Legislative updates
The New Canada Not-for-Profit Corporations Act
An overview of the Canada Not-for-Profit Corporations Act, which will replace the Canada Corporations Act when it comes into force.
Ontario’s Good Governance Act includes positive changes for charities
Susan Manwaring and Kate Lazier
Just passed into law, the new Act repeals the Charitable Gifts Act and amends the Charities Accounting Act, Accumulations Act and the Religious Organization Lands Act.
CRA updates
CRA draft guidance on foreign activities
The document reviews various approaches which can be used to structure the arrangement between a Canadian charity and its foreign intermediary.
Improved CRA fundraising guidance still poses challenges
While the more flexible and open-ended approach to evaluating fundraising activity is a plus, many of the criteria continue to be open to subjective interpretation.
Issues
Balancing religious charities and individual rights: thoughts from England
By Kathryn Chan
A discussion of the Catholic Care (Diocese of Leeds) case and the extent to which religious charities must modify their policies and practices to account for individual rights.
Section notes
Concept paper on reform of the disbursement quota regime
The attached paper was undertaken with a view to provide constructive suggestions for reviewing the provisions of the Income Tax Act relating to the disbursement quota and the difficulties it has posed for charities and not-for-profits.
Message from the Chair
By Terrance Carter
As the new Chair of the Charity and Not-for-Profit Law Section, I am writing to welcome those of you who are new to the Section and to advise all of our Section members of what we can look forward to over the next year.
Join the National Charities and Not-for-Profit Law Section listserv
The National Charities and Not-for-Profit Law Section has a listserv which you are encouraged to join.
November 2009 archive webconference available for purchase
Online PD - The New Canada Not-For-Profit Corporations Law: What will it mean to Your Practice?
Upcoming 2010 National Charity Law Symposium – April 30, 2010
Mark your calendar! This joint program of the Canadian Bar Association’s and the Ontario Bar Association’s Charity and Not-For-Profit Law Sections will bring together leading experts from across Canada to speak about the latest developments in this rapidly changing area.
The new Canada Not-for-Profit Corporations Act
By Linda Godel
Torkin Manes LLP
Bill C-4, the new Canada Not-For-Profit Corporations Act (the “New Act”), provides for the repeal of the Canada Corporations Act (the “CCA”), and will replace Part II of the CCA, which deals with corporations without share capital.
The provisions of the CCA which cover corporations without share capital were first introduced in 1917 and have not been substantively revised since that time. The federal government has been working on replacing the antiquated CCA for over 30 years and the New Act is the eighth attempt at doing so. Although the New Act received Royal Assent on June 23, 2009, it has not yet been proclaimed in force. It is anticipated that the New Act will come into force by January of 2011.
Highlights
Soliciting and non-soliciting corporations
One of the most significant changes from the CCA in the New Act is the introduction of the concept of “soliciting” and “non-soliciting corporations”. In essence, a soliciting corporation will be a corporation that receives public donations or government grants in excess of $10,000. At the end of each financial year, a corporation will need to examine the revenue identified on its financial statements and determine whether or not it is a soliciting corporation. If it is a soliciting corporation, it will need to comply with the provisions of the New Act regarding soliciting corporations beginning at its next annual meeting of members.
Incorporation
The New Act will streamline the incorporation process for not-for-profits by allowing for incorporation by way of right. This process will differ from the CCA where, under Part II, incorporation is achieved by application for, and the discretionary granting of, letters patent. Under the New Act, there will be no need for Industry Canada to approve incorporation. Filing will be able to be made electronically and approval will be automatic as long as the requirements respecting incorporation are followed. New information that will be required in the articles will include the classes or groups of members; the number of directors; and a statement concerning the distribution of assets on dissolution of the corporation.
Capacity and powers
The New Act sets out the capacity and powers of a corporation as being that of a natural person, including the right to buy and sell property, make investments, borrow money and issue debt. It will no longer be necessary for a corporation to pass a by-law to confer a particular power on the corporation or its directors.
Records
Although the records that a corporation will be required to maintain under the New Act are similar to the requirements of the CCA, the New Act provides that directors will have access to all records including accounting records. In addition, members and creditors will have access to the articles, by-laws, minutes of members’ meetings and the registers of directors, officers and debt obligations required to be kept under the New Act. However, only members (and not creditors) will be entitled to see the members’ list and only upon providing a statutory declaration that the list will be used for the purposes permitted under the New Act, namely, for the purpose of influencing the voting of members, requisitioning a members’ meeting and other matters relating to the corporation.
