Posts Tagged ‘Income Tax Act’

Blake on the Huffington Post: We Don’t Want No Foreign Funding

April 10th, 2012 by admin

“Press reports have expressed outrage over the fact that, through measures like those found in the budget, the federal government is seeking to block funding to environmental charities and intimidate them into silence on controversial issues in Canada. CRA will receive an additional $8 million to carry out new audits to enforce these provisions.

On April 2, the Director General of Charities Directorate published a message making it clear that these provisions do not apply only to environmental charities. She wrote: “As the rules relating to political activity apply to all registered charities, the CRA’s educational and compliance efforts in this regard will extend to the charitable sector as a whole.”

In my opinion, the transparency requirements obligating charities to disclose funding from foreign sources will have a much greater impact on Muslim and other religious charities than on environmental charities. Though the initial focus may be on environmental funding, there is little doubt that in due course the government’s attention will move to transparency with regard to foreign money coming into Canadian mosques and Muslim humanitarian charities.”

Read more…

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Categories: Charity, Politics, Religion

No ‘charitable purpose’ more ‘obviously’ needed than funding

September 16th, 2011 by Blake Bromley, Bio

Last weekend, David Baines wrote another column in the Vancouver Sun about Canada Revenue Agency’s revocation of the registration of Prescient Foundation and other foundations because they were carried on for “no obvious charitable purpose.” The share transactions that CRA attacked took place in 2005, but CRA did not revoke registrations until 2010 and 2011.

The Income Tax Act defines “charitable purposes” as “the disbursement of funds to qualified donees,” and most “qualified donees” are registered charities.

From 2005 through 2011, the five participating foundations disbursed a total of $38,499,996 to qualified donees, and the disputed transactions accounted for only about $1 million of this. The $38.5 million total excludes the $1.9 million described by Baines as going between the participating foundations to fund the share purchase, because those transfers were intentionally made in a way that did not count as disbursements to qualified donees.

What does it teach us about CRA’s attitude to a struggling charitable sector that it would choose to revoke registrations in the most hostile manner available to it rather than seek to preserve these generous sources of funding?

It is “obvious” to any operating charity, struggling to find funding in this difficult economic climate, that CRA should be able to find some “charitable purpose” in disbursements of $38.5 million to operating charities. However, when CRA auditors look at the same $38.5 million, they can see “no obvious charitable purpose.” I assume that they only see a loss to tax revenues of $17 million.

Also “obvious” are the deteriorating financial resources of operating charities. Qualified donees should be concerned that CRA’s only legal justification for the revocations publicized by Baines is that complex funding initiatives have “no obvious charitable purpose”.  In addition to having no basis in the Income Tax Act, the language of the charge is Orwellian.

In a time of budget deficits, when the government is reducing funding for social programs, it cannot expect charities to pick up the slack if CRA denies them the opportunity to be innovative in seeking new funding.

David Baines can pore over the T3010 Public Information Returns filed by charities to find the cost of four hockey tickets and professional fees. However, he makes no attempt to balance the negative spin he can put on this data with a positive report on the total funds paid out to charities.

One of the untold stories of CRA’s hostile audits is that the professional fees paid to deal with CRA auditors were much greater than those paid to generate the funding. CRA’s audit of all of these foundations established that Benefic was paid a total of $20,000 in fees for its role in planning and reviewing the impugned transactions. Given the size and complexity of the transactions, even Baines did not criticize these fees as unreasonable.

CRA audits are necessary and can even be helpful. However, they should focus on disallowing transactions that contravene the provisions of the Income Tax Act, not those that are just innovative.

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Categories: Charity, Compliance, Law

Court of Appeal for Ontario Rules on Meaning of “Gift”

August 25th, 2011 by Blake Bromley, Bio

In my last article, I focused on the fact that an Application has been made to the Supreme Court of Canada for leave to appeal the Federal Court of Appeal decision in Ballard v. Queen. It will be interesting to learn whether transfer of money by way of “gift” is governed by property law, determined by the law of the provinces, rather than by the Income Tax Act.

Certainly, it is much easier to determine the meaning of “gift” as a matter of common law when the facts do not involve a gift to a charity from a donor seeking tax benefits under the Income Tax Act. In recent weeks, the Court of Appeal for Ontario in McNamee v. McNamee held that a father had made a “gift” of shares in the family company to his sons. The Court recognized that the transfer of the shares was motivated by an estate freeze and the desire to exclude the shares from inclusion in “net family property” under the Family Law Act, R.S.O. 1990, c.F.3. However, the gift was good because the father had the intention to transfer the shares gratuitously by way of gift and the sons provided no consideration or remuneration to the father. The Court held “a transfer of property by way of gift may equally be motivated by commercial purposes provided the transfer is gratuitous.”

The Court of Appeal for Ontario implicitly takes issue with the Federal Court of Appeal in The Queen v. Friedberg, 92 DTC 6031, which uses the words “benefit” and “consideration” interchangeably.  It held:

“Consideration” in law is a contractual concept. It is the value that flows from a promisee to a promisor as a result of a bargain.”

The July 26, 2011 decision of the Court of Appeal for Ontario is in more open disagreement with the Federal Court of Appeal decision in Ballard v. Queen, which disallowed as charitable gifts the entire amount of transfers to a charity where the donors received what the court considered to be a “material benefit”. In McNamee v. McNamee the Court held:

“It is helpful to remember that the issue is not whether the donor (or, for that matter, the donee) received some benefit from the estate freeze (Mr. McNamee Sr. accomplished his corporate planning; the boys received their common shares). The issue is whether the donee has provided any consideration to the donor for the transfer of the shares.”

Hopefully, the Supreme Court of Canada will grant leave to appeal in the Ballard case on the basis that it is “an issue of public importance” to provide clarity as to whether “consideration” and “benefit” have quite different meanings in determining what is a “gift”.

In my next article, I will discuss another aspect of the McNamee v. McNamee decision which is contrary to CRA’s position on the meaning of gift.

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Categories: Charity, It's the Law, Stupid!, Law