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Related Business & Fundraising

Related Business & Fundraising. Related Business. The Income Tax Act Case law - Alberta Institute & Earth Fund Cases Broad definition of a Business “Related Business” Charitable Programs vs. Business Investments and Income from Property Fundraising Useful Links. A) Income Tax Act.

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Related Business & Fundraising

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  1. Related Business & Fundraising

  2. Related Business • The Income Tax Act • Case law - Alberta Institute & Earth Fund Cases • Broad definition of a Business • “Related Business” • Charitable Programs vs. Business • Investments and Income from Property • Fundraising • Useful Links

  3. A) Income Tax Act 149.1 (1) Definition of related business • 149.1 (2) (a) Revocation of a Charitable Org. • 149.1 (3) (a) Revocation of a Public Foundation • 149.1 (4) (a) Private Foundation may not carry on any business activity • 149.1(6)Charitable org. can carry on related business as a charitable activity

  4. A) Income Tax Act “Carrying on a business” “Substantially all” = approximately 90%

  5. B) Case law: Alberta Institute • Key Facts • Fundraising was sole activity • Formal objects included power to raise funds • Contract with Value Village Stores Ltd. • AIMR used paid staff to solicit/collect used goods • VVS guaranteed income • VVS covered all AIMR’s expenses • AIMR Transferred all income to charities

  6. B) Case law: Alberta Institute • Majority Decision • The power to raise funds is a charitable object “Destination of funds” • Involvement with VVS merely incidental • Simply a conversion of goods into money • The question as to whether this was a ‘related business’ was not ruled upon

  7. B) Case law: Alberta Institute • Dissent • AIMR is carrying on a business activity • “Destination of funds” not sufficient • Apply Decision only to same fact situations

  8. B) Case law: Earth Fund • Key Facts: • Fundraising sole activity • Formal objects included power to raise funds by any means including the operation of a lottery • Earth Fund transferred all net income to environmental charities

  9. B) Case law: Earth Fund • Unanimous decision: • All objects and activities must be exclusively charitable. • The conversion of donated assets to cash is not a business activity. • The operation of a lottery is a business activity. • A business is not necessarily “related” even if all of the profits of the business are dedicated to the organization’s charitable objects.

  10. C) Broad Definition of a Business • Business involves commercial activity undertaken with the intention to earn profit • Commercial activity is deriving revenues from providing goods or services

  11. D) “Related” Business • Linked to a charity’s purpose and subordinate to that purpose • Run substantially by volunteers

  12. D) Related Business: Linked to a Charity’s Purpose Complementary and ancillary to the conduct of charitable activities • Usual and necessary concomitant of charitable purposes • Off-shoot of a charitable purpose • Use of excess capacity • Sale of items that promote the charity or its objects

  13. D) Related Business: Linked to a Charity’s Purpose • Must be subordinate to the charities purposes. • Cannot become an end in and of itself

  14. D) Related Business: Linked to a Charity’s Purpose • 4 factors that determine that a commercial activity is subordinate to the charitable purposes: • the business activity receives a minor portion of the charity’s attention and resources • The business is integrated into the charity’s operations, rather than acting as a self-contained unit • The organization’s charitable goals dominate its decision making • No element of private benefit

  15. E) Charitable Programs vs. Business • Many charitable programs have fees • Charitable services through enterprises that would be taxable business if they were for-profit • Community Economic Development Program • Thrift Shops • Training Businesses

  16. F) Investments and Income from Property • 248 (1) Not investment income: • rentals • royalty income • Unless undertake an investment business • See CPC-023 • See Church of Christ Development v. MNR and Re Centenary Hospital

  17. G) Fundraising • Commercial activities of a limited duration • Fundraising not to assume a separate, non-charitable purpose in their own right

  18. G) Fundraising: professional fundraisers and costs of fundraising • Costs/fees must remain reasonable • Must be clearly for the benefit of the charity in order to accomplish its charitable purposes • Have to ensure to meet DQ

  19. G) Fundraising:3rd party fundraisers - Requirements • Maintain control over all monies earned • Ensure receipting is done properly • Written agreement

  20. H) Useful references • T4063    Registering a Charity for Income Tax Purposes: www.cra-arc.gc.ca/E/pub/tg/t4063 • RC 4108 Registered Charities and the Income Tax Act: www.cra-arc.gc.ca/E/pub/tg/t4108 • RC4143 Registered Charities: Community Economic Development Programs: www.cra-arc.gc.ca/E/pub/tg/rc4143 • CPS-019 What is a Related Business www.cra-arc.gc.ca/tax/charities/policy/cps/cps-019-e.html • CSP–B02 Policy Statement on Related Business www.cra-arc.gc.ca/tax/charities/policy/csp/csp-b02-e.html • CSP–R05 Policy Statement on Related Business www.cra-arc.gc.ca/tax/charities/policy/csp/csp-r05-e.html

  21. H) Useful references • CPC–002 Whether it is acceptable for a public foundation to operate a business on behalf of a related charitable organization: www.cra-arc.gc.ca/tax/charities/policy/cpc/cpc-002-e.html • CPC–023 Whether the management of an investment portfolio constitutes a business activity: www.cra-arc.gc.ca/tax/charities/policy/cpc/cpc-023-e.html • CPS–001 Applicants that are established to hold periodic fundraisers: www.cra-arc.gc.ca/tax/charities/policy/cps/cps-001-e.html • CPC–026 Third party fundraisers for a particular charity: www.cra-arc.gc.ca/tax/charities/policy/cpc/cpc-026-e.html • CSP-F14 Professional Fundraisers: www.cra-arc.gc.ca/tax/charities/policy/cpc/cpc-026-e.html • CPS-020 Applicants that are established to relieve poverty by providing rental housing for low income tenants: www.cra-arc.gc.ca/tax/charities/policy/cps/cps-020-e.html

  22. H) Useful references • CSP-F14 Professional Fundraisers: www.cra-arc.gc.ca/tax/charities/policy/cpc/cpc-026-e.html • CPS-020 Applicants that are established to relieve poverty by providing rental housing for low income tenants: www.cra-arc.gc.ca/tax/charities/policy/cps/cps-020-e.html Caselaw: • Alberta Institute on Mental Retardation v. M.N.R., [1987] F.C. 286 • Earth Fund v. Canada (Minister of National Revenue) (2002FCA 498) 2002-12-16 (www.fca-caf.gc.ca/index_e.shtml)

  23. H) Useful links • Help line: (800) 267-2384 • CCRA Web site: www.cra-arc.gc.ca/tax/charities/ • Mail: Charities Directorate Canada Revenue Agency Ottawa ON K1A 0L5

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