Directors and officers
Currently, there is no standard of care imposed on directors or officers under the CCA. As such, based on the case law, the standard of care has been a subjective one, meaning that each director is assessed on his or her own merits and expertise. The New Act prescribes an objective duty and standard of care for both directors and offices as is the case for business corporations under the Canada Business Corporations Act. The standard set out in the New Act provides that directors and officers will need to act honestly and in good faith with a view to the best interests of the corporation, and to exercise the care, diligence and skill of a reasonably prudent person.
Another change in the New Act is that a corporation will be required to give notice to Industry Canada of a change to its directors or a change in the address of a director within 15 days of such change.
By-laws
Unlike the CCA, the New Act does not require Industry Canada approval of by-laws or amendments to by-laws. Rather, the directors will be able to pass amendments to the by-laws which will have immediate effect. The directors will be required to present such amendments for approval by ordinary resolution at the next meeting of the members. There is an exception in the New Act for by-laws or amendments that constitute a fundamental change, that is, that change the conditions for membership, the rights and conditions of any class of members or notice of or voting at members’ meetings. Such by-laws or amendments are not effective until approved by the members. In either case, corporations will be required to file a copy of its by-laws and any amendments or repeals with Industry Canada.
Financial disclosure and review
Under the New Act, financial statements will need to be prepared in accordance with generally accepted accounting principles and will need to be sent to the members in advance of each annual meeting. If a corporation is a soliciting corporation, it will also need to send a copy of its financial statements to Industry Canada. A corporation will be able to apply to Industry Canada for an exemption from its obligation to disclose its financial statements if it believes that the disclosure could be detrimental to its operations. In addition, the New Act contains five different categories for financial review which are based upon gross annual revenues and whether or not a corporation is a soliciting corporation.
Fundamental changes to articles
Under the New Act, a corporation will be allowed to make fundamental changes to its articles if approved by a special resolution of its members at a meeting called for that purpose. Notable fundamental changes include changing the corporation’s name or the province in which the corporation is registered; adding, changing or removing any restriction on the activities that the corporation may carry on; creating a new class or group of members, changing the designation of any class or group of members, or changing or removing any rights and conditions of any such class or group; and changing a condition required for being a member.
Remedies
Another significant change under the New Act is the introduction of more remedies for members of not-for-profits. Specifically, members (current and former) will be able to avail themselves of the derivative action remedy which means that they will be able to bring an action in the name of the corporation to enforce a legal right which the corporation or its directors have failed to do. In addition, the oppression remedy will be available to members which will give members of a corporation who feel that they have been wronged by the corporation the ability to enforce their rights.
Transition
Upon coming into force, every non-share capital corporation currently governed by Part II of the CCA will have three years to formally make the transition to the New Act. In order to be governed by the New Act, a corporation will have to apply for a certificate of continuance within the three year transition period or face dissolution. The Director will not review or approve by-laws as part of the transition process. If a corporation is dissolved for failure to file the transition articles, it will be eligible for revival under the New Act subject to a prescribed fee. Industry Canada will be issuing policies and guidelines to corporations incorporated under the CCA to assist them with their continuance under the New Act.
Linda Godel’s practice focuses on not-for-profit and charitable organizations.
Ontario’s Good Governance Act includes positive changes for charities
By Susan Manwaring and Kate Lazier
Miller Thomson LLP
On Dec. 15, 2009 Bill 212, the Good Governance Act came into effect. This article summarizes the changes to the Charities Accounting Act, Charitable Gifts Act, Accumulations Act and Religious Organizations Lands Act in the Oct. 27, 2009 draft legislation. Note that the statute as passed made some additional clarifications to these rules.
Ontario’s Good Government Act 2009 introduces changes that update the law as it applies to charities that operate in Ontario and to level the playing field for charities operating in Ontario to be consistent with charities operating in other provinces in Canada.
More particularly, the changes include the following:
- The Accumulations Act is being amended to clarify that the rules of law and statutory enactments relating to accumulations do not apply and are deemed never to have applied to charitable trusts.
