CANADIAN LEGAL CONFERENCE 2012

1. CANADIAN LEGAL CONFERENCE 2012 CHARITIES, NOT-FOR-PROFIT ORGANIZATIONS AND SOCIAL ENTERPRISE SOME ISSUES TO CONSIDER

2. GENERAL Is the social enterprise: • A for profit organization? Regular Income Tax rules apply 2. A not-for-profit organization? Special Income Tax Act sections apply 3. A registered charity? Special Income Tax Act provisions apply

3. NOT-FOR-PROFIT (NFP) ORGANIZATION subsection 149(1)(l) of the Income Tax Act • It is not a charity, • It is organized exclusively for social welfare, civic improvement, pleasure, recreation or any other purpose except profit, • It is in fact operated exclusively for the same purpose for which it was organized or for any other purpose in (b), and • It doesn’t distribute income to members.

4. NFP SOCIAL ENTERPRISE CAUTION • If the social enterprise is structured such that the activities can be described as follows, then may not be tax exempt under s. 149(1)(l): • Intentionally making profit from activities with non- members • Making income payable or otherwise available to the personal benefit of members • Earning profits from business lines

5. A REGISTERED CHARITY • CRA’s Guide CG 014 “Community Economic Development Activities and Charitable Registration” • CRA’s policy statement CPS-019 “What is a Related Business?”

6. REGISTERED CHARITY SOCIAL ENTERPRISE CAUTION • Charitable organizations, public foundations and private foundations are prohibited from carrying on any unrelated business • Charitable organizations and public foundations can carry on related business

7. Is the social enterprise of a charity a business? Q: Is the social enterprise commercial? Q: Does the charity intend to profit from the social enterprise? • If no to either question: the social enterprise is not a business.If yes to both questions: Q: Is the social enterprise simply the sale of donated goods? • If yes: the social enterprise is not a business.If no: Q: Is the social enterprise carried out on a systematic, regular basis? • If no: the social enterprise is not the carrying on of a business.If yes: the social enterprise is the carrying on of a business.

8. Is the social enterprise of a charity an unrelated business? Q: Is the social enterprise of a charity an unrelated business? Q: Are substantially all the people running the social enterprise volunteers? • If yes: the charity is carrying on a related business.If no: Q: Is the social enterprise linked to the charity's purpose? • If no: the charity is carrying on an unrelated business.If yes: Q: Are the business activities subordinate to a dominant charitable purpose? • If no: the charity is carrying on an unrelated business.If yes: the charity is carrying on a related business.

9. OTHER CONSIDERATIONS: • Governance documents/legislation • Fundraising legislation • Disbursement quota requirements • Private foundations cannot engage in any business activities and are subject to excess corporate holding rules requiring public disclosure over 2% and divestment over 20%

10. Social Enterprise using Intermediary Entities • Financial Separation • Separate boards (not controlled by board of non-charity) • Distinctive names • Separate equipment, personnel and space • Legal agreements between entities