RECENT LEGAL DEVELOPMENTS FOR CHARITIES

RECENT LEGAL DEVELOPMENTS FOR CHARITIES DE JAGER VOLKENANT & COMPANY/LOEWEN KRUSE 8th ANNUAL SEMINAR FOR CHARITIES AND NON-PROFIT ORGANIZATIONS Wednes...
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RECENT LEGAL DEVELOPMENTS FOR CHARITIES DE JAGER VOLKENANT & COMPANY/LOEWEN KRUSE 8th ANNUAL SEMINAR FOR CHARITIES AND NON-PROFIT ORGANIZATIONS Wednesday November 12, 2008 SHERATON GUILDFORD HOTEL, SURREY, BC KEN VOLKENANT De Jager Volkenant & Company

De Jager Volkenant & Company Charity & Non-Profit Organization Law Wills and Estates Corporate and Commercial Law Real Estate Development Employment and Human Rights Law Litigation and Mediation #5 – 15243 – 91 Avenue Surrey, British Columbia, V3R 8P8 Tel: (604) 953-1500 Fax: (604) 953-1501 [email protected]

Recent Legal Developments • Developments in Legislation – General Laws • Lobbying Act • Telecommunications Act

– Income Tax Act – Corporate Legislation • Federal - Canada Corporations Act • Provincial - Society Act

Recent Legal Developments • Developments in CRA Policy – Sport – Advancement of Religion – Volunteerism – Fundraising – Umbrella Organizations – Audits

Lobbying Act • Why Do Lobbying Laws Exist? – To address the concern that some have more access than others to government decisionmakers, and consequently, more ability to influence decisions. – To contribute to confidence in the integrity of government decision-making.

• On July 2, 2008, the Lobbying Act came into force – Charities are not exempt

What is Lobbying? Lobbying is communicating with a public office holder, for payment, in respect of: • The development of any legislative proposal • Introduction, defeat or amendment of any Bill or resolution • Making or amendment of any regulation • Development or amendment of any policy or program • Awarding of any grant, contribution or other financial benefit

What is Lobbying However, it is not considered lobbying if – A submission (written or oral) is made to a Senate Committee, House of Commons Committee or another person or body with powers conferred on them by a Federal Act if the proceedings are a matter of public record – A communication (written or oral) made to a public office holder regarding the enforcement, interpretation or application of a Federal Act or regulation by the public office holder with respect to the organization – An organization asks a public office holder for publicly available information

Public Office Holders (POH) • •



• •

Means any officer or employee of Her Majesty in right of Canada and includes: A member of the Senate or the House of Commons and any person on the staff of such a member, A person who is appointed to any office or body or with the approval of the Governor in Council or a minister of the Crown, other than a judge receiving a salary under the Judges Act or the lieutenant governor of a province, An officer, director or employee of any federal board, commission or other tribunal as defined in the Federal Courts Act, A member of the Canadian Armed Forces, and A member of the Royal Canadian Mounted Police.

Types of Lobbyist/Registration Consultant Lobbyist • A person who is hired to communicate on behalf of a client. In-House Lobbyist (Corporations) • A person who works for compensation in an entity that operates for profit. In-House Lobbyist (Organizations) • A person who works for compensation in a non-profit entity. Registry Information • For in-house lobbyists, details about certain individuals who communicate with public office holders are listed in the registration, as well as other information relating to the corporation or organization. Registration Timeframes • For in-house lobbyists, registration must be filed by the senior officer responsible not later than two months after the day on which the requirement to file a return first arises.

When does Act Apply? • •

• • • • •

In-house lobbyists (corporations and organizations) Subsection 7(1) of the Act for in-house lobbyists (corporations and organizations) requires that the officer responsible — the most senior paid officer of a corporation or organization — for filing returns must register on behalf of the corporation or organization. The officer must file a return when one or more employees communicate with federal public office holders on behalf of the employer. For the purpose of this interpretation bulletin, the threshold after which lobbying represents a significant portion of one's duties has been established at 20 % or more of overall duties. 20% Calculation http://www.ocl-cal.gc.ca/epic/site/lobbyistlobbyiste1.nsf/en/nx00111e.html Communicating with POH http://www.ocl-cal.gc.ca/epic/site/lobbyistlobbyiste1.nsf/en/nx00109e.html

Telecommunications Act (Do-Not-Call-List) • September 30, 2008 the Do-Not-Call List came into effect • Charities are exempt from the Act but must keep their own do-not-call list • Charities means registered charities so non-profit organizations that are not registered charities are not exempt from the legislation

Telecommunications Act (Do-Not-Call-List) • CRTC requires registration and payment of fee (approx. $100) if a charity uses telecommunications to solicit from the public • Charities that use telecommunications to solicit from the public must comply with the CRTC’s Telemarketing and Automatic DialingAnnouncing Device (ADAD) rules, but not the do-not-call rules

