: Churches, Dioceses and Related Religious Organizations Ecological Charities Educational Institutions in Canada and Internationally Environmental Organizations Financially Troubled Charities & Their Directors Government Agencies Health Care Organizations Hospitals and Hospital Foundations International Missionary Organizations Lawyers Requiring Counsel on Charitable Matters Museum Foundations National and International Charitable Organizations National Arts Organizations National Medical Research Foundations National Religious Denominations Not-for-Profit Housing Corporations Not-for-Profit Organizations Parallel Foundations Religious and Secular Schools Religious Broadcasting Ministries Safety Regulatory Organizations Seminaries and Bible Colleges Temples, Synagogues and Other Religious Organizations Violence Prevention Organizations Universities and Colleges

22 Carters Professional Corporation Société professionnelle Carters Barristers, Solicitors & Trade-mark Agents Avocats et agents de marques de commerce Terrance S. Carter Managing Partner of Carters Professional Corporation (Carters). Telephone: extension 222 Fax: Jane Burke-Robertson A partner with Carters Ottawa office. Telephone: extension 222 Fax: janebr@carters.ca Mervyn F. White A partner with Carters. Telephone: extension 223 Fax: mwhite@carters.ca Karen J. Cooper A partner with Carters Ottawa office. Telephone: extension 221 Fax: kcooper@carters.ca Theresa L.M. Man A partner with Carters. Telephone: extension 225 Fax: tman@carters.ca Jacqueline M. Demczur A partner with Carters. Telephone: extension 224 Fax: jdemczur@carters.ca Esther S.J. Oh A partner with Carters. Telephone: Fax: estheroh@carters.ca Ottawa Office / Bureau d Ottawa 70 Gloucester Street Ottawa, Ontario, Canada, K2P 0A2 Tel: (613) Fax: (613) Main Office / Bureau principal 211 Broadway, P.0. Box 440 Orangeville, Ontario, Canada, L9W 1K4 Tel: (519) Fax: (519) Toll Free / Sans frais: Mississauga Office / Bureau de Mississauga 2 Robert Speck Parkway, Suite 750 Mississauga, Ontario, Canada, L4Z 1H8 Tel: (905) Fax: (905)

23 Page 2 of 2 Jennifer M. Leddy Telephone: extension 228 Fax: jleddy@carters.ca Barry W. Kwasniewski Telephone: extension 224 Fax: bwk@carters.ca U. Shen Goh Telephone: Fax: sgoh@carters.ca Nancy E. Claridge Telephone: extension 231 Fax: nclaridge@carters.ca Bruce W. Long Counsel to Carters. Telephone: extension 404 Fax: blong@carters.ca Donald J. Bourgeois Counsel to Carters. Telephone: extension 406 Fax: dbourgeois@carters.ca Ottawa Office / Bureau d Ottawa 70 Gloucester Street Ottawa, Ontario, Canada, K2P 0A2 Tel: (613) Fax: (613) Main Office / Bureau principal 211 Broadway, P.0. Box 440 Orangeville, Ontario, Canada, L9W 1K4 Tel: (519) Fax: (519) Toll Free / Sans frais: Mississauga Office / Bureau de Mississauga 2 Robert Speck Parkway, Suite 750 Mississauga, Ontario, Canada, L4Z 1H8 Tel: (905) Fax: (905)

24 Healthcare Philanthropy: Checkup 2010 Toronto June 10, 2010 M. Elena Hoffstein, Theresa L.M. Man, Terrance S. Carter, Paul V. Casuccio Healthcare Philanthropy: Checkup 2010 Charity Law Update: The Year in Review Toronto June 10, 2010 M. Elena Hoffstein 1

25 A. Introduction This presentation provides a brief overview of recent developments in charity law over the past year, including: Federal and Provincial Legislation Affecting Charities and NPOs New Canada Revenue Agency ( CRA ) Guidance, Commentaries and Other Publications Recent Developments, Technical Interpretations and Decisions under the Income Tax Act ( ITA ) 2 B. Current Overview Of The Charitable Sector As of 2007 there were over 83,000 registered charities in Canada, over 85,000 in 2009 Over 81,000 not-for-profit organizations In 2006, charities spent $111.8 billion in carrying out their charitable programs Over 2 million full time workers or 7.29% of Canadian working population 40% of charities fell under the head of advancement of religion for their charitable purposes 3 2

26 Current Overview (Con t) In 2007, 84% of the population made a financial donation to a charitable or non-profit organization Total amount donated in 2004 was $8.9 billion, which increased by 12% in 2007 to $10 billion, although expected to decrease by about 10% in 2008 Religious organizations accounted for 46% of the total dollar value of donations In 2007, 46% of the population volunteered 2.1 billion volunteer hours 77% of Canadians not only trust charities, but also the leaders of charities 4 C. Legislative Developments Affecting Charities 1. Bill C-10 Proposed amendments to ITA affecting charities (split receipting) Bill C-10 amended and consolidated earlier proposed amendments. Sept 7, 2008, Bill C-10 died on Order Paper as a result of dissolution of Parliament CRA applying provisions as if enacted Dept of Finance indicated that will likely re-introduce sometime in the future. 5 3

27 Canada Not-for-profit Corporations Act On June 23, 2009, Bill C-4, the Canada Not-for-profit Corporations Act received its third reading in the Senate and received Royal Assent on the same day Intended to replace Parts II and III of the current Canada Corporations Act, a statute first enacted in 1917 and substantively unchanged since that time, which Parts govern federal non-share capital corporations 6 Canada Not-for-profit Corporations Act Provisions of the new Act will only come into force on a day or days still to be fixed by order of the Governor in Council The order is not expected until the regulations proposed by Industry Canada have been approved The new Act is similar in substance to Bill C-21 from 2004, with certain exceptions Every federal corporation under Part II of the Canada Corporations Act will need to continue under the new Act within 3 years of the new Act coming into force 7 4

28 Ontario Corporate Updates Ontario Corporate Update In the spring of 2007, the Ontario Ministry of Government and Consumer Services announced that it was undertaking a project to review and revise the Ontario Corporations Act (the OCA ) OCA provides the statutory framework governing the creation, governance, and dissolution of non-share capital corporations, including charitable corporations in Ontario 8 Ontario Corporate Updates (Con t) Many of its provisions are very outdated and are no longer relevant to the not-for-profit sector in Ontario On May 17, 2010, Bill 65, The Ontario Not-for-profit Corporations Act ( ONCA or the Bill ), was debated at Second Reading. (First reading was on May 12, 2010). Will likely be referred to Standing Committee for review in near future. OBA and others expect to have opportunity to consult re amendments Press release issued May 12, 2010 by Minister of Consumer Affairs indicated Bill 65 will provide Ontario s 46,000 NFPs with a modern legal framework to enhance corporate governance and accountability, simplify the incorporation process, give more rights to members and better protect directors and officers from personal liability 9 5

29 Highlights Of Bill 65 Incorporation as of right Capacity, rights and powers of a natural person Minimum of 3 directors at least 2/3 must be members; ex officio directors permitted; objective standard of care Concept similar to soliciting corporation in Federal Act and similarly provides non-voting members with voting rights in certain circumstances For existing non share capital corporations incorporated in Ontario, once the Act is enacted there will be a period of up to 5 years to continue under new Act 10 Good Government Act, 2009 On December 15, 2009, the Good Government Act, 2009 ( the Act ) received Royal Assent. The Act contains significant reforms for the charitable sector in the province of Ontario a)repeal of the Charitable Gifts Act, which limited the ability of charities in Ontario to own more than a 10% interest in a business or undertake business activities 11 6

