M I L L E R T H O M S O N LLP Barristers & Solicitors, Patent & Trade-Mark Agents

1. Cross-Border Legal and Tax Issues for MinistriesRobert B. Hayhoerhayhoe@millerthomson.ca416.595.8174Canadian Council of Christian CharitiesSeptember 2003 Annual ConferenceMississauga, Ontario M I L L E R T H O M S O N LLP Barristers & Solicitors, Patent & Trade-Mark Agents

2. International Ministry Scenarios MILLER THOMSON LLP

3. International Ministry Scenarios MILLER THOMSON LLP

4. International Ministry Scenarios MILLER THOMSON LLP

5. Canadian Background • Any foreign charity can fundraise in Canada • Only donations to “qualified donees” result in a Canadian individual tax credit/corporate tax deduction • exceptions in Canada US tax treaty • US college attended by a family member • donations to US charities tax-recognized against Canadian taxes on US-source income MILLER THOMSON LLP

6. Qualified Donees • Canadian Registered Charities • UN and UN agencies • Crown (Canadian federal or provincial government) • Foreign charities with Canadian government patronage • Prescribed foreign universities customarily attended by Canadians MILLER THOMSON LLP

7. Registered Charity • Income Tax Act definition of “registered charity” • corporation, trust or association with charitable purposes • must be both: • “resident in Canada”; and • “created or established in Canada” • Therefore non-Canadian charities cannot become registered charities MILLER THOMSON LLP

8. Establishment of Registered Charity • Create Canadian legal entity • majority Canadian board • Canadian residence requirement • Apply for registration with Canada Customs and Revenue Agency • T2050 form MILLER THOMSON LLP

9. Grants by Registered Charities • Registered charities • must devote their resources to their own charitable activities, or • make grants to qualified donees • Canadian Registered charities may not make grants (gifts) to foreign charities • explicit grounds for revocation of registration MILLER THOMSON LLP

10. Consequences of Revocation of Charitable Registration • No intermediate sanctions in Canada • Loss of tax exempt status • Loss of tax recognition for donors • Imposition of penalty tax equal to 100% of charity’s assets • capital punishment • Two recent high profile revocations • Canadian Magen David Adom for Israel MILLER THOMSON LLP

11. Foreign Activities by Registered Charities • Canadian registered charities can operate anywhere in the world • consistent with charitable purposes • mission activities are just as charitable in Nairobi or Dallas as in Toronto • Direct foreign activities • local or Canadian employees MILLER THOMSON LLP

12. CCRA Approach to Foreign Activities • Formerly very flexible • Now increasingly complex and stringent • RC 4106 “Registered Charities Operating Outside Canada” • T3010 annual return questions • T2050 application for registration questions • significant audit attention MILLER THOMSON LLP

13. Indirect Foreign Activities by Registered Charities • Always subject to “own activities” test • RC 4106 “Registered Charities Operating Outside of Canada” • need binding written agreements • agency/joint ministry arrangements MILLER THOMSON LLP

14. Joint Ministry Agreement • Core elements: • pooling of resources for common project • requires decision-making structure • Canadian votes proportional to monetary contribution • joint liability • stringent recordkeeping requirements • term and termination MILLER THOMSON LLP

15. U.S. Perspective on Joint Ministry Agreements • Some US lawyers believe that “Joint Venture” terminology suggests a separate entity under US law and may create additional tax and liability issues • agreements must be drafted carefully to reduce this concern MILLER THOMSON LLP

16. Agency Agreement • Principal (Canadian charity) hires agent (foreign charity) to complete some task • Project choice is made by principal • Operational decisions can be made by agent • Liability flows from agent to principal MILLER THOMSON LLP

17. Fee for Service • Canadian charity may hire foreign charity for specific services • missionary training • evacuation facilities • supervision of short terms teams • Need invoices • Need prior written contract unless nominal amount (under $5,000 per year) MILLER THOMSON LLP

18. Recordkeeping • Registered charities must keep records in Canada to show charitable nature of all activities • Foreign indirect activities: • agency or joint venture agreement • operational reports • financial reports (with backup) • segregated bank accounts for agents MILLER THOMSON LLP

19. Choice of Arrangement • Multi-Lateral Integrated Ministry • joint ministry arrangement • may be limited to Canadian participation • Multi-Lateral Partitioned Ministry • joint ministry arrangement possible • agency arrangement preferred MILLER THOMSON LLP

20. Choice of Arrangement • Canadian Funding of U.S. Based Ministry • joint ministry arrangement possible • agency arrangement preferred MILLER THOMSON LLP

21. Anti -Terror Law in Canada • Post 9/11/01 Bill C-36 • Refuse or revoke charitable registration for: • making any resources available to a terrorist organization (directly or indirectly) • secret appeal process • CCRA initially targeting specific Islamic terrorist fundraising charities, not aid or mission agencies MILLER THOMSON LLP

22. Key General Legal Issues • Allocation of liability risk should be carefully considered: • activities conducted as an independent contractor • activities conducted as an agent • activities conducted “jointly” • insurance coverage • indemnification MILLER THOMSON LLP

23. General Legal Issues • Immigration Law • visa requirements for ministry staff transfers • NAFTA • Intellectual property law • possible to deal with trademark licensing issues to confirm ownership of names • website integration issues • Real and personal property MILLER THOMSON LLP

24. Recommended Approach • Ministry structure should be driven by institutional values (not Canadian tax law) • Limit overhead and extraneous processes • An ignored arrangement is an admission of wrongdoing • Canadian legal compliance is a spiritual obligation of Canadian ministries MILLER THOMSON LLP

25. Cross-Border Legal and Tax Issues for MinistriesRobert B. Hayhoerhayhoe@millerthomson.ca416.595.8174Canadian Council of Christian CharitiesSeptember 2003 Annual ConferenceMississauga, Ontario M I L L E R T H O M S O N LLP Barristers & Solicitors, Patent & Trade-Mark Agents