Introduction to Charity Law Session 1 – General and Provincial Law

1. Introduction to Charity LawSession 1 – General and Provincial Law Robert B. Hayhoe rhayhoe@millerthomson.ca 416.595.8174 Canadian Council of Christian Charities Annual Conference 2002 (Calgary) September 26, 2002

2. Outline Session 1 General and Provincial Law Session 2 Establishing a Charity / Tax Compliance

3. Authority • Religious Authority • Secular Authority • Provincial and federal • Specific and general

4. Religious Authority • Overriding duty to obey religious authority • Implied or specific religious duty to obey secular authority

5. Purposes • Profit purpose • Non-profit purpose • Charitable purpose

6. Income Tax Categories • Taxable entities • Non-profit organizations • Defined as non-charitable • Registered charities • Unregistered charities are taxable

7. Charitable Purpose • 1601 Statute of Elizabeth • Commissioners of Inland Revenue v. Pemsel (1891) decision of English House of Lords

8. 1601 Statute of Elizabeth Preamble (modernised): the relief of aged, impotent and poor people; the maintenance of sick and maimed soldiers and mariners, schools of learning and free schools and scholars of universities; the repair of bridges, ports, havens, causeways, churches, sea banks and highways; the education and preferment of orphans; the relief, stock or maintenance of houses of correction; marriages of poor maids; supportation, aid and help of young tradesmen, handicraftsmen and persons decayed; the relief or redemption of prisoners or captives; the aid or ease of any poor inhabitants concerning payment of fifteens; setting out of soldiers and other taxes.

9. Lord Pemsel’s Case • Charitable nature of Moravian missions • "Charity" in its legal sense comprises four principal divisions: • Trusts for the relief of poverty; • Trusts for the advancement of education; • Trusts for the advancement of religion; and • Trusts for other purposes beneficial to the community, not falling under any of the preceding heads.

10. Public Benefit • “Heads” are only charitable if for the public benefit • Law assumes that religion has a public benefit • absent proof to the contrary • Contemplative religious orders • Secular society

11. Canadian Constitutional Considerations Constitution Act, 1867: 92. In each Province the Legislature may exclusively make Laws in relation to Matters coming within the Classes of Subjects next hereinafter enumerated; that is to say, ... 7. The Establishment, Maintenance, and Management of Hospitals, Asylums, Charities, and Eleemosynary Institutions in and for the Province, other than Marine Hospitals.

12. Provincial Authority • General Charities Regulation • Attorney General’s duty to protect charitable property • Ontario Public Guardian & Trustee (http://www.attorneygeneral.jus.gov.on.ca/html/PGT/pgthome.htm) • Supervisory jurisdiction of Superior Courts

13. Fiduciary Duty • Duty of utmost good faith • Duty to prefer interest of beneficiary to own • Good neighbour principle • Applies to a charity and to its directors and officers

14. Duties of Directors/Officers 1 of KNOWLEDGE 2 of CARE 3 of SKILL & PRUDENCE 4 of DILIGENCE 5 to MANAGE 6 FIDUCIARY 7 AVOID CONFLICT of INTEREST 8 ACT IN SCOPE of AUTHORITY • Resources: • Books • Training • Governance consultants • Legal counsel governance seminars

15. Human Rights • Religious or moral discrimination in hiring/firing • Prohibited for religious organizations unless: • Individual bona fide occupational qualification

16. Fundraising Legislation • Charities Act (Prince Edward Island) • Registration requirement • Charitable Fund-raising Act (Alberta) • Registration requirement • Charities Endorsement Act (Manitoba) • Registration requirement

17. PRIVACY • Federal Personal Information Protection and Electronic Documents Act • Applies January 1, 2004 to selling or trading fund raising lists unless equivalent provincial law • requires consent to use of personal information • requires information security • Draft Ontario Privacy of Personal Information Act, 2002 • Applies specifically to charities operating (including fundraising) in Ontario • requires informed consent to use of personal information • requires information security

18. Other General Law • Health & Safety • Labour/Employment • Property Tax • Regulation of Specific Activities • social services • Intellectual Property • trade-marks • official marks

19. Introduction to Charity LawSession 2 – Establishing a Charity/ Tax Compliance Robert B. Hayhoe rhayhoe@millerthomson.ca 416.595.8174 Canadian Council of Christian Charities Annual Conference 2002 (Calgary) September 26, 2002

20. Outline Session 1 General and Provincial Law Session 2 Establishing a Charity / Tax Compliance

21. Formation • Trust (governed by trustees) • Flexible • Moderately clear law • Trustee liability • Used for foundations

22. Formation • Unincorporated Association (governed by members / directors) • Flexible • Unclear law • Director liability • Possible member liability • Often used by churches • Cheap to establish • Vagueness permits Spirit-driven decision-making

23. Formation • Corporation (governed by members / directors) • Separate legal person • Clear law • Limited liability • Choice of federal or provincial

24. Application for Charitable Registration • T2050 Form submitted to CCRA • Charitable activities • Expected financial data • Governing documents • CCRA Guide T4063 Registering a Charity for Income Tax Purposes

25. Application for Charitable Registration • T2050 assigned to CCRA officer • Poorly trained • Bias against registration • Excessive workload • Discussions / correspondence with CCRA • Registration decision letter • FCA appeal if not granted

26. Categories of Registered Charity • Charitable organization • Not private foundation • Performs own charitable activities • Public foundation • Not private foundation • Funds other charities

27. Categories (cont’d) • Private foundation • Non-arm’s length board, or • One primary funding source • Private foundations subject to more restrictive donation rules

28. CCRA Sanctions • Only penalty for most tax rule violations (even poor records) is deregistration • Results in a tax on the charity equal to 100% of assets • Capital punishment • Intermediate sanctions proposed by VSI Joint Regulatory Table

29. Record Keeping • Minute book • Duplicate receipts with back-up • 10 year gift documents • Proof of charitable purpose of all activities

30. Annual Return • T3010 • Filing deadline of 6 months after year end • Failure to file is most common reason for revocation of registration • Reregistration is possible but not guranteed • CCRA Guide T4033 Completing the Registered Charity Information Return

31. CCRA Audits • Designed to ensure tax compliance • Contact CCCC or professional advisors immediately • Cooperate with the auditor • Provide only requested information (after advice on propriety of request) • CCRA Guide T4118 Auditing Charities

32. Receipts • Gift • “Voluntary transfer of property without consideration” • Any hint of benefit to anyone - get advice • No receipt for services • CCRA IT-110R3 Gifts and Official Donation Receipts

33. Receipt Contents • Regulation 3501 • Name / address, registration number of charity • Receipt serial number • Place receipt issued • Date of donation and of receipt • Description of property donated and appraisal information (non-cash gifts) • Name / address of donor • Amount of gift • Signature

34. Foreign Activities • Registered charities can minister anywhere • Registered charities can only grant to other registered charities • Registered charities can contract with foreign charities

35. Working with Foreign Charities • CCRA Guide 4106 Registered charities Operating Outside Canada • Agency agreements • Joint ministry agreements • Court just denied de-registration appeals by two prominent Jewish charities

36. More Information • Professional Advice • CCCC • www.ccra-adrc.gc.ca/tax/charities • Miller Thomson Charities and Not-for-Profit Newsletter • www.millerthomson.com or charitieseditor@millerthomson.ca

37. Introduction to Charity Law Robert B. Hayhoe rhayhoe@millerthomson.ca 416.595.8174 Canadian Council of Christian Charities Annual Conference 2002 (Calgary) September 26, 2002