30 Good Government Act, 2009 (Con t) the Act amends Charities Accounting Act Expands power of the Ontario Public Guardian and Trustee ( OPGT ) to require documents and make inquiries where an executor or trustee holds a substantial interest in an entity (i.e. more than 20%) New section 8 provides that a person who holds an interest in real or personal property for a charitable purpose must use the property for the charitable purpose (old section 8 permitted OPGT to vest real property in its name if the property had not been used for charitable purposes within 3 years) 12 Good Government Act, 2009 (Con t) b) Accumulations Act amended to the effect that the common law and statutory rules regarding accumulations do not and are deemed to have never applied to a charitable purpose trust c) Religious Organizations Lands Act amended so that the 40 year term limit for which a religious organization may lease land is repealed 13 7

31 PGT Advice On Fundraising The PGT released a bulletin in July 2009 entitled Charitable Fundraising: Tips for Directors and Trustees available at arbullet/bulletin-8.asp Provides helpful information to directors and trustees of charities in Ontario on conducting charitable fundraising Reminds charities that they cannot conduct fundraising activities as a charitable purpose in their own right Needs to be read in conjunction with CRA Guidance on Fundraising 14 Proposed Consumer Product Safety Act Bill C-6, the Canada Consumer Product Safety Act, passed by the House of Commons on June 12, 2009 and is currently being debated by the Senate The bill has the objective of protecting the public by addressing dangers to human health or safety that are posed by consumer products Intends to establish a regulatory trace-back requirement for anyone who sells or gives away a consumer product to document certain aspects of the transaction 15 8

32 Proposed Consumer Product Safety Act (Con t) Record-keeping requirements include: Documenting the identity and address of the person from whom they obtained the product Location where and the period during which they sold the product There is no exemption for charities or not-for-profit organizations Requirements are raising concerns within the charitable sector regarding the ability of charities, such as those who run thrift stores or other types of donation programs, to comply Not yet law, so still possible for changes to the Bill 16 Disbursement Quota Reform Disbursement Quota Reform DQ requirements overly complex and arbitrary, creating difficulties, especially for smaller charities that depend mainly on donor funds as opposed to grants from the government Examples of problems with the DQ include difficult terminology, such as enduring property, specified property and capital gains pool, which do not have clear definitions or application 17 9

33 Disbursement Quota Reform (Con t) The National Charity and Not-For-Profit Law Section of the Canadian Bar Association submitted a Concept Paper on July 20, 2009 to the Department of Finance and CRA concerning reform of the disbursement quota ( DQ ) The Concept Paper recommended alternative mechanisms to the current DQ regime Concept Paper supported by Imagine Canada, CAGP and other organizations in the charitable sector Federal Budget 2010 proposed dramatic changes to DQ rules and will have application for fiscal periods ending on and after March 4, 2010 Other reform efforts: CRA Fundraising Guidance released June 11, to regulate fundraising costs and fundraising practices 18 Proposed Wage Restraint Legislation - Federal Bill C-470 Private Members' Bill introduced by Albina Guamieri, MP Mississauga East. Would give CRA the discretion to revoke charitable status of a charity when it pays a single executive or employee annual compensation over $250,000. Would also allow CRA to publish name, job title and annual compensation of each charity's five highest paid employees and executives. If passed, to be effective 2011 onward. No consultation with public, charitable sector as this was a private bill 19 10

34 Proposed Wage Restraint Legislation - Federal (Con t) Generally not a problem for charities as directors are usually unpaid volunteers. They are also fiduciaries and have responsibility to ensure charity's funds expended reasonably including the oversight of salaries paid to employees. Proposed consultation cap raises problems for certain charities that may need to break existing employment contracts, split responsibilities of existing jobs into several jobs to attract qualified people? With respect to disclosure of salaries, transparency exists in T3010B Charity information Return which requires charities to indicate pay range of 10 highest paid employees 20 Proposed Wage Restraint Legislation (Con t) Public Sector Compensation Restraint to Protect Public Services Act 2010 (Wage Restraint Legislation) has passed second reading in the legislature. Would apply to every employer that received at least $1,000,000 funding from Ontario Govt in 2009 and DN carry on activities for purpose of gain or profit to members/shareholders, Universities and Colleges, Crown, Hospitals, School Boards, Hydro One, Ontario Power Generation and boards of health under Health Protection and Promotion Act

35 Proposed Wage Restraint Legislation (Con t) DNA to municipalities and other organizations subject to municipal oversight or employees who bargain collectively Part of larger piece of legislation (Creating the Foundation for Jobs and Growth Act, 2010) which will implement the 2010 Budget. It proposes the following (subject to certain exceptions) a) freeze compensation and benefits from March 24, 2010 to March 31, 2012 b) prescribe parameters and restrictions re new hires, promotions, contract renewals c) employees subject to legislation to file reports to demonstrate compliance d) create Public Sector Compensation Restraint Board Not enacted and subject to change. 22 Land Transfer Tax Ontario Budget 2010 proposes regulatory amendments to Ontario Land Transfer Tax Act to exempt certain transfers of land to registered charities from provincial land transfer tax. Will facilitate reorganizations of charities Transfers of land after March 25, 2010 from trustees to a non share capital corporation or between two no share capital corporations will be eligible for exemption if The no share capital corporation will be continuing the same charitable purposes for the same members no consideration is paid other than the assumption of any existing liabilities registered on the land 23 12

36 Land Transfer Tax (Con t) March 26, 2010 Ontario Minister of Revenue released policy stating that LTT must be paid until new regulation is filed City of Toronto municipal land transfer tax provides that no tax will be exigible if LTT not exigible Once LTT regulation is filed, qualifying transfers of land located in Toronto will also be exempt from municipal land transfer tax. 24 D. CRA Guidance, Commentaries And Other Publications New T2050 Application Form for Charitable Status In December 2008, CRA released a revised Form T2050, application for charitable status plus revised guide T4063 re how to complete T2050 Form T2050 requires more detailed information to be provided in order to allow CRA to make a determination in light of various policies put in place since last version of T2050 in

37 T2050 Some of the more detailed areas of inquiry include: Questions on fundraising activities associated costs Questions on source of revenue from major donors Detailed questions on activities outside of Canada Questions on revenue from sources outside of Canada Questions on ownership of more than 2% of a class of shares 26 T3010B New T3010B Annual Information Return On February 20, 2009, the CRA released the new form T3010B, which is the new annual information return for registered charities New T3010B is to be used when filing annual information returns for fiscal periods ending on or after January 1, 2009 The new T3010B is now comprised of a simple core form with topic-related schedules T3010B (09), Registered Charity Information Return T1235 (09), Directors/Trustees and Like Officials Worksheet T1236 (09), Qualified Donees Worksheet/Amounts Provided to Other Organizations 27 14

38 T3010B (Con t) New form will generally benefit smaller charities (income under $100,000), the form is also designed to require additional information Concerns about having to name donors making gifts in excess of $10,000 who are not residents of Canada, subject to certain exceptions Concerns about public disclosure of third party intermediaries outside of Canada that receive resources of the charity 28 T3010B (Con t) The T3010B is made public on the CRA website and could be used by CRA on future audits and by the media and/or watch dog organizations It is therefore important that the T3010B is reviewed and approved by the board of the charity along with the audited financial statement of the charity It may be necessary to also include a legal review of the T3010B 29 15

39 Further Changes to T3010B March 31, 2010: As result of 2010 Federal budget proposals to repeal DQ and enact other changes to simplify DQ rules, CRA released a Message from Director General advising that CRA will revise T3010B but in short term will include instruction page April 27, 2010 Instruction sheet released 30 Checklist On Avoiding Terrorist Abuse On April 16, 2009, CRA released the Checklist on Avoiding Terrorist Abuse intended to help registered charities focus on areas that might expose them to the risk of being abused by terrorists or other criminals The House of Commons Subcommittee on the Review of the Anti-Terrorism Act recommended that CRA consult with the charitable sector to develop made in Canada best practice guidelines that incorporates general policies and checklists that could be administered by applicants and registered charities in carrying out their due diligence assessments 31 16