- The Bill provides for the repeal of the Charitable Gifts Act. The Charitable Gifts Act has been particularly problematic in that it restricts charities from directly or indirectly owning more than a 10% interest in a business. This rule was quite broadly worded and the language of the statute led to more questions than answers about what it meant for a charity to own a 10% interest in a business. The restriction was outdated and submissions to the Ontario Government had been made for a number of years suggesting that this statute should be repealed. This step is welcome and the government should be applauded for announcing its repeal.
- Bill 212 provides for certain amendments to the Charities Accounting Act. These changes are made as a consequence of the repeal of the Charitable Gifts Act. In particular, the Charities Accounting Act will now contain provisions which will permit the Public Guardian and Trustee of Ontario to make inquiries and require information or documents respecting entities in which an executor or trustee holds a substantial interest. The phrase “executors or trustees” includes directors of any charitable corporation as the Charities Accounting Act defines those individuals to be trustees for the purpose of its administration. In other words, these provisions will allow the Public Guardian and Trustee to ask questions about business interests held by estates or trusts, including those established for charitable purposes. The draft legislation provides that the Public Guardian and Trustee can ask for the business records of the entity, information respecting the assets and liabilities of the entity, accounts of income and expenses for the entity, financial statements of the entity and the particulars of any fees, salary or other remuneration paid to any person by the entity.
The determination of what constitutes a substantial interest is very similar to the determination used by the Income Tax Act for the excess business holdings rules. If the executor or trustee beneficially owns, controls or has direction, either directly or through another entity, over more than 20% of the voting rights, or 20% of the assets of the entity, the Public Guardian and Trustee will be permitted to inquire for the information listed in the section.
Section 4.1 of the Charities Accounting Act will provide that a court will be permitted to make certain orders in the event of application made by the Public Guardian and Trustee after reviewing the information provided. The types of orders that the court may order relate to management operation, ownership or control of the entity and are tied to ensuring that the entity is operating in the best interests of the purpose for which the estate or trust is held. Section 4.1 also provides that anyone who contravenes the section is guilty of an offence and can be liable to a fine not exceeding $25,000.
It should be noted that this provision requires proactive requests for information to be made by the Public Guardian and Trustee. There is no annual requirement to file information about an entity respecting these types in which the estate or trust has a substantial interest. Rather the Act provides the Public Guardian and Trustee with additional tools to obtain information relating to any business in which the charity or estate has a substantial interest. It would be expected that the Public Guardian and Trustee would rely on these rules in situations where it comes to its attention that there is a concern regarding the entity.
- A second proposed amendment to the Charities Accounting Act relates to interests in real or personal property held for a charitable purpose. Historically, the Charities Accounting Act restricted the holding of land by a charity and provided that it could only be held to the extent that it was used for the charitable purposes. That was interpreted to mean that the charity could not own excess land and lease it out. The section is now reworded and no longer provides for vesting in the Public Guardian and Trustee if there is an excess property held. The proposed section provides that a charity that holds an interest in real or personal property shall use the property for the charitable purpose for which it is held.
Questions have already been raised concerning what this new language means and/or how it applies to investment assets of a charity. Will the section be satisfied if the charity can establish that any income derived from excess assets invested is used for charitable purposes. We hope and anticipate that this issue will be clarified by the Public Guardian and Trustee’s office before Bill 212 becomes law.
- Amendments are proposed to the Religious Organization Lands Act which previously restricted the length of a lease of land that a religious organization may enter into. The prior restriction of leasing for no more than 40 years has been removed.
New legislation, when released, often brings with it questions and comments. It is undoubtedly true that there will be some requests for clarification on some of the changes proposed. However, as a general proposition, these changes are relieving and helpful for the charitable sector and are changes which the Ontario Bar Association, Charities and Not-for-Profit Section has been discussing with the office of the Public Guardian and Trustee for a number of years. These changes should be well received and will permit greater flexibility to charities when structuring revenue generating activitiesin the future.
Susan Manwaring is a partner at Miller Thomson. Kate Lazier is an associate at Miller Thomson. This article originally appeared in the December 4, 2009 issue of the Lawyers Weekly published by LexisNexis Canada Inc.
CRA draft guidance on foreign activities
By Andrew Valentine
Miller Thomson LLP
The Canada Revenue Agency (“CRA”) recently released its draft guidance on foreign activities by registered charities (the “Guidance”). The Guidance is designed to replace Guide RC4106 Registered Charities: Operating Outside Canada and the discussion in Registered Charities Newsletter No. 20, which constituted CRA’s published policy on foreign activities. Although the Guidance is not intended to convey a substantially different approach, it provides more detail and clarification on the ways in which Canadian charities can conduct activities outside Canada.
