In an article entitled "Canada Revenue Agency expands investigations of tax shelters", Kevin Donovan of the Toronto Star discusses how "As many as 12 charity tax shelter promoters are under criminal investigation for schemes that saw donors contribute millions of dollars in return for charity receipts worth six times as much."
Many Canadian non-profit corporations don't know about the Canada Not-for-profit Corporations Act (“CNCA”) which came into force in 2011 and requires that all existing Canada Corporations Act (CCA) non-profit corporations must transition to the CNCA by October 17, 2014. Corporations that do not make the transition by the deadline will be assumed to be inactive and will be dissolved by Corporations Canada. Industry Canada has indicated that the deadline will not be extended and that they will start sending out Notice of Pending Dissolution in October of 2014.
In the Holst case the Honourable Justice Judith Woods rejected certain taxpayers alleged donations to a church. She noted:
In Johnson v. The Queen the Tax Court of Canada dealt with a case in which Mr. Johnson had made claims in 2002 and 2003 taxation years for donations of $18,550 and $15,500 respectively.
The Department of Finance has released the "Notice of Ways and Means Motion to implement certain provisions of the budget tabled in Parliament on February 11, 2014 and other measures and Explanatory Notes". Some of the provisions were announced in the Budget such as changes to ecological gifts, cultural property, charity parking, gifts from the Iranian and Syrian government (and agents).
Here is an interesting case in which a municipality, that was allegedly involved in a charity scheme, wanted leave to intervene in a Tax Court of Canada matter involving a donor who had made a donation to the municipality. The TCC maintained “The Municipality is in no way subject to a tax assessment related to the one at issue in this appeal and the judgment in this appeal cannot have a financial impact on the Municipality.”
The Charity Commission of England and Wales notes that “There is genuine and desperate need for humanitarian assistance to help people affected by the conflict in Syria. UK charities and their partners are playing an important role in the delivery of humanitarian aid to Syria and neighbouring countries.” However, they discuss how the use of aid convoys has and can be used to facilitate the travel of “foreign fighters” and the resources of the charity can be missapplied to non-charitable purposes. The Charity Commission provides a number of suggestions which could also be relevant to Canadian charities. Canadian charities might also find helpful the CRA’s checklist on avoiding involvement with terrorism.
Today Finance Minister Jim Flaherty introduced the Canadian Federal Budget 2014. The budget had a large number of provisions dealing with non-profits and charities. Here are some excerpts from the Federal Budget in one PDF document. Overall I was very pleased with the provisions of the budget dealing with charities.
The UK Public Accounts Committee (PAC) has issued reports on the Charities Commission and UK tax authorities (HMRC) and their handling of regulatory matters. The Charities Commission has put out a press release with a very solid response to the Public Accounts Committee. I agree with most of the points of the Commission. The only one thing that I would concur with the PAC is that the investigation into Cup Trust was probably “feeble”. But as I have blogged before (here and here and here and here and here), The Cup Trust is one charity and many other regulators have let a lot more bad apples stay in the barrel than the Charities Commission.
On January 10, 2014 David Ajise, a former tax preparer operating in Toronto, was sentenced to a 30 month jail term for fraud over $5,000. Ajise is the former proprietor of Datronix Solutions, a tax preparation service. A CRA investigation revealed that, Ajise and Eto Ekpenyong Eto participated in a scheme which generated $5,023,456 in fraudulent charitable donations between 2003-2005.
Probably not. Otherwise that would be about 5-10 times more funds than all Canadian registered charities spent on political activities in 2012. In fact, when we reviewed who spent the most on political activities it appears to me that the top 6 organizations were all mistakes. Either CRA or the charity messed up when inputting the numbers. All charities, but especially larger charities, should carefully review their T3010 before filing and also check that the CRA got the information correct a few months after filing.
The problem of “abusive charity gifting tax schemes” continues. These are schemes that promise that if you put in say $1000 through a complicated scheme you will end up with a $5000 receipt and therefore you can save $2500 in taxes. CRA notes that two additional strategies will be used to prevent Canadians from investing in these schemes. The first is that CRA will not assess tax returns until after the tax shelter scheme has been reviewed. That means a person who claims tax benefits under one of these schemes and then files a tax return may have to wait a couple years for a refund. Also as per the 2013 budget CRA can collect 50% of the taxes owing of an amount in dispute. What is shocking from the press release is apparently over 182,000 taxpayers have participated in these schemes.
We recently reviewed the 2012 T3010 Registered Charity Information Returns for largest inter charity gifts. Here is a list of all gifts over $500,000 from the 2012 T3010.
The Charity Commission of England and Wales is under fire over the last few months. Those who are interested in charity regulation should be paying attention. The Charity Commission is a beacon for charity regulators and those that want charities to operate at high standards.
We have updated the Blumbergs’ 2013 Receipting Kit.