40 Checklist On Avoiding Terrorist Abuse (Con t) The checklist is comprised of a number of questions to ask and provides a number of links to websites and international guidelines for more information Concerns about the usefulness of the checklist: Not sufficient context for charities Potential undue sense of simplicity Continued delegation to foreign governments and quasigovernmental bodies Excessive nature of recommendations 32 Combating Terrorism Act Bill C-17 Combating Terrorism Act received first reading in House of Commons April 23, 2010 Bill C-17 proposes to reintroduce Criminal Code provisions relating to investigative hearings and recognizance which first came into force with Bill C-36 Anti Terrorism Act Dec 2001 Act set to expire on March 1, 2007 and was not extended Bill C-17 also contains sunset provision: 15 th sitting day of Parliament after 5 th anniversary of coming into force of the Bill unless Parliament extends 33 17

41 Combating Terrorism Act (Cont d) Investigative hearings, ability to compel individuals to attend before judge for hearing if person may have information about a terrorism offence Preventative detention: if belief terrorist act will be carried out Introduction of Bill shows trend by Federal Govt to revert to more draconian provisions originally contained in Anti- Terrorism Act 34 Guidance On Sports And Charitable Registration Guidance on Sports and Charitable Registration On April 30, 2009, CRA released the final form of guidance on sports to clarify the ways in which organizations carrying out activities that include sport can potentially qualify for charitable registration Although the promotion of sport is not recognized as charitable, there are circumstances in which sports activities can be used to further a charitable purpose 35 18

42 Guidance On Sports And Charitable Registration (Con t) For an organization to be registered, the sport activities an organization pursues should: Relate to and support its charitable purpose(s) and be a reasonable way to do so, such as: Promotion of health Advancement of education Advancement of religion Relieving conditions associated with disabilities Be incidental in nature Whether or not a sports activity will be acceptable will depend on the facts of each case and the charitable purpose to be achieved 36 Guidance On The Upholding Of Human Rights And Charitable Registration Final Guidance on the Upholding of Human Rights and Charitable Registration On May 17, 2010, CRA released a final guidance for consultation regarding human rights charities ( Guidance ) According to the Guidance, protecting human rights refers to activities that seek to encourage, support, and uphold human rights that have been secured by law, internationally or domestically, such as the Canadian Charter of Rights and Freedoms, or U.N. Conventions It does not include advocating for the establishment of new legal rights 37 19

43 Guidance On The Upholding Of Human Rights And Charitable Registration The Guidance indicates that CRA recognizes that the protection of human rights can further all four heads of charity Human rights charities often work outside existing legal and political structures but must ensure that their purposes are not political in nature, which is not charitable, e.g. to investigate and report violations of specified human rights instruments is not political in nature However, it would be unacceptable to focus on one particular country and pressure its legislature or government to sign an international human rights convention 38 Guidance On The Upholding Of Human Rights And Charitable Registration (Con t) Final Guidance adds additional information with respect to political activities and anti-terrorism issues as well as helpful Appendix containing questions and answers for both applicants and registered charities that wish to pursue charitable purposes that uphold human rights or those already involved in such activities 39 20

44 Draft Guidance On Charities Operating Outside Of Canada Draft Guidance on Charities Operating Outside Canada On June 30, 2009, CRA released its much anticipated draft consultation paper entitled Consultation on the Proposed Guidance on Activities Outside of Canada for Canadian Registered Charities ( Proposed Guidance ) 40 Recent Technical Interpretations And Decisions Commercial Activities and Other Issues Involving Non-Profit Organizations On November 5, 2009, CRA released a technical interpretation clarifying its position on various issues involving NPOs, such as whether NPOs can earn a profit or engage in commercial activities, and whether CRA maintains a list of NPOs CRA stated that the Income Tax Act does not prohibit an NPO from engaging in certain types of activities, including commercial activities, and therefore it is permissible for NPOs to compete against taxable entities 41 21

45 NPO s CRA s view is that an NPO can earn a profit, provided that it is unanticipated and incidental to carrying out the NPO s exclusively not-for-profit purposes CRA also expressed its view that incorporation under federal or provincial not-for-profit corporate legislation does not necessarily mean that such corporation would qualify to be an NPO under the ITA, because the requirements under the corporate legislation and the ITA are different CRA indicated that it does not maintain a list of NPOs, since they are not required to register with CRA 42 NPO s (Con t) Payments to Members on Winding Up of Non-Profit Organization CRA issued two technical interpretations, dated August 14, 2009 and August 25, 2009, clarifying how amounts distributed to members of a NPO upon winding up are to be treated for income tax purposes The treatment of the amount received by the member for income tax purposes differs depending on whether the NPO is organized as a share capital corporation, non-share capital corporation or an unincorporated association 43 22

46 NPO s (Con t) If the NPO is a share capital corporation, the amount received by the member in excess of paid-up capital would be deemed to be a dividend If the NPO is a non-share capital corporation or if it is an unincorporated entity, the membership interest would likely be a capital property to the member and therefore the disposition of the member s interest would result in either a capital gain or loss depending on the adjusted cost base of the interest 44 NPO s (Con t) When determining a member s adjusted cost base, only the amount initially paid by a member would be included. Any yearly fees paid by the members would be viewed as fees for services Where members of a non-share capital corporation have rights and obligations similar to shareholders as defined in subsection 248(1) of the Income Tax Act, the members may be considered to have received a dividend upon winding up even though the NPO does not have shares 45 23

47 Cases - Use Of Cottage Donating the Temporary Use of a Cottage is Not a Gift In a technical interpretation dated November 12, 2008, CRA confirmed its position that the gratuitous loan of property, including money or a cottage, is not a gift for purposes of sections and of the ITA since a loan does not constitute a transfer of property However, it is possible for a charity to pay rent or interest on a loan of property and later accept the return of all or a portion of the payment as a gift, provided the return of the funds is voluntary 46 Cases - Cemetery Plots Split Receipting for Cemetery Plots CRA issued a technical interpretation dated November 24, 2008, which deals with the issuance of charitable donation receipts in a situation where a member-donor is entitled to pay less for a cemetery plot than a non-member CRA stated that in applying the proposed split-receipting amendments, the eligible amount of the gift will be reduced by the value of the advantage provided to the members, which would include the right to purchase a cemetery plot at a discount 47 24

48 Cases - Operating A Hostel Federal Court of Appeal Decides Operating a Hostel is Not Charitable In a December 2008 decision, the Federal Court of Appeal upheld the Minister of National Revenue s (the Minister ) decision to revoke the charitable status of Hostelling International Canada Ontario East Region The Court held that simply providing an opportunity for people to educate themselves by making available tourist accommodation is not sufficient for the activity to be charitable 48 Cases - Gift Of Capital Property By Will Gift of Capital Property by Will In a technical interpretation dated February 4, 2009, regarding gifts of capital property by will, CRA confirmed that proposed subsections 118.1(5.4) and (6) contained in Bill C-10 will override the application of paragraph 70(5)(a) of the ITA As such, where a Canadian resident dies making a bequest of a capital property by his will to a registered charity and the FMV of the capital property immediately before the individual s death exceeds its ACB, the legal representative can designate an amount between the FMV and ACB which will be deemed to be the individual s disposition of property 49 25

49 Cases - CRA Withdraws Compliance Agreement Christ Apostolic Church of God Mission Intl. v. The Queen Federal Court of Appeal, (May 30, 2009): Church appealed the decision to revoke its charitable status Church s principle argument was that a compliance agreement it signed during an audit could not be unilaterally withdrawn by the Minister The court held that it was open to the Minister to conclude that the church s non-compliance could not have been remedied by promise made by the church in the agreement Appears that compliance agreements are therefore not binding on CRA 50 Cases - Leveraged Donation The issue in Maréchaux v. The Queen, 2009 TCC 587 (November 2009) was whether a charitable donation tax credit was available in respect of a payment made under an arrangement known as the 2001 Donation Program for Medical Science and Technology (the Program ) The participants in the program each donated a minimum of $100,000 to a registered charity, the majority of the donation being financed by a non-interest bearing 20-year loan 51 26