The Guidance confirms that under the Income Tax Act (the “Act”), a Canadian charity must operate (both inside and outside Canada) by carrying on its own charitable activities or by making grants to qualified donees. The majority of the Guidance addresses ways in which charities may carry out activities outside of Canada using intermediaries. The Guidance refers to three decisions of the Federal Court of Appeal which have held that a charity working with an intermediary must always maintain control of the charitable activities carried out on its behalf, and the use of its resources (The Canadian Committee for Tel Aviv Foundation v. Canada, 2002 FCA 72; Canadian Magen David Adom for Israel v. Canada (Minister of National Revenue), 2002 FCA 323; and Bayit Lepletot v. Canada (Minister of National Revenue), 2006 FCA 128.)
The Guidance reviews various approaches which can be used to structure the arrangement between a Canadian charity and its foreign intermediary. In the past, some charities felt that CRA policy was too prescriptive in encouraging charities to operate by way of particular structures, and, specifically, agency relationships. The new Guidance emphasizes that the form of arrangement is less important than the reality of Canadian direction and control over the charitable activity carried on through an intermediary. Thus, the Guidance outlines various forms of intermediary structures (agency relationships, joint ventures, co-operative partnerships and contracts for services) and indicates that the optimal choice for any charity will depend on the facts of any given situation.
The Guidance provides considerable detail on the controls that must be in place in order for an intermediary arrangement to satisfy CRA’s interpretation of the requirement that charities carry out their own charitable activities. CRA states that written agreements establishing the relationship between the charity and the intermediary must be used in most cases, that the agreement must set out a detailed description of the project to be carried out by the intermediary, that provision must be made for monitoring and supervision over the activities by the Canadian charity, and that the Canadian charity must be able to provide ongoing instruction and have authority to stop making transfers of funds to the intermediary if it is not satisfied that the funds are being applied properly. The Guidance also requires that the Canadian charity receive regular reporting from the intermediary, and that it must maintain copies in Canada of books and records that will allow CRA to verify that the charity’s funds are being spent on its own activities, and that the charity is exercising direction and control over the use of its resources. Although recent case law suggests that it should be sufficient for a charity to have electronic access to records kept on servers outside Canada (eBay Canada Ltd. v. Canada (National Revenue), 2008 FCA 348), it appears that CRA will continue to insist that physical copies of the records be kept within Canada.
Over all, the Guidance provides helpful clarification on CRA’s administrative requirement for foreign activities. However, arguably, CRA’s requirements to demonstrate direction and control exceed what is legally required to meet the “own activities” requirement under the Act. Once an agency relationship is established, for example, then at law the actions of the agent are the actions of the principal, regardless of whether additional controls are in place. Furthermore, although it is certainly reasonable for CRA to seek assurance that Canadian funds are being used for charitable activities, and are not channelled through Canadian conduits to parties such as terrorist organizations, it is possible to achieve these objectives without the rules currently enforced by CRA. Indeed, it should be possible for the Canadian charity to allow for some discretion on the part of a trusted intermediary to determine the best way of carrying out a project, given that the intermediary will generally have better familiarity with conditions and circumstances “on the ground” in a foreign country. Other developed countries – the U.S., for example – permit transfers of funds by domestic charities to foreign intermediaries upon obtaining reasonable assurances that the funds will be used for charitable purposes. It may be hoped that CRA relaxes some of its more restrictive policies regarding the control that must be demonstrated by Canadian charities over foreign intermediaries.
The Guidance confirms that CRA continues to apply what has been referred to as the charitable goods policy – CRA will permit goods which can reasonably only be used in charitable activities to be transferred to a suitable trustworthy intermediary without the usual indicia of direction and control (although written agreements providing for reporting are still recommended).
There are some notable omissions from the Guidance. It makes no mention of sub-agency arrangements, despite their common use in the foreign activities context. CRA has generally accepted such arrangements, provided that appropriate controls are in place, and it would be helpful for CRA to acknowledge these arrangements and provide some guidance on the documentation of these structures.