CRA is putting out better notices on donating wisely. I particularly like this advice “Get to know the charity.” Start by visiting the charity’s website to learn about its activities and how it’s managed. You can also review its financial information and activities by looking at its information returns using the CRA’s Charity Quick View at www.cra.gc.ca/charitylists. One of the best ways to learn about a charity is to volunteer.”
The Federal Court of Appeal has decisively dismissed the Kossow appeal. Kossow dealt with what CRA would term an “abusive charity gifting tax scheme”. Kossow is the second major case dealing with these schemes, the first one being Marechaux. The Federal Court of Appeal found this scheme was almost identical to Marechaux. The FCA concluded that the Tax Court judge was correct in concluding that as in Maréchaux there was no gift for purposes of the Income Tax Act. The FCA also dismissed other arguments such as that the TCC judgement was ‘not sufficient to permit meaningful appellate review’ or that including certain materials that were not admitted into evidence prejudiced the appellant. The court was also not impressed with an argument that a family law case (McNamee) dealing with a gift has any relevance to a gift under the Income Tax Act. According to the CRA there are over $6 billion in receipts issued under different abusive charity gifting tax schemes.
John Montague has written an article entitled “The Law and Financial Transparency in Churches: Reconsidering the Form 990 Exemptions” in the Cardozo Law Review. In the US, churches don’t have to file the Form 990 annual return, however, in Canada almost all churches that are registered charities need to file the T3010 on an annual basis. The US Form 990 provides the US public with far more information than the T3010 in Canada. That being many of the points raised by Mr. Montague about church governance, accountability and transparency are relevant to Canada. It is important in Canada that we review the T3010. We should improve the T3010 to provide important information to donors, volunteers and others about registered charities. While the T3010 does provide a fair amount of information, it tends to focus too much on certain issues while ignoring others.
The Humanitarian Coalition has launched an appeal for Typhoon Haiyan which has killed many people in the Philippines and left many homeless. “The Humanitarian Coalition is a joint appeal mechanism. It is comprised of CARE Canada, Oxfam Canada, Oxfam-Québec, Plan Canada and Save the Children. With a combined presence in more than 120 countries, we bring together Canada’s leading aid agencies to finance relief efforts in times of international humanitarian crises. We work together to eliminate unnecessary competition, reduce the duplication of fundraising costs, and inform the public on humanitarian needs.” DFATD has announced a matching fund for donations for Typhoon Haiyan. There are approximately 620,000 Canadians of Filipino descent in Canada. Many of them regularly send funds back to family and friends as remittances. Many will also respond to this typhoon by sending funds home. While remittances are not a charitable donation and do not receive any tax support from the Canadian government, they can be tremendously beneficial. In fact all Canadian international philanthropy is $3 billion per year, while remittances to developing countries are around $15 billion per year. I will discuss further below.
Saskatchewan has introduced a bill that would regulate informal public appeals. This will cover situations like when a fire destroys a family home and funds are raised to help the family and what to do if there are excess funds etc. Most importantly for charities the proposed legislation does not apply to qualified donees (i.e. registered charities, etc) and their fundraising. This legislation will be helpful in a number of situations that commonly come up with informal appeals. As is typical Saskatchewan leads the way!
The Muttart Foundation has released the 2013 edition of its “Talking About Charities”. It updates its last similar opinion poll from 5 years ago.
On October 15, 2013, Blumbergs will be having the 2nd Annual Blumbergs’ Canadian Charity Law Institute in Toronto. It will be a full day of practical legal and ethical compliance information geared toward charities, professional advisors and those interested in regulatory issues affecting charities. Space is limited. We have 125 registered already.
The Hamilton law firm Scarfone Hawkins has just filed another charity class action lawsuit. The case is Terry Emms vs. Christian Economic Assistance Foundation and Ontario Alliance of Christian School Societies. The case essentially deals with the Christian Economic Assistance Foundation (CEAF) School Support Program (SSP). CEAF was a registered charity that was recently revoked by CRA. A large number of Christian schools had apparently participated in the program.
I am not sure if I should even cover Sowah. The CRA denied a claim by Emily Sowah $10,252 because the receipt did not have all the required elements and also Emily Sowah was not able to prove that she had made such cash donations to the Jesus Healing Center, which is a registered charity. Apparently over 3 million in receipts were issued by the Jesus Healing Center. The Tax Court of Canada sided with CRA. My lack of interest in the case is partly based on there having been a number of similar decisions of the Tax Court on these type of cases. However, according to CRA over 100,000 people have submitted false official donation receipts and their value is between 300 -500 million which is a shame. Also keep in mind the false receipting problem pales in comparison to the $6 billion of receipts issued as part of “abusive charity gifting tax schemes”.
Do you require legal advice with respect to Canadian or Ontario non-profits or charities?
Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.