50 Cases - Leveraged Donation (Con t) The appellant contributed $30K of his own funds and received an $80K interest free loan, $70K of which went to the charity for a total of 100K, $10K went to the lender for fees, security deposit and insurance The Tax Court of Canada ruled that the $100K payment was not eligible for a tax credit because it was not a gift to the charity The interest-free loan, coupled with favourable repayment terms, constituted a substantial benefit received by the appellant in return for his donation Note that the donation was made before the split-receipting amendments were proposed 52 Cases - Lockie v. The Queen TCC considered appropriate determination of FM of certain items donated pursuant to a donation arrangement (bulk purchase of gel pens, toothbrushes and school packs) bought for about $2,800 and for which a receipt was issued for $15,000 Court held that taxpayer motivated by desire to obtain a return on investment as result of the donation. Gift had to be valid. However value of gift limited to price paid for the items. Another example of why charities and donors should be highly cautious before participating in any donation tax shelter arrangements. CRA auditing tax shelter involvement aggressively to deny tax credits and revoke charities which participate

51 Cases - Israelite Church Of Christ Canada v. The Queen Deals with correct procedure when responding to a notice of intention to revoke charitable registration. In case in question charity responded by immediately commencing an appeal to the Federal Court of Appeal. Court held that charity has to file objection with Appeals Directorate of CRA within 90 days of receiving the notice of intention, CRA has to confirm its intention to revoke or fail to respond to objection after 90 days and therefore Charity could not appeal to FCA. 54 Cases - Revocations Of Charities Participating In Tax Shelters Continue Henvey Inlet First Nation Community Support Organization. Issued over $44 Million in donation receipts and only retained 1% for its charitable purposes Destiny Health and Wellness Foundation issued $42 Million in receipts and only retained $840,000 See also Orion Foundation and Liberty Wellness Initiative. All four charities revoked as they were operating for non charitable purpose of promoting a tax shelter arrangement

52 Cases - Innovative Gifting Inc. (Igi) v. House Of Good Shepherd Et Al. In matters concerning charities, Courts will intervene to protect public interest. In this case a fundraiser (IGI) charged exorbitant commissions and misrepresented legality of fundraising activities. Arrangement was if shares and cash gifted, 40% commission to be paid but if cash gifted then commission would be 90%. Charities believed shares would always be part of the gift. Shares were part of the gift but not in all cases and when shares were gifted they turned out to be worthless. Charities got suspicious and refused to pay all the commissions and IGI sued for the commission and charities countersued. Court ordered fundraiser to pay back commissions it received from four charities. 56 F. Newsletter - Connection April 2010 CRA released Charities Connection No.1 which is a new CRA newsletter that will be published more frequently and will replace Registered Charities Newsletter. Useful discussion re operation within scope of a charity's objects. Where charity carrying out new activities, suggestion is charity confirm the activity is charitable and falls within scope of objects. Suggests discussing new activities with CRA in advance of carrying them out 57 29

53 Questions? M. Elena Hoffstein Partner HEALTHCARE PHILANTHROPY: Check-up 2010 Toronto June 10, 2010 What the Federal Budget Disbursement Quota Reform Will Mean to Your Charity By Theresa L.M. Man, B.Sc., M.Mus., LL.B., LL.M Carters Professional Corporation Ottawa, Mississauga, Orangeville Toll Free:

54 OVERVIEW Pre-2010 Budget DQ rules Reform efforts 2010 Budget DQ rules CRA s Steps Implications of new DQ rules (current as of June 6, 2010) 60 A. PRE-2010 BUDGET DQ RULES 1. Background Disbursement quota is prescribed amount that registered charities must disburse each year in order to maintain charitable registration Purposes of DQ Curtail fundraising costs Limit administration costs Limit capital accumulation Ensure significant resources devoted to charitable activities DQ introduced in 1976 Rules reformed per 2004 Budget - became more complex 61 31

55 2. 80% DQ and 3.5% DQ A charity must spend each year on charitable activities (including gifts to other charities) what is at least equal to 80% DQ + 3.5% DQ Failure to meet DQ is grounds for revocation 80% DQ ( charitable expenditure rule ) 80% of gifts receipted in the immediately preceding year (except gifts of enduring property and gifts received from other charities) 62 80% of enduring property expended in the year and 100% of enduring property transferred to qualified donees in the year (less optional reduction by realized capital gains on enduring property) 80% of gifts received from other charities (except specified gift or enduring property) (100% for private foundations) 63 32

56 3.5% DQ ( capital accumulation rule ) 3.5% of assets not used directly in charitable activities or administration ( investment assets ) Based on the average value of assets in 24 months immediately preceding the taxation year 3.5% DQ does not apply if property is $25,000 or less Detailed calculation in Income Tax Regulations 3700, 3701, and 3702 See Charity Law Bulletin No. 150 at

57 3. Problems Complicated rules Complicated concepts (enduring property, capital gains pool, capital gains reduction, tenyear gifts, inter-charity transfers, specified gifts) Hard to characterize expenses - arbitrary Administration Charitable Fundraising 66 80% & 3.5% spending & 10 year hold Arbitrary Not take into account diversity of Canada s charitable sector Undue burden on small charities Not sensitive to real market returns Capital vs income concept not reflect investment strategy Limits capacity of charities to disburse funds (either in following year or at least after 10 years) Restrictions on use of capital in agreements make it difficult for charities to access capital to comply with DQ obligations 67 34

58 Administrative costs Rigid Confusion whether encroachments to cover administration and investment management fees out of capital of enduring property tainted the enduring property Not recognize charities are different Presents inaccurate perception to the public 68 B. REFORM EFFORTS CRA Fundraising Guidance released June 11, 2009 Regulates fundraising costs and fundraising practices Fundraising ratio: fundraising costs to fundraising revenue in a fiscal year 69 35

59 CBA Concept paper to Finance July 2009 Four regulatory objectives pursued by current DQ regime (1) Current gifts disbursement - prevent undue accumulation (2) Anti-accumulation - prevent undue accumulation (3) Administrative efficiency via increased transparency/disclosure (4) Fundraising efficiency via CRA Fundraising Guidance Supported by Imagine Canada, CAGP and other organizations in the charitable sector 70 C BUDGET DQ RULES Repeal of 80% DQ Repeal of 80% DQ related concepts Enduring property (including ten-year gifts) Capital gains pool Specified gifts Increased threshold for 3.5% DQ to $100,000 for charitable organizations (remained at $25,000 for foundations) 71 36

60 Expanded anti-avoidance provisions Where it can reasonably be considered that purpose of a transaction was to delay unduly or avoid application of DQ To ensure amounts transferred between non-arm s length charities will be used to satisfy DQ of only one charity 72 (1) A charity entered into a transaction and it may reasonably be considered that purpose of the transaction was to avoid or delay unduly expenditure on charitable activities Transaction includes gifts to other charities May be grounds for revocation 110% penalty of expenditure delayed or avoided Where gift to another charity - both charities are jointly and severally, or solitarily, liable for the penalty 73 37

61 (2) A gift received from non-arm s length charity will need to be expended by following year (in addition to its 3.5% DQ) Unless the transferor charity elects that gift will not count toward satisfying its own 3.5% DQ ( designated gift ) Otherwise grounds for revocation 110% penalty of fmv of the property exceeds the amount expended 74 CRA will be given discretion to exclude accumulated property from 3.5% DQ CRA has discretion to allow charities to accumulate property for a particular purpose (such as a building project) Currently, property accumulated (and income earned) with CRA approval is deemed to have been spent on charitable activities Effective for fiscal years that end on or after March 4, 2010 Finance will monitor effectiveness of CRA s Fundraising Guidance and take action if needed to ensure its stated objectives are achieved 75 38