The Guidance also deals only very briefly with microfinance projects — an evolving and increasing popular form of assistance to communities in developing countries — and mostly by reference to an older CRA policy on community economic development (Canada Revenue Agency, Guide RC4143 Registered Charities: Community Economic Development Programs). The older policy generally limits micro-enterprise loans to $10,000 and requires that the loan be made directly by the charity. In many countries, such micro-finance lending is now considered “banking” and requires a banking licence and significant capital — something which the prohibition on program-related investments restricts a Canadian charity from carrying out. It would be preferable for the Guidance to update this policy, and permit Canadian charities to make capital loans or investments to pre-existing entities in foreign countries (non-qualified donees) which have the experience and the infrastructure in place to ensure that program related investments are used efficiently and effectively and only for charitable purposes.
The consultation period for the new Guidance ended on September 30, 2009. It thus remains to be seen what shape the final Guidance will take. The Guidance is welcome for the additional clarity it provides regarding CRA policy on foreign activities, and it is hoped that with the addition of new discussions in the Guidance to cover the omissions in the current draft, as well as a relaxation of some of the more restrictive policies regarding the demonstration of direction and control, charities will find it easier to comply with their obligations under the Act when carrying on charitable activities outside Canada.
Andrew Valentine is an associate at in the charities and not-for-profits group at Miller Thomson.
Improved CRA fundraising guidance still poses challenges
By Terrance S. Carter
Carters Professional Corporation
On June 11, 2009, the Charities Directorate of the Canada Revenue Agency (“CRA”) released its much anticipated Guidance (CPS-028): Fundraising by Registered Charities (the “Guidance”). The Guidance, which includes an additional 23 pages to elaborate on the Guidance (the “Additional Information”), replaces CRA’s previous policy on fundraising (CPS-001), entitled “Applicants that are Established to Hold Periodic Fundraisers.”
CRA previously released draft versions of the Guidance and Additional Information entitled “Consultation on Proposed Policy on Fundraising by Registered Charities” and “Background information for Proposed Policy on Fundraising by Registered Charities” in March and June of 2008, respectively, (collectively the “Proposed Policy”). As such, the Guidance has been in refinement for over a year. Given the importance of fundraising to the charitable sector, its release has been closely followed by most stakeholders. However, while the Guidance represents an improvement over the Proposed Policy, it will likely prove challenging for most charities to comply with and, as such, it will be important for practitioners to be familiar with the terms of the Guidance.
B. Key features of the guidance
1. Fundraising in the charitable context
At the outset, the Guidance explains that if a fundraising activity is appended to another activity that is directed at achieving a charitable purpose, the charity may, under certain specified situations, allocate the costs between fundraising and charitable expenditures. The Guidance goes on to explain, however, that in addition to having to comply with the terms of the Guidance, charities must also meet all other requirements of the Income Tax Act, such as its annual disbursement quota. While this fact is not a change in CRA’s position, it had not been expressly stated in the Proposed Policy, which might otherwise have led to confusion between the need to comply with statutory disbursement quota requirements and fundraising expenditure requirements in the Proposed Policy.
2. Definition of fundraising and other terms
The Guidance explains that as a general rule, fundraising constitutes any activity related to a solicitation of support; either carried out by the charity or by another party acting on the charity’s behalf, but does not include requests for funding from governments or from other registered charities. This means that not only are the costs associated with such requests not included in the fundraising expenses, but the resulting income from government and other charities is also not included in the income with regards to the fundraising ratio explained below.
3. Prohibited fundraising conduct
The Guidance outlines four types of prohibited conduct related to fundraising, these being fundraising that (A) is illegal or contrary to public policy; (B) is a main or independent purpose of the charity; (C) results in more than an incidental or proportionate private benefit to individuals or corporations; and (D) is misleading or deceptive.
4. Allocation of fundraising expenditures
A registered charity must report all fundraising expenditures in its T3010B annual information return. However, an activity does not have to be included as a fundraising expenditure if it can be demonstrated that “the activity would have been undertaken whether or not it included a solicitation of support.” There are two methods by which this can be demonstrated: (1) the “Substantially All Test,” such that the charity does not have to report any of the costs of the activity as fundraising expenditures; or (2) the “Four Part Test,” which allows the charity to allocate a portion of the costs as non-fundraising expenditures. However, charities will likely find some aspects of the “Four Part Test” to be unusually complex, as at least one of the four part tests involve multiple layers of questions.