Income Tax Act • Gifts of public investments are not subject to any capital gains • Recent extension of rules to include private foundations • Expansion accompanied by excess business holdings rules applicable to private foundations – Private Foundation may not hold 20% of shares of any class – Reporting requirements – Transition rules apply

Income Tax Act • Gifts of Medicine – Budget 2007 introduced additional deduction for Canadian companies that donated inventories of medicine, however the qualification rules were confusing – Budget 2008 amended the criteria and the related legislation was passed June 2008 – July 2008 related regulations introduced

Corporate Legislation BILL 62-PROPOSED NEW NOT-FOR-PROFIT CORPORATIONS ACT • The purpose of the proposed legislation is to strengthen and clarify corporate governance rules for federally incorporated Not-For-Profit organizations. • The proposed legislation will also make it easier for persons to take advantage of the protections offered by incorporation and the predictability and accountability offered by a modern corporate governance framework.

Federal Non Profit Corporations Director appointed under the Act • Similar to a registrar in most other corporate jurisdictions • Will be responsible for the issuance of certificates of incorporation, amalgamation or dissolution • Will undertake compliance and enforcement activities.

Federal Non Profit Corporations • Streamlined Incorporation Process: – Eliminates the current requirement for ministerial review of every application for incorporation and approval of bylaws – Allows electronic filing – No review period – the Director is required to issue a certificate of incorporation upon receipt of the articles of incorporation.

Federal Non Profit Corporations • Powers of Not For Profit Corporations – Purposes must be stated in the articles of incorporation – A corporation will have the capacity, rights, powers and privileges of a natural person – Corporation and its directors will have powers immediately upon incorporation, even prior to the passing of the corporate by-laws – Removes the need for a corporate seal.

Federal Non Profit Corporations • Streamlined Regulatory Filings – Requires corporations to send a copy of any by-laws and amendments to Industry Canada within 12 months after being enacted – Includes specific provisions allowing for electronic meetings, written resolutions in lieu of meetings, and absentee voting

Federal Non Profit Corporations • Improved Financial Accountability – Recognizes differences in the size of corporations based on annual revenues and their source of funding and applies appropriate financial reporting requirements – Not-for-profit organizations will be categorized as either a "soliciting corporation" (corporation that solicits public donations or receives government funding) or a "non-soliciting corporation."

Federal Non Profit Corporations • High-revenue soliciting corporations will be required to be audited • Medium-revenue soliciting corporations could resolve, with the consent of two thirds of their members, not to undertake an audit, but to undergo a review engagement • Low-revenue soliciting corporations will also require a review engagement • All not-for-profit corporations make their financial statements available to their members, directors, officers and also to the Director. • Financial statements from soliciting corporations to be publicly available.

Federal Non Profit Corporations • Rights and Responsibilities of Directors and Officers of Not-for-Profit Organizations – Sets out the standard of care for directors – that they act honestly, in good faith and in the best interests of the corporation that a reasonably prudent person would exercise in comparable circumstances – Director is not liable if the director has exercised such care, in good faith, when relying upon the financial statements of the corporation or on professional advice – Will provide directors with a "due diligence“ defence against potential liabilities

Federal Non Profit Corporations • Enhancement and Protection of Members' Rights – Members will be able to access corporate records (most importantly, the financial statements) and membership lists – Members may request a meeting and make proposals for discussion at the annual meeting – Members will be allowed to seek oppression remedies and derivative actions – Gives non-voting members the right to vote on proposed amendments to membership classes and rights, sale of assets, amalgamation and dissolution.

Federal Non Profit Corporations • Three Year Transition and Fees – Corporations currently incorporated under Part II of the CCA will have three years to apply for corporate status (transition or continuance) – No fee for this application – If a corporation does not apply for transition within the three-year period, it may be dissolved by the Director.

BC Society Act • Attempt to modernize and harmonize procedural administrative rules that apply to societies • Harmonization with Business Corporations Act • Law Institute of British Columbia completed extensive report • Committee provided106 recommendations

New BC Society Act • Some Key Proposed Recommendations – Should be a refinement, not fundamental transformation of core principles – Harmonize with Business Corporations Act – Allow societies to pursue commercial activities as an incident to not-for-profit purposes – Naming - use “society”, “foundation”, “association”, “institute”, “center” or “club” – Remove ability to make provisions in constitution unalterable – Registered and records office – Rights of access of members to records

New BC Society Act Key Recommendations – No residency requirements for directors – Directors can rely on officer and professional representations – Directors prohibited from receiving remuneration unless bylaws expressly permit – Paid employees prohibited from serving on boards (with transition provisions) – Eliminate minor memberships – Membership fees (purpose, notice, amount & due dates)

New BC Society Act Key Recommendations – Avoid reference to “good standing” – Allow members to make “proposals” at AGM – Remove special resolution requirement for debentures – No mandatory appointment of auditor – If auditor required – society must have audit committee – Member can apply to Court for an order to appoint a person to investigate a society – Remove “reporting society” designation