62 D. CRA s STEPS March 31, Message from the Director General April 27, 2010 T3010B instruction sheet (interim measure), revised T3010 to be released later Detailed line-by-line instruction on how to complete the current T3010B form for charities with a fiscal period ending on or after March 4, If fiscal year ended before March 4, 2010, changes will not affect filed return or return yet to be filed Instruction does not deal with: designated gifts to be exclude from 3.5% DQ calculation de minimis threshold for 3.5% DQ for charitable organizations increased to $100,000 accumulated property for which approval was obtained from CRA to be excluded from 3.5% DQ calcuation 77 39

63 May 3, CRA released a list of 15 questions and answers on new DQ rules May 4, new CRA webpage Form T3010B will be revised to reflect new DQ calculation (continue to use existing form until a new form is released) CRA will continue to provide updated information on the impact of the 2010 Budget through its webpage, forms and publications, phone enquires services, and other communication channels 78 E. IMPLICATIONS OF NEW DQ RULES 1. Generally Welcomed change Simplicity of DQ calculation Ease administrative burden for charities (especially small and rural) No need to spend scarce resources accounting for and allocating expenses between charitable vs administrative expenses for 80% DQ, but concept still needed for meeting 3.5% DQ 79 40

64 Increase of $100,000 threshold for charitable organizations allows them greater ability to maintain reserves to deal with contingencies No need to track receipted vs non-receipted gifts No need to track 10-year expiration for 10- year gifts Questions on anti-avoidance provisions Questions on transition, application and implementation Inter-Charity Transfers Transfer between non arm s length charities - to be expended by following year, unless designated gift Not transfers between arm s length charities When to designate a gift If gift would not be expended by transferee charity the following year Effect of designating a gift Transferor charity has to meet its own 3.5% DQ with other expenditures 81 41

65 Possible problem e.g. charity setting up a new parallel foundation and move endowments over to foundation Should not be penalized Solution? Transfer what transferee charity needs to spend by following year Designate gift if transferor charity has other expenditure to meet its 3.5% DQ When would inter-charity transfers be recognized as a transaction to avoid or delay unduly expenditure? Transactions to Avoid or Delay Unduly Expenditure Transaction includes gift to another registered charity Lacks clarity What does avoid or delay unduly the expenditure mean? Would this include a charity receiving an endowment from a donor? 83 42

66 4. Existing Endowments What to do with existing endowment funds, long-term gifts and ten-year gifts? Many endowment agreements provide for distribution of income but no right to encroach on the capital Generally no right to vary the agreement Many endowments provide for hold on expenditure of capital because of prebudget DQ Rules Questions Can capital be encroached? Still need to track 10-year period? Still need to track hold period? 84 Must review documents Existing gift agreements and donors directions Constating documents letters patent/special Act/by laws Internal policies relating to spending, distribution of funds, investment policies External publications for fundraising or reporting or other communications Must also review regulatory context Federal Income Tax Act Provincial - Jurisdiction over Charitable property and common law Trust law - common law 85 43

67 What to review: Must review terms of gifts What restrictions On investments On expenditure of income or capital For what purpose Timing of expenditure Who imposed the resections Donor Board of charity If can expend income but not capital What does income mean What does capital mean 86 Must identify what type of fund Endowments Restricted funds Unrestricted funds Precatory Gifts donor advised funds If endowments If holding period or other restriction is set by donor at time of gift: trust law considerations If holding period or other restriction set by the Board: may be able to be changed by the board 87 44

68 If gift is a trust Trust terms must be complied with and any failure to do so constitutes breach of trust Donor is without authority to vary terms of trust unless power expressly reserved at time trust is settled Thus charity cannot encroach on capital if terms of trust do not permit encroachment 88 Can agreements be amended? Cypres court order to vary terms If terms impractical or impossible Re Killam Estate (1999) 38 ETR (2d)142 Stillman Case (2003) 68, OR (3d) 777 (SCJ) Terms of charitable trusts were varied to permit total return investment policy and capital encroachment based on % of value of the assets In Ontario s. 13 Charities Accounting Act provides a summary process PGT involved 89 45

69 If restrictions in constating documents If constating document is a trust (inter vivos or testamentary), check to see whether power to vary and if so the scope of the power and the process for variation If constating document is letters patent, follow procedure for amending letters patent in the applicable corporate statute. In Ontario PGT may require that donations received while restrictions in letters patent continue to have those restrictions apply to existing endowments New Gifts No need to struggle with structuring long-term gifts or endowment funds to comply with complex ITA language related to enduring property Flexibility in structuring new gifts can focus on balancing: Donor desires for long-term financial stability Need for flexibility to meet changing economic conditions 91 46

70 Encroachment Ability to encroach capital? Discuss with donor under what circumstances Income and capital May be remove reference to income and capital Use total return investment and payout strategy instead Length of hold period 10 year is no longer a magic number Discuss with donor appropriate length May be long term rather than perpetuity 92 Other gifting issues to discuss with donor, e.g. payout strategies, investment strategies, administrative fees, donor advice, variance clause, flexibility, etc. Revise template gift documents to remove reference to enduring property, 10-year gifts, capital gains pool etc.; more flexible terms Revise internal policies, e.g. gift acceptance policies, endowment fund policies, etc. Revise publications, e.g. website, promotion materials, donor communications, etc. Educate donors and staff 93 47

71 6. Corporate Sponsorships To receipt or not to receipt? No 80% DQ concerns if receipted But receipt needs to reflect fmv of marketing/advertising value received by sponsor Fundraising Guidance With 80% DQ repealed, more focus on compliance with CRA s Fundraising Guidance 2010 Budget indicates that part of CRA s Fundraising Guidance has strengthened CRA s ability to ensure that a charity s fundraising practices are appropriate Released June 11, 2009 Regulates fundraising practices Regulates fundraising costs 95 48

72 Fundraising ratio: fundraising costs to fundraising revenue in a fiscal year 35% or less - unlikely to generate questions or concerns 35 to 70% - CRA will examine average ratio over recent years to determine if there is trend of high fundraising costs Over 70% - will raise concerns with CRA and will likely result in revocation 96 Guidance provides information on current treatment of fundraising under ITA and common law (not a new CRA policy position) on Distinguishing between fundraising and other expenditures Allocating expenditures for T3010 reporting Dealing with activities that have more than one purpose Understanding how CRA assesses what is acceptable fundraising Fundraising expenditure cannot be used to meet 3.5% DQ 97 49

73 8. Other Issues Disbursement excess and shortfall What to do if DQ shortfall? Same CRA policy? Application of DQ excess? 149(20) and (21) re DQ excess not proposed to be changed Possibly to have large DQ surplus? What to do with outstanding CRA permission to accumulate property? What if not meeting its 80% DQ for years being audited? What if signed compliance agreement to make up DQ shortfall from prior years? Steps to be Taken by Charities Watch for CRA clarifications and enactment of ITA changes Revise internal documents Policies, e.g. gift acceptance policies, endowment fund policies, etc. Template documents, e.g. endowment agreements, bequest clauses, etc. Publications, e.g. website, promotion materials, etc. Staff training Communication with donors, more transparency Consult legal and accounting advice where uncertain 99 50

74 F. CONCLUSION Welcomed change Simplicity of DQ calculation Still many unanswered questions Needs CRA clarification CRA Fundraising Guidance will be key 100 DISCLAIMER This handout is provided as an information service by Carters Professional Corporation. It is current only as of the date of the handout and does not reflect subsequent changes in the law. This handout is distributed with the understanding that it does not constitute legal advice or establish a solicitor/client relationship by way of any information contained herein. The contents are intended for general information purposes only and under no circumstances can be relied upon for legal decision-making. Readers are advised to consult with a qualified lawyer and obtain a written opinion concerning the specifics of their particular situation Carters Professional Corporation Ottawa, Mississauga, Orangeville Toll Free:

75 HEALTHCARE PHILANTHROPY : CHECK-UP 2010 June 10, 2010 The Practical Implications of CRA s Fundraising Guidance: One Year Later By Terrance S. Carter, B.A., LL.B., Trade-mark Agent 2010 Carters Professional Corporation tcarter@carters.ca Ottawa, Mississauga, Orangeville Toll Free: OVERVIEW OF PRESENTATION Introduction and Background Practical Explanation of CRA s Fundraising Guidance One Year Later Ongoing Concerns Possible Strategies to Consider

76 2. INTRODUCTION AND BACKGROUND Significant public and media pressure has been placed on CRA over the last few years to more fully disclose internal guidelines on fundraising The Guidance was developed in response to a growing demand from the media and the general public for more accountability from charities concerning fundraising Fundraising has now taken on a greater role with regards to the regulation of charities because of the DQ reform in the March 2010 Federal Budget 104 However, there has been no consistency in how to report cost allocation for fundraising in the past CRA now wants to educate the sector and achieve consistency of inputs and transparency concerning fundraising On March 31, 2008, CRA released its proposed Policy on Fundraising for public consultation On June 26, 2008, CRA released a 30-page Background Information document explaining its proposed Policy on Fundraising

77 After public consultation, Guidance (CPS-028): Fundraising by Registered Charities ( Guidance ) was released on June 11, 2009, together with a 23 page Additional Information on the Guidance, which collectively need to be read as one document Note: For more information, see Charity Law Bulletin #169 The Revised CRA Guidance on Fundraising: Improved But Still Challenging, at There has been only limited response to the Guidance from the sector over the past year CRA is now seeking input from the sector and is expected to revise the Guidance sometime later in 2010 CRA has advised that the Guidance does not represent a new policy position of CRA but rather provides information on the current treatment of fundraising under the ITA and the common law As such, the Guidance will have impact on current CRA audits, not just future audits

78 The Guidance is intended to provide general advice to registered charities only The Guidance applies to all registered charities The Guidance applies to both receipted and non-receipted fundraising income Charities must still meet their other obligations, and in particular the disbursement quota (now only the 3.5% capital accumulation disbursement quota) FUNDRAISING IS NOT CHARITABLE All registered charities are required by law to have exclusively charitable purposes CRA s position is that fundraising (either as a purpose or an activity) is not in and of itself charitable As a result, CRA takes the position that direct fundraising costs cannot generally be reported as charitable expenditures on the T3010B However, CRA states that fundraising activities which are appended to activities primarily directed at achieving a charitable purpose may be allocated between charitable and fundraising for purposes of reporting

79 4. WHAT IS FUNDRAISING? Fundraising is an activity that involves any of the following: Solicitations of support for cash or inkind donations (including sales of goods or services to raise funds) Research and planning for future solicitations of support Other activities that are related to solicitations of support (e.g. efforts to raise the profile of a charity, donor stewardship, or donor recognition) 110 Fundraising activities may be external activities (e.g. telemarketing, direct mail, putting on events, distributing information through the media or a charity s own publications) Fundraising activities may also be internal activities (e.g. researching prospective donors, hiring fundraisers, donor stewardship and recognition) Fundraising can be carried out internally by the charity itself (e.g. the charity s employees or volunteers) or externally by someone acting on its behalf (e.g. third party fundraisers)

80 Fundraising may include a single action, such as an advertisement, or a series of related actions, such as a capital campaign Fundraising for the purpose of the Guidance (both expense and income) does not include: Requests for funding from governments Requests for funding from other registered charities Recruitment of volunteers Related businesses Fundraising to support terrorism (which is prohibited) 112 Donor recognition, as a form of solicitation of support, includes gifts or acknowledgements to thank donors, unless of nominal value (i.e. the lesser of $75.00 or 10% of the value of the donation) Donor stewardship, as a form of solicitation of support, occurs when a charity invests resources in relationships with past donors to prompt additional gifts, such as providing past donors with access to privileges not available to others, (e.g. an invitation to a private reception)

81 Sale of goods or services is always a solicitation of support except: Where it serves the charities beneficiaries to fulfill a charitable purpose and is sold on a cost recovery basis, or Is a related business (see CRA Policy Statement on Related Business) Membership programs will be considered to be a solicitation of support where membership requires a donation to join or where there is extensive use of donation incentives or premiums to recruit members PROHIBITED CONDUCT The following types of conduct related to fundraising activities are prohibited and will be grounds for revocation of a registered charity s status, the possible imposition of sanctions or other compliance actions, or for denial of charitable registration

82 a) Conduct that is illegal or contrary to public policy Activities that are criminally fraudulent Violates federal or provincial statutes governing charitable fundraising, charitable gaming, the use of charitable property, or consumers protection Failure to take adequate care to avoid involvement in a third party tax shelter scheme Failure to keep books and records to verify donations to the charity 116 Activities that are contrary to recognized public policy Misrepresentation to the public about the cost of fundraising b) Conduct that is a main, or independent purpose of the charity (even if only secondary) i.e. Fundraising becomes a collateral purpose c) Conduct that results in more than an incidental proportionate private benefit to individuals or corporations e.g. A fundraising arrangement where a fundraiser enjoys a benefit exceeding fair market value

83 d) Conduct that is deceptive A charity is to ensure representation made by it is a fair, truthful account and complete A charity is responsible for misleading statements whether the charity s conduct is intentional or negligent A charity must not misrepresent What charity will receive the donation The geographic area where the charity operates and the amount and type of work The percentage of funds that will go to charitable work PROCESS FOR ALLOCATION OF FUNDRAISING EXPENSES In general, charities are to report on their T3010B as fundraising expenditures all costs related to any activity that includes a solicitation of support, or is undertaken as part of the planning and preparation for future solicitations of support, unless it can be demonstrated that the activity would have been undertaken without the solicitation of support

84 This does not apply to asking for funding from governments or other charities However, it does apply to marketing and sale of goods or services not within the charities own charitable purposes, whether or not donation receipts are issued In order to demonstrate that an activity would have been undertaken without solicitation of support, a charity must demonstrate that it satisfies either Test A (The Substantially All Test ) or Test B (The Four Part Test ) 120 Test A: The Substantially All Test Where Test A ( Substantially All Test ) is met, all costs of the activity may be allocated as non-fundraising expenditures on the T3010B return, either as charitable, administrative or political expenditures The Substantially All Test is met where substantially all of the activities advance an objective other than fundraising Substantially all is considered to be 90% or more

85 Generally, the determination will be the proportion of the fundraising content to the rest of the activity, as well as the resources devoted to it Resources include the total of a charity s financial assets, as well as everything the charity can use to further its purposes (e.g. its staff, volunteers, directors, premises, and equipment) Amount of resources devoted to an activity is determined by the content, prominence given to the material, and costs associated with carrying out the activity 122 Test B: The Four Part Test Where Test B ( Four Part Test ) is met, a portion of the costs for the activity may be allocated on the T3010B return as nonfundraising expenditures as either charitable, administrative or political, and a portion as fundraising expenditures The Four Part Test is met where the answers to all of the following four questions is no

86 Question 1. Was the main objective of the activity fundraising? a) Do the resources devoted to the fundraising component of the activity indicate that the main objective is fundraising? b) Does the nature of the activity indicate that the main objective is fundraising? Content: Sometimes considered to be fundraising - It may be hard to separate initiatives that are carried out to fulfill a charity s purposes from a charity s fundraising activities - CRA will therefore look at the following features to see if there is a distinct objective other than fundraising and to assess how much of the content relates to that objective:

87 (i) Advancing the programs, services, or facilities offered by the charity (ii) Raising awareness of an issue (iii) Providing useful knowledge to the public or the charity s stakeholders about the charity s work or an issue related to that work (iv) Being transparent and accountable for its practices by providing information about its structure, operations, or performance to the public or its stakeholders Question 2. Did the activity include ongoing or repeated requests, emotive requests, gift incentives, donor premiums, or other fundraising merchandise? a) Are solicitations ongoing or repeated? b) Are requests emotive? c) Are gift incentives, premiums, or other fundraising merchandise offered Question 3. Was the audience for the activity selected because of their ability to give? Question 4. Was commission-based remuneration or compensation derived from the number or amount of donations used?