5. Evaluation of fundraising activities
The previous rigidity and arbitrariness of using five fixed-percentage ranges as an initial determination tool was a major subject of criticism of the Proposed Policy, whereas the Guidance establishes a far more flexible approach. In this regard, the Guidance introduces the following revised fundraising ratios.
- Under 35% - Unlikely to generate questions or concerns.
- 35% and above - CRA will examine the average ratio over recent years to determine if there is a trend of high fundraising costs. The higher the ratio, the more likely it is that a more detailed assessment of expenditures will be required.
- Above 70% - The charity will be required to provide an explanation and rationale for this level of expenditure to show that it is in compliance; otherwise, it will not be acceptable.
In addition, the Guidance sets out a number of factors that are to be considered in the evaluation of fundraising activities, as well as a series of “best practices” and “areas of concern” that can be considered by CRA.
C. Areas of continuing concern
While the Guidance constitutes a noticeable improvement over the Proposed Policy, charities and their professional advisors should be aware that many of the concerns about the Proposed Policy that were raised during the public consultation phase continue to be found within the Guidance. Some of those concerns are outlined below.
- While the language has been simplified and the length reduced, the substantive concepts from the Proposed Policy remain largely unchanged, such that the Guidance still constitutes a complex document that could prove difficult for charities to fully understand and implement.
- The more flexible and open-ended approach to evaluating fundraising activity is certainly an improvement over the Proposed Policy. However, many of the factors and criteria in the Guidance continue to be open to subjective interpretation. As such, there will likely be variations and inconsistencies in the interpretation of the Guidance by charities and their professional advisors, as well as by CRA auditors.
- Although the “best practices” and “areas of concern” are not requirements that must be followed by charities, some of those recommendations may prove challenging for charities to comply with. Specifically, the Guidance emphasizes the importance of public disclosure and transparency regarding the cost of fundraising activities. While there is no disagreement that transparency in and disclosure of fundraising costs is important, the extent of the expectation placed on charities by the Guidance may result in some charities having difficulty in attracting donors when it is necessary for the charity to disclose the estimated fundraising costs and revenues of its annual budget when asking for a donation from a prospective donor.
- Due to the time delays that often occur in fundraising campaigns from the time donations are requested to when donations are received, it would have been preferable if CRA had used a rolling average (e.g. over several years) as the basis for evaluation instead of on a single fiscal year basis.
D. Concluding comments
While the Guidance is clearly a marked improvement over the Proposed Policy, it will likely prove to be a challenging document for charities and their professional advisors to work with. As a result, it may take the charitable sector some time to fully comprehend its implications. Given that the Guidance is only intended to constitute a clarification of CRA’s position on fundraising, the Guidance will apply to audits in both future and past years. As such, it is important that all registered charities which depend on fundraising, together with their staff, board members and professional advisors, become familiar with the content of the Guidance. The ability of a charity to retain its charitable status in the future may very well depend on whether it can show that it has made reasonable efforts to meet the requirements of the Guidance.
For a more detailed commentary on the Guidance, see Terrance S. Carter, “The Revised CRA Guidance On Fundraising: Improved But Still Challenging” Charity Law Bulletin 169 (25 June 2009).
Terrance S. Carter is a Managing Partner at Carters Professional Corporation.
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Balancing religious charities and individual rights: Thoughts from England
By Kathryn Chan
Benefic
Many of us, especially those of us educated during the rise of the Canadian Charter and of same-sex rights, remember well the news that headlined every major Canadian paper on May 10, 2002: Marc Hall and his boyfriend were going to the Prom. Hall, a senior student at Monsignor John Pereyma Catholic Secondary School, had originally been denied permission to attend the event with his boyfriend by his school principal, on the basis that allowing the young men to attend Prom as a same-sex couple would endorse conduct which was “contrary to Catholic Church teachings” (Hall (Litigation Guardian of) v. Powers (2002), 59 O.R. (3d) 423 (S.C.J.) at para. 4 [Hall]). When the Durham Catholic District School Board upheld the principal’s decision, Hall sought, and obtained, an injunction to ensure his attendance at the Prom, and trial court declarations that his Charter rights had been violated. This decision, and the more recent Christian Horizons decision of the Ontario Human Rights Commission, have raised many questions about the extent to which religious charities must modify their policies and practises to take account of individual rights.
