Posts tagged canada revenue agency
Societies, also known as “non-profits” or “not-for-profit corporations”, are the legal entities behind most of what goes on in the world of education. For example, the Ubyssey, the University of British Columbia’s student newspaper, is the name of the central activity of a British Columbia society called The Ubyssey Publications Society. This means the Society likely appears on the Ubyssey’s contracts and payroll slips.
The story of most societies usually begins something like this: a group of do-gooders want to do some particular good together, and they would prefer it if they could do this good as members of a collective that has a separate legal identity rather than as people who will be personally liable if something goes wrong. They visit a lawyer and are given the option of incorporating a society under provincial or federal laws, and since educational issues are province-based more often than not a provincial society will be created.
The society might then try to take the step of becoming a charity, which means that not only have the do-gooders incorporated, but the Canada Revenue Agency has decided (after a rigorous application process) that their society should have the ability to issue donation receipts to someone who has contributed cash or property to the society’s operating budget.
Recently, the provincial government decided – rightly – that it should have another look at the main law that applies to provincial societies, the Society Act (BCLaws). So, the Ministry of Finance started a consultation process, to see what was broken in the Society Act, what could be fixed and how that fix might play out, all with the recognition that the affairs and challenges of societies have changed much quicker than the Society Act has. This is the purpose of the review:
The purpose of the review is to identify and address any legislative obstacles that may prevent societies from functioning fully and efficiently, and ensure that the public interest is being protected. We are seeking your input on any problems, gaps, inconsistencies or ambiguities in the Society Act and any reforms you would like considered.
The review started at the end of 2009 (see this letter from the Deputy Minister of Finance), and since then many of the province’s 26,000 societies have chimed in with their thoughts.
Then, in December 2011, the Ministry put out a Discussion Paper going through proposed amendments that arose because of the consultations with societies. All of the amendments revolve around two basic issues:
- What corporate model is most appropriate for societies and, in particular, should a sophisticated business law framework be adopted?
- To what extent should the Society Act contain regulatory provisions or other rules that constrain the operation of societies?
Many of the proposals may sit well or poorly with societies in the educational community. Student societies, like other societies with a very large constituency of members, should pay particular attention to the items on the table, such as the idea of introducing new remedies for members, special regulatory requirements for further financial disclosure and accountability and creative dispute resolution tools.
Societies and other stakeholders are invited to send their comments on the Discussion Paper by April 30, 2012 to email@example.com.
Charity lawyer Mark Blumberg reported (GlobalPhilanthropy.ca) earlier this year about an interesting letter from the Canada Revenue Agency (CRA) in response to a question from an educational institution, which was raising funds to construct buildings on its campus to be used for its charitable purposes. The educational institution, like many other charities, wanted to give naming rights to donors according to donations levels; for example, you give us $10,000, we’ll name a classroom after whoever you want (including yourself), but if you give us $100,000, you’ll have naming rights to a pavilion, and for $1,000,000 you get a whole building.
This is a common practice in the world of philanthropy. Naming rights may be requested or expected by the donor, or may be offered by the charity. Sometimes the donor wants to honour their parents or another deceased family member by using the naming rights on them, other times the donor prefers their own name to be on the plaque. From the outside, this may seem silly or even narcissistic, but there are a lot of important considerations at play. Having one of your buildings sport the name of a well-known personality sends a message to your community, your other donors, the donor’s children and grandchild and so on, which could be invaluable.
Consider how impressive it may sound to some to hear about the “Jim Pattison Pavilion” at Vancouver General Hospital, and compare that to the ring of the ”Andy Dick Pavilion” (no offence to Andy Dick). On the other hand, Bernie Madoff (New York Times) must have had his name on an incredible number of charitable facilities before news of his crimes were made public, and my guess is taking that name down often is no easy (or inexpensive) feat.
The question from the educational institution that was addressed in the CRA’s letter was whether the amount of the donation for tax purposes should be reduced to reflect the “advantage” received by the donor in the form of naming rights, specifically where the donor carries on a business that may be connected in some meaningful way to the name that will appear at the end of the day. The legal discussion underlying this issue is the same one involved with any fundraising event: if the amount paid by a guest (e.g. $250) exceeds the actual cost of the “advantage” they receive (e.g. a nice meal), then the charity should give them a charitable receipt for the balance – that is, the specific amount the guest is “donating” to the charity without getting anything in return.
In the letter, this is how the CRA responded:
Where naming rights are provided in gratitude for a gift, the value of any advantage in respect of the gift would be determined at the time of the gift and based on the prospective economic benefit associated with the naming rights granted. If, having regard to the facts, there is no prospective economic benefit associated with the naming rights, it is our view that the amount of the advantage would be nil.
In non-tax language, if the donor is getting a business benefit from the naming rights, the value of the “gift” must be reduced accordingly.
This is how the conclusion of the letter was explained by Andrew Valentine at Miller Thomson LLP:
Charities need to ensure that they consider the economic value of any naming rights provided to donors, particularly where the donor is a corporation or partnership, or where the naming right identifies a business with which the donor has a connection. Where the naming rights have value, this value must be determined and subtracted from the value of the receipt. In some cases, the naming rights may vitiate the issuing of a receipt altogether if the gift was made with a view to advancing the economic interests of the donor rather than as a gift.
Bottom line: if you sense a donor will get a business benefit from naming rights, call your lawyer. Mishandling it will be bad for everyone, and the cost of the legal advice should be considered in light of the size of the donation.
The Supreme Court of Canada announced this morning that it denied an application for leave to appeal made by family members of students at Trinity Western University who were stung with a tax bill for their involvement with a donations for bursaries scheme (see here for background). They have reached the end of the road.
Here (CanLII) is the decision of the Federal Court of Appeal that the family members wanted to appeal. For what it’s worth, the charity involved in the scheme – the National Foundation for Christian Leadership – still appears as a registered charity with the Canada Revenue Agency, and it does not seem as though any formal action was taken against the charity.
Several months after the debate surrounding academic freedom (University Affairs) at Trinity Western University (TWU) has left the public’s focus, TWU is back in the news, this time in connection the decision of the Federal Court of Appeal earlier this month in Ballard v. Canada (CanLII). Here’s the version of the story from The Province:
An appeal court has ended a long-standing tax scheme in which students at Trinity Western University received scholarships or bursaries for their education in exchange for donations being funnelled by family members to a Christian charity.
The court was asked to rule on a tax deduction in which Trinity Western University solicited family members to donate to a registered Christian charity in exchange for a tax receipt that would lower the income tax they paid, and allow the students to receive scholarships or bursaries for their education.
According to court documents students were told: “God does not want to see students graduate with huge burdensome student loans.”
The dispute goes back to taxes filed as far back as 2002. During its peak, almost $5 million in tax receipts were issued for students at Trinity Western and other Christian colleges.
The federal tax agency maintained it was not a true gift if the donor is expecting and receiving a direct and possible equal financial benefit in return.