88 Exception: Even if an activity would not have been undertaken without solicitation of support, charities may still be allowed to allocate a portion of the costs other than to fundraising if the activity furthers its charitable programs e.g. Charity promotes an event where revenues are based on the charity s work with its beneficiaries, such as a concert performance performed by autistic children EVALUATION OF FUNDRAISING ACTIVITIES CRA recognizes that the charitable sector is very diverse and fundraising efforts will vary between organizations CRA will look at a number of factors to evaluate a charitable fundraising activity CRA has identified four types of factors to assist with the assessment a) Fundraising Ratio and Approach of CRA b) Basic Considerations c) Best Practice Indicators d) Area of Concern Indicators

89 a) Fundraising Ratio and Approach of CRA One factor is the ratio of fundraising costs to fundraising revenue calculated on an annual basis Fundraising ratio provides a general guidance only and is not determinative on its own Fundraising ratio is totally distinct from the disbursement quota (consisting of 3.5% DQ but no longer the 80/20% DQ), although elements of the DQ may overlap in the ratio 130 Fundraising revenues include amounts reported in the T3010B on line 4500 (receipted donations) and line 4630 (all revenue generated as a direct result of fundraising expenses) Fundraising expenditures include amounts reported on line 5020 as fundraising expenses in accordance with the Guidance

90 The fundraising ratio will place a charity in one of three categories Under 35%: Unlikely to generate questions or concerns by CRA 35% and above: CRA will examine the average ratio over recent years to determine if there is a trend of high fundraising costs requiring a more detailed assessment of expenditures Above 70%: This level will raise concerns with CRA. The charity must be able to provide an explanation and rationale for this level of expenditure, otherwise it will not be acceptable 132 Fundraising Ratio Chart Financial Expenditure Non-Charitable Charitable Fundraising Administration Political Related Business Meets Substantially All Test (0%) Meets Four Part Test (a % of the expenditure) Meets neither the Substantially All Test nor the Four Part Test (100%) Total Fundraising Expenditure (line 5020 on T3010B) Total Fundraising Revenue (lines 4500 & 4630 on T3010B) Fundraising Ratio

91 b) Basic Considerations that CRA will look at in assessing a charity s fundraising activities The size of the charity which may have an impact on fundraising efficiency Causes with limited appeal which could create particular fundraising challenges Donor acquisition and planned giving campaigns which could result in situations where the financial returns are only realized in later years 134 c) Best Practices Indicators that decrease the risk of CRA finding unacceptable fundraising Prudent planning processes e.g. Where the charity researches anticipated costs and revenues Appropriate procurement processes e.g. Solicit bids from three or more potential suppliers or issuing RFP s Good staffing processes e.g. Setting compensation that is appropriate compared to other employees of the charity in light of respective responsibilities e.g. Should avoid performance evaluation based solely or excessively on performance or results

92 Ongoing management and supervision of fundraising practice e.g. Establish and implement a fundraising policy Adequate evaluation processes e.g. At a minimum regularly assess its fundraising performance compared to CRA Guidance Use made of volunteer time and volunteer services or resources Demonstrates a commitment to minimize the expenditure allowable for the fundraising activity 136 Disclosure of fundraising costs, revenues and practice (including cause-related or social marketing arrangements) CRA expects charities to provide complete public disclosure for all fundraising costs and revenue Generally greater disclosure required for solicitation to the public than to members The higher the cost for a fundraising activity, the more there is a need for disclosure Information must be accessible (e.g. the web and annual reports) and accurate, (e.g. the best information available)

93 A charity may need to consider disclosing information before, during and after a fundraising initiative, which information might include: Estimated fundraising costs and revenues in its annual budget Whether fundraisers are receiving commission or other payment based on the number or amount of donation The general terms of the fundraising contract, including the method of compensation and anticipated costs and revenues 138 How internal fundraisers are assessed and compensated The costs and revenues for specific types of fundraising or campaigns within a fiscal period (after completion) Cause-related ventures are not subject to scrutiny by CRA, provided that more than 90% of the costs are borne by a noncharitable partner and all costs and revenues are adequately disclosed (excluding costs of intellectual property)

94 d) Areas of Concern Indicators that could cause CRA to further review a charity s fundraising activities Sole-sourced fundraising contracts without proof of fair market value May lead to excessive and disproportionate private benefit Non-arm s length fundraising contracts without proof of fair market value May result in undue benefit Fundraising initiatives or arrangements that are not well-documented e.g. No minutes of board meeting or other meetings where fundraising contracts were approved e.g. No documentation on any procurement processes 140 Fundraising merchandise purchases that are not at arms length, not at fair market value, or not purchased to increase fundraising revenue e.g. Must be able to show that gift incentives or donor premiums will result in increased revenue Activities where most of the gross revenues go to contracted non-charitable parties e.g. Must be able to show steps to determine the fair market value

95 Commission-based fundraiser remuneration or payment of fundraisers based on amount or number of donations Raises concern about disproportionate or excessive private benefit e.g. Compensation based on calls completed or contacts made is preferable Total resources devoted to fundraising exceeding total resources devoted to program activities Otherwise concern by CRA that fundraising may become a collateral purpose Where discrepancies in costs of different functions occur, the cost of a particular function should be shown to be reasonable, but merely showing that costs of fundraising are at FMV is not sufficient 142 Misrepresentations in fundraising solicitations or disclosures about fundraising or financial performance e.g. Misrepresentation may result from either intentional conduct or an omission of information that creates a false impression Each of the above factors are explained in considerably more detail in the Guidance and must be carefully studied, particularly with regards to expectations by CRA concerning disclosure

96 8. ONGOING CONCERNS Many of the requirements, factors and criteria contained in the Guidance are open to subjective interpretation and accordingly, there could be inconsistencies in the administration of the Guidance and resulting CRA audits of charities The fundraising ratio is based on a ratio of fundraising costs and revenue calculated on an annual basis, but does not take into account the fact that the nature of fundraising activities of charities varies widely perhaps a rolling average approach would have been more appropriate 144 The Guidance is complicated and may be difficult for charities to understand and comply with at a practical level, particularly the Test B Although the initial threshold level of 35% in the ratio is generous, donors and the public may have difficulty in accepting this as an appropriate level. It would have been better if Test B was not as limiting in order to be able to allocate expenditures to categories other than fundraising There is potential confusion concerning charitable gaming and lotteries by requiring that such items are included in fundraising income and expenses but then administratively ignoring them because of overriding provincial jurisdiction

97 9. POSSIBLE STRATEGIES TO CONSIDER Corporate sponsorship can generally be included as fundraising income under line 4630 on the T3010B and therefore possibly improve the fundraising ratio Greater focus will be required on disclosure of fundraising costs, revenues and practices which may impact the ability to attract donors unless there is appropriate education of donors However, not clear whether disclosure is to be done after each fundraising campaign in addition to doing so for the fiscal year 146 It may be possible to reduce fundraising expenses for a charity by utilizing an arms length parallel not-for-profit corporation to operate the fundraising event on a cost recovery basis, with the charity being the intended recipient of charitable donations The fundraising ratio is a function of line items on the T3010B, so it is very important that the board of a charity review and approve the T3010B before it is filed with CRA and posted on the CRA website