The inherent tension between individual and institutional rights in general, and between the rights of homosexuals and Catholic institutions in particular, has also surfaced in England, and right in the heart of the charitable world, in the case of Catholic Care (Diocese of Leeds) v The Charity Commission for England and Wales decision (2 June 2009).We would be well-advised to keep a close eye on the English proceedings, I believe, as we consider how best to address these acknowledged tensions in our own country without causing undue harm to either the charitable sector or individual rights.
Catholic Care (Diocese of Leeds) was a religious charity that provided adoption services for hard-to-place children. It had a long-standing, doctrinally based policy of never providing adoption services to homosexuals. In 2007, that policy was made illegal by the enactment of the UK Equality Act (Sexual Orientation) Regulations 2007.
Catholic Care applied to the Charities Commission for England and Wales for consent to amend its objects, in order to bring itself within a regulatory exemption for charities that provide “benefits” only to persons of a particular sexual orientation...on the grounds of the provisions of a charitable instrument (Equality Act (Sexual Orientation) Regulations 2007, Regulation 18). The Commission refused to allow the amendment, holding that the “beneficiaries” envisaged by the regulations were the children adoptees, not the prospective parents, so that the exemption did not cover Catholic Care.
The charity’s appeal to the Charity Tribunal was equally unsuccessful, for while the Tribunal had a broader view of the “benefits” a charity might provide, it concluded that regulation 18 permitted charities to discriminate on grounds of sexual orientation only where such discrimination was “within the realm of pure charitable activity”, and “not otherwise unlawful” (Catholic Care Preliminary Decision, para. 18). In its view, Catholic Care’s publicly funded adoption services did not meet that test.
The Catholic Care decision reflects a specific (and somewhat complex) legislative instrument that has no direct parallel in Canada. Nonetheless, a number of points are worthy of note. The first is that the Equality and Human Rights Commission was an active participant in the proceedings, arguing not only that the regulatory exemption should be interpreted narrowly, but also that any organization which discriminated on grounds of sexual orientation would not pass the public benefit test and so could not be a charity at all (par. 70).
The second is that the appeal was apparently time-consuming and costly, leading to accusations that the new Charity Tribunal procedure is neither more efficient nor more cost-effective that a judicial appeal. The third interesting point is that the Charity Tribunal specifically invited Catholic Care to suggest ways that it could act in compliance with the Tribunal’s views of the regulations, including, for instance, by running their services without reliance on public funds, or by carrying out solely counselling activities. Catholic Care refused this offer, preferring to fight the principle of the matter in an appeal to the High Court. As we await the final outcome of the Christian Horizons litigation in our own country, we can keep one eye abroad, to see how the English appeal turns out.
Kathryn Chan is a lawyer at Benefic, currently studying at Oxford, England.
Concept paper on reform of the disbursement quota regime
The National Charities and Not-For-Profit Law Section of the Canadian Bar Association has for many years raised concerns on the provisions of the Income Tax Act relating to the disbursement quota and the difficulties it has posed for charities and not-for-profit organizations.
These concerns range from the complexity of the provisions to the challenges encountered by small and rural charities that operate primarily with donor funds. In addition the provisions are of less relevance to large charities that are primarily government-funded.
The attached Concept Paper was undertaken with a view to provide constructive suggestions for reviewing s. 149.1 of the Act. The CBA Section has identified the government’s policy objectives and suggests different mechanisms for their pursuit. The Concept Paper was forwarded to the Standing Committee on Finance as part of its 2009 pre-budget consultations by Imagine Canada. The Committee was urged to eliminate the disbursement quota because it is confusing, requires inordinate amout of time to understand and implement, is unduly complex, and makes arbitrary and escessive demands that ignore the realities of the investment market. The Committee released its report on Dec. 9, 2009, but the report made no recommendation with respect to the reform of the DQ regime. The Report did recognize the submissions made regarding the need to either reform or eliminate the DQ.
The attached paper was undertaken with a view to provide constructive suggestions for reviewing s. 149.1 of the Act. The Section has identified the government’s policy objectives and suggests different mechanisms for their pursuit.
Read the concept paper 
Message from the Chair
By Terrance S. Carter
Carters Professional Corporation
As the new Chair of the Charities and Not-for-Profit Law Section, I am writing to welcome those of you who are new to the Section and to advise all of our Section members of what we can look forward to over the next year.