New BC Society Act • Transitional – Rules for transition to New Act similar to Business Corporations Act Transition rules – 2 years for transitions to be completed

• A New Society Act with these recommendations will better meet the needs of British Columbia Not-For-Profit organizations and will advance the goal of harmonizing corporate legislation in BC

CRA POLICY • Sports – Sports in and of itself is not charitable – Sports may be a means to accomplish other charitable purpose – Examples of sport under various heads of charity – Promotion of Health noted as a charitable purpose that may be accomplished through Sports

CRA POLICY • Advancement of Religion – CRA accepts the Advancement of Religion as a head of charity – CRA is seeking to develop guidelines regarding the kind of activities that qualify as charitable under this particular head of charity – The guidelines will be a guide for CRA staff for new registrations and as a compliance tool for audits – Guidelines will not only address what “religion” means but also what it means to “advance” religion – Will also address how the requirement for “public benefit” relates to the advancement of religion – consultation process has been underway for almost a year

CRA Policy • Volunteerism – Promotion of volunteerism is charitable – Promotion of volunteerism must aimed at the “community-at-large” • Can not support one organization or one type of organization that reflects a single interest • Improving capacity of organizations to involve volunteers

– Purpose must be accomplished through “broadbased-activities” • Not just funding

– Must serve only qualified donees and non-profit organizations

CRA Policy • Fundraising – Draft Policy released in April 2008 and background piece in June 2008 – Considerable feed back from charities – consultation period extended – Policy expected to be released in December 2009 or early in 2009 – Policy intended to clarify existing CRA administrative practice and educate charities

Fundraising Policy • First Principle - Charities have to report as fundraising all costs related to any activity that includes a solicitation of support or that is in advance of an ask Unless • The charity can demonstrate that the activity would have been undertaken without the solicitation of support: – Substantially all resources advance a charitable objective other than fundraising (then costs not fundraising) – 4 part test (then allocation required)

Fundraising Policy • Evaluation “Grid” • Considers ratio of fundraising costs/fundraising revenue in each fiscal period and categorizes them: – Rarely acceptable – Generally not acceptable – Potentially not acceptable – Generally acceptable – Acceptable

70%+ 50 – 70% 35.1 – 49.9% 20 – 35% Less than 20%

Fundraising Policy • Prohibited Conduct – Illegal conduct – Fundraising becoming primary purpose – Excessive private benefit

• Conduct that may raise concerns – – – –

Non arms length fundraising contracts Lack of proper documentation around fundraising >50% of revenue going to fundraisers Commission or bonus based remuneration

• Charities should take time to consider final policy statement and put measures in place to assist with understanding the place of the organization on the grid and providing sufficient information to stakeholders

CRA Policy • Umbrella Organizations • Definition of Umbrella Organization: – An organization that works to achieve a charitable goal by supporting, improving and enhancing the work of groups involved in the delivery of charitable services – Organization does not have to work directly with “charitable beneficiaries” in order to be considered as advancing charitable purposes – Activities are charitable if organization “contributes to an improvement” in the quality of service and level of service available to the public

CRA Policy on Umbrella Organizations • Three types of Umbrella Organizations – Charities established to improve the efficiency and effectiveness of other registered charities – Organizations that work with and through constituent groups that may or may not be registered charities in order to achieve a recognized charitable purpose – Charities that hold property for other registered charities

CRA Policy on Umbrella Organizations • Charities Established to Assist Other Registered Charities – These are umbrella organizations that improve the efficiency of charities by: • Reducing overhead (leaving more $ for charitable activities) or • Engaging in activities that improved effectiveness such as providing advice, assistance and expertise (increasing capacity for delivering charitable services)

– Beneficiaries must be predominantly (90%+) registered charities (leaves room for benefit to organizations that are not registered charities)

CRA Policy on Umbrella Organizations • Umbrella Organizations Advancing a Recognized Charitable Purpose – Established to further a particular charitable purpose – May benefit constituent groups as ancillary to achieving the particular charitable purpose but may not have stated purpose of providing support or to of coordinating the activities of member organizations – Purpose must be stated in relation to specific charitable category – Activities must advance a charitable purpose

CRA Policy on Umbrella Organizations • Charities Established to Hold Title to Property – Purpose is to hold title to property for another charity – CRA recognizes asset protection as a possible motivation – Addresses limitations for foundations holding title with regard to indebtedness – Beneficial ownership reference creates some uncertainty – Purpose must be to provide charitable service to benefit charity (i.e. not simply to hold title) – Can include services in addition to holding title such as property management services and property acquisition and development – Important to consider property tax exemption status in all title holding arrangements

CRA Policy • Audits – Number of Audits has increased significantly – Compliance Tools (April 2007 – March 2008) • Education Letter • Compliance Agreement • Revocations

419 100 52

– Revocations for Cause on the Rise • Political activity • Tax shelters • Foreign activities (direction & control)/Funding non-qualified donees • Non charitable activities

Thanks for Attending! QUESTIONS & DISCUSSION [email protected]