Posts tagged charities

Changes coming to provincial law that applies to societies

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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:

  1. What corporate model is most appropriate for societies and, in particular, should a sophisticated business law framework be adopted?
  2. 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 fcsp@gov.bc.ca.

SCC stops short appeal of ruling on donations for bursaries scheme

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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. 

Interestingly, the law firm acting for the family members was Benefic Group, which was profiled recently in the Vancouver Sun.

FCA upholds tax ruling related to donations for bursaries scheme for TWU students

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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.

According to the facts determined by the court, the students involved with the case were enrolled at TWU, and they asked their parents and, in one case, grandparents to “donate” money to the National Foundation for Christian Leadership (NFCL), a registered Canadian charity (Canada Revenue Agency), which amounts were claimed by the “donors” as charitable tax credits (i.e. they were issued tax receipts and were able to therefore reduce the amount of tax they had to pay).  The students were then given a bursary by the NFCL in relation to their educational expenses and the amount of money donated by their relatives.
 
The catch? Anytime you give money to a charity and receive some benefit in return, you cannot get a charitable tax credit for the amount corresponding to the benefit.  The Canada Revenue Agency, our federal tax authority, explains the rule here.  The simplest example is a gala fundraising event put on by a charity.  If the tickets are $100 a piece, and you get a meal and a show normally valued at $75 per seat, then you will likely be issued a tax receipt for only $25 of the $100 you paid.  It makes sense – otherwise, charities could use their special status to sell things to individuals who would also be able to claim back a portion of the amount the paid.
 
The scheme highlighted in Ballard may be more common than many of us may expect, which would explain why charities engaged in these sorts of tactics are currently in the crosshairs of the Canada Revenue Agency.  It often gets complicated by the fact that many educational institutions are also registered charities (see the database of charities here).  The court in Ballard adopted a broad view of the notion of receiving a benefit, in the sense that a grandparent “donating” to a charity with the expectation that the charity would issue a educational bursary to his or her grandchild would constitute a “benefit”.  The same applies to private corporations “donating” in relation to a child of one of the shareholders.
 
Educational institutions that are also registered charities must be aware of their obligations under the applicable tax statutes.  Charities cost the government a lot in lost tax revenues, and despite their good works a charity will generally be dealt with harshly for not following the rules.  Parents, too, should understand the requirements a charity must obey and ensure that they do not get entangled in any risky or poorly thought out proposals from cash-strapped educational institutions. 
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