The Executive Committee of our Section, consisting of 27 members from across Canada, has already been active in addressing a number of issues that are of concern to our members. Specifically, in early October 2009, the Executive Committee approved a submission to Canada Revenue Agency (“CRA”) in response to the Draft CRA Guidance on Charities Operating Outside of Canada. As well, in July of 2009, the Executive Committee approved the submission of a concept paper to both CRA and the Department of Finance concerning possible reform to the Disbursement Quota Regime. These are substantive examples of the proactive initiatives that our Section has taken to date and will continue to do over the next year.
In addition, the Executive Committee will seek to review issues of interest to practitioners working with not-for-profit organizations as we broaden the mandate of our Section. More information in this regard will be forthcoming.
As well, planning is near completion with regards to the annual CBA/OBA Charity Law Symposium to be held in Toronto on April 30, 2010. More information concerning the excellent line up of speakers and topics will be available in the near future.
One of the objectives that the Executive Committee of our Section has set for this year is to encourage more participation from our members. The increase in the number of members on the Executive Committee is evidence of this commitment. If you would like to become more involved in the Section in the future, you may want to give consideration to joining the Executive Committee when it becomes open for membership again in July 2011.
As Chair, I will endeavour to keep all of our members across Canada up to date on developments in our Section and in this regard will provide further reports in further issues of our Section Newsletter. Finally, I’d like to take this opportunity to encourage all members to contribute to the newsletter, as we are always looking for new materials.
Terrance S. Carter is a Managing Partner at Carters Professional Corporation.
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National Charities and Not-for-Profit Law Section Listserv
The National Charities and Not-for-Profit Law Section has a listserv which you are encouraged to join. A listserv is a discussion group that comes to you through your e-mail! Listservs, or e-mail lists, allow you to interact with many people simultaneously and are a convenient way for members to share information, pass on client referrals, and to ask or answer questions.
Section members can join the listserv online at: http://www.cba.org/CBA_listservsEnrolment/Enrolment.aspx.
** In order to join a listserv you must be a member of the relevant CBA Section. Please contact your Branch if you wish to join the National Charities and Not-for-Profit Law Section.**
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November 2009 archive webconference available for purchase
Online PD - The New Canada Not-For-Profit Corporations Law: What will it mean to Your Practice?
Author(s): Wayne D. Gray, David P. Stevens
Description: A first in Canadian law, federal legislation designed to streamline the regulatory burden on Canada's not-for-profit sector, and to promote modern standards of accountability, transparency and good corporate governance is expected to be proclaimed in force in 2010. The Canada Not-for-Profit Corporations Act is aimed at enabling organizations to incorporate faster, improving financial accountability, clarifying the roles and responsibilities of directors and officers, among other improvements.
Purchase the archive presentation.
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2010 National Charity Law Symposium
Friday, April 30, 2010
8:00 a.m. – 5:00 p.m.
The Toronto Marriott Downtown Eaton Centre Hotel, Toronto.
Co-Chairs:
Terrance S. Carter, Carters Professional Corporation, Orangeville, ON
Linda J. Godel, Torkin Manes LLP, Toronto, ON
Mark your calendar! The Annual National Charity Law Symposium returns in the spring of 2010. This joint program of the Canadian Bar Association’s and the Ontario Bar Association’s Charity and Not-For-Profit Law Sections will bring together leading experts from across Canada to speak about the latest developments in this rapidly changing area. Refreshers on key issues affecting charities in Canada will also be addressed.
Get the lowdown on the new Canada Not-For-Profit Corporations Act. Understand "new" and "unusual" gifts. Explore strategies for audits and appeals. Discuss considerations involved with the return of a gift. Listen to new thoughts on administrative and cy-pres judicial scheme-making. Delve into environmental issues under the fourth head of charity. Follow up on Canada Revenue Agency’s Guidance on Activities Outside of Canada.
Plus, get an exclusive update direct from the Canada Revenue Agency on current issues impacting your clients.
Speakers include:
- Donovan Waters, Horne Coupar, Vancouver
- James Parks, Cassels Brock & Blackwell LLP, Toronto
- Elena Hoffstein, Fasken Martineau DuMoulin LLP, Toronto
- Robert Hayhoe, Miller Thomson LLP, Toronto
- Karen Cooper, Carters Professional Corporation, Ottawa
- Cathy Hawara, Acting Director General, Charities Directorate, Canada Revenue Agency, Ottawa
- …and many more
Don’t get caught unprepared – mark your calendars today!
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