98 DISCLAIMER This handout is provided as an information service by Carters Professional Corporation. It is current only as of the date of the handout and does not reflect subsequent changes in the law. This handout is distributed with the understanding that it does not constitute legal advice or establish a solicitor/client relationship by way of any information contained herein. The contents are intended for general information purposes only and under no circumstances can be relied upon for legal decision-making. Readers are advised to consult with a qualified lawyer and obtain a written opinion concerning the specifics of their particular situation Carters Professional Corporation Ottawa, Mississauga, Orangeville Toll Free: Harmonization: The Top 5 Things Charities and Not-for-Profits Need to Know about the HST Toronto - June 10, 2010 Paul Casuccio pcasuccio@fasken.com 75

99 Introduction Status of Legislation and Policies GST/HST Basics for NFPs and Charities The Top 5 Things to Know about HST Dealing with the Retail Sales Tax Public Service Body Rebates Transition Issues What is not changing? Implications and Application of the POS Rules Point of Sale Place of Supply Action Items Status of Legislation and Policies The Canada Revenue Agency and the Department of Finance are VERY LATE in releasing the legislation and most of the applicable policies Promised for the end of March 2010 We ve seen draft legislation with respect to place of supply rules and a number of draft policy statements We re awaiting the remainder of the legislation and approximately 30 more policy statements by the middle of June

100 GST/HST Basics for NFPs and Charities Collecting GST/HST on supplies General exemption for charities and Public Institutions Numerous exemptions for not-for-profits Broad exemptions for healthcare sector Paying GST/HST on inputs Public Sector Body Rebate Limited input tax credits Special Accounting Rules for Charities Changing the Tax Base What was subject to RST? What will be subject to HST? The Top 5 Things to know about HST 1) Dealing with the Retail Sales Tax Rebate claims by Charities Capital Investment Rebates must be claimed within the ordinary time limitations or by June 30, 2014 (whichever is earlier) Assessments, Objections, Appeals Will continue to apply until time limitations expire Final RST Returns Final Regular RST Return - July 23, 2010 Supplemental Monthly Returns Remaining RST deemed payable on Oct 31, 2010 Final Supplemental Return - November 23, 2010 Continuing RST on certain types of insurance Notably group insurance and property insurance

101 The Top 5 Things to know about HST 2) The Public Service Body Rebate Public Service Bodies Federal B.C. Ontario Municipalities 100% 75% 78% Universities & Colleges 67% 75% 78% School Boards 68% 87% 93% Hospitals 83% 58% 87% Charities & Qualifying Non-Profits 50% 57% 82% The Top 5 Things to know about HST 3) Transition Issues Sales of Tangible Personal Property & Real Property Ownership and Possession/Delivery after June 2010 HST, otherwise PST (on personal property) Leases/Licenses of Tangible Personal Property, Intangible Property & Non-Residential Real Property Generally, leases/licenses will be subject to HST to the extent that the consideration is attributable to the part of the lease/license occurring on or after July 1, 2010 For amounts paid before May 1, 2010 by charities, public institutions or other entities not engaged in commercial activities, SELF-ASSESSMENT REQUIRED for amounts attributable to the part of lease/license occurring on or after July 1,

102 The Top 5 Things to know about HST 3) Transition Issues Services If more than 10% of a service is performed after July 1: Generally, services will be subject to HST to the extent that the consideration is attributable to the portion of the service occurring on or after July 1, 2010 For amounts paid before May 1, 2010 by charities, public institutions or other entities not engaged in commercial activities, SELF-ASSESSMENT REQUIRED for amounts attributable to the portion of the services occurring on or after July 1, 2010 Personal tax planning tips The Top 5 Things to know about HST 4) What is not changing? Existing GST exemptions Healthcare property and services General charity and public institution exemptions Special Accounting Rules for charities Elections 211 elections re real property Self-Assessment Requirements Imports But now includes imports from other provinces Changes in use of property Input tax credits Restricted ITCs not applicable to NFPs, charities, public institutions

103 The Top 5 Things to know about HST 5) The POS Rules Place of Supply Rules What are they? Rates BC 12% Ontario, New Brunswick, Newfoundland 13% Nova Scotia 15% Rest of Canada 5% Generally will not apply to healthcare industry because of single-jurisdiction of operations But, still relevant where: Supplier is to Charge & Collect HST Recipient must Self-Assess Increased cost of supplies acquired from out of province The Top 5 Things to know about HST 5) The POS Rules Point of Sale Rebates Books Children s car seats Car booster seats Diapers Child-sized clothing and footwear Feminine hygiene products Newspapers Meals $4 and under Motor fuels Residential energy (BC rebate) ON BC

104 Action Items Contract Review Transitional Rules Self-Assessment requirement for charities et al. for payments made between Oct 14, 2009 and April 30, 2010 Systems modifications RST Rebates Strategic last-minute purchases Mitigating RST on acquisitions of tangible personal property Mitigating HST on acquisition of one-time services Questions? Paul Casuccio Partner

105 BULLETIN Charities and Not-For-Profit May 2010 Federal Budget 2010 Amendments to the Disbursement Quota Regime By: Elena Hoffstein The Federal Budget 2010 has introduced significant changes to the disbursement quota obligations imposed on registered charities pursuant to the provisions of the Income Tax Act (Canada) (the ITA ). These changes have been met with great interest and relief by the charitable sector, which has struggled with an increasingly complex and onerous disbursement quota regime. 1. Background The ITA provides that registered charities must satisfy their disbursement quota ( DQ ) in each year in order to maintain their charitable registration. The DQ is a prescribed amount that registered charities must expend each year in a charitable capacity on their own charitable activities or by way of gifts to qualified donees (generally other charities). The existing disbursement quota regime was originally introduced in 1976 to ensure that registered charities devoted a significant portion of their resources to charitable activities. It was intended to discourage registered charities from spending excessive amounts on fundraising and from accumulating excessive capital. Briefly, the existing DQ of registered charities, whether they are charitable organizations, public foundations or private foundations, consists of the aggregate of the following: a) 80% of all donations receipted in the previous year; b) 80% of all gifts from other registered charities (or in the case of private foundations, 100% of all such gifts); and c) 3.5% of the value of all property not used in charitable activities or administration in excess of $25,000. Certain types of property are excluded from the above-noted 80% requirement. These include: a) enduring property, such as gifts made subject to a trust or a direction that the capital be held for at least 10 years (also known as ten year gifts ), bequests, and gifts of proceeds of life insurance, RRSPs and RRIFs; and b) specified gifts, which are a particular type of inter-charity gift that allow registered charities with disbursement excesses to assist registered charities with disbursement shortfalls. The transferor charity which distributes a specified gift to another charity is not be able to use the amount distributed in the satisfaction of its DQ requirement and the transferee charity does not have to include the amount received when determining its DQ requirement. In addition, the concept of the capital gains pool allows registered charities to encroach on the realized capital gains from enduring property, i.e., 10 year gifts, to meet their 3.5% DQ obligations. Over the years there has been much criticism of the disbursement quota regime, both for its complexity and difficulty, and for its disparate impact on registered charities. The government s commentary introducing Federal Budget 2010 notes that the impact of the existing disbursement quota regime can vary considerably, for reasons unrelated to the manner in which a charity conducts its charitable activities. For example, the existing regime requires registered charities to either expend the bulk of the gifts for which receipts were issued or to hold the capital of such gifts for specified periods of time. As a result, the requirements of this regime have often been in conflict with the program needs and planning goals of registered charities and have bee particularly difficult for those organizations whose income derived primarily from receipted donations. 1 VANCOUVER CALGARY TORONTO OTTAWA MONTRÉAL QUÉBEC CITY LONDON PARIS JOHANNESBURG