Charities Directorate Charities Information Sessions 2009

1. Charities DirectorateCharities Information Sessions 2009 Children’s International Summer Villages Fredericton, NB November 13, 2009

2. Agenda • Overview of the Charities Directorate & the Voluntary Sector • Gifting and Receipting • Amendments to Name, Fiscal Period and Designation • Seeking and Maintaining Charitable Registrations • Fundraising • The Registered Charity Return: Introducing the new T301B (09)

3. Charities DirectorateCharities Information Sessions 2009 Overview of the Charities Directorate and the Voluntary Sector

4. Regulation of the Charitable Sector Key Players • The Canada Revenue Agency • Administers the provisions of the Income Tax Act relating to: • registered charities; • registered Canadian amateur athletic associations; • registered national arts service organizations; and • Charities Registration (Security Information) Act. • The Department of Finance • Is responsible for the Income Tax Act and its related regulations. • The Courts • We rely on the common law and the decisions of the courts to administer the provisions of the Income Tax Act and to interpret the meaning of charitable.

5. Overview of the Voluntary Sector • Voluntary sector includes both non-profit organizations and registered charities. • Voluntary sector organizations operate in a wide variety of areas such as the arts and culture, sports and recreation, education, health and social services, religion, human rights, social justice and environmental protection. • 161,000 organizations in the non-profit sector.

6. Overview of the Voluntary Sector Key Statistics: • $10 billion in donations • 2.1 billion hours of volunteer time • Almost 23 million donors • 11.8 million volunteers • Over 2 million full-time equivalent workers • 870,000 unincorporated community organizations • 84,723 registered charities

7. Overview of Registered Charities in Canada

8. Overview of the Charities Directorate’s Web Site • Redesigned Web site – (www.cra.gc.ca/charities) • Main topics and tools • Operating a registered charity section • Outreach and Communications section • Forms and Guides (fillable and now saveable) • Charities Listing – Examples • What’s New • Electronic Mailing List (EML) • My Business Account for charities

9. New and On-Going Initiatives in the Charities Directorate • Webinars • Are in response to one of the SARC initiative recommendations. • Were launched in February 2009 and will continue until June 2010 as a pilot project. • Are hour-long interactive online presentations with question periods similar to Charities Information Sessions. • Some recorded webinars are converted into webcasts to have them available for viewing at any time. • For more information, visit www.cra.gc.ca/tx/chrts/cmmnctn/wbnrs/menu-eng.html

10. Reminder Don’t forget to register to our Electronic Mailing List at: www.cra.gc.ca/esrvc-srvce/mllst/sbscrbchrts-eng.html We strongly encourage you to register today. It only takes a few minutes!

11. Charities DirectorateCharities Information Sessions 2009 Gifting and Receipting

12. Definition of a Gift • Conditions for a gift are: • Voluntary - given of free will • Transferred - from a donor to a registered charity or other qualified donee • Property - cash or gifts in kind • Note: • A charity can issue a receipt for the eligible amount of the gift. • Services are not property and therefore are not considered a gift.

13. Receipting • ABC landscaping cuts the lawn of a charity: • Each visit is worth $150. • ABC cuts the lawn 20 times over the season. • At the end of the season, the owner of ABC says “just give me a tax receipt for $3,000”. Can the charity give ABC a receipt for $3,000? • No, cutting the grass is a service not a transfer of property. (ABC could bill the charity for the service. The charity would pay the bill. If ABC makes a donation to the charity, the donation can be receipted.)

14. Receipting • In situations where donors receive nothing in return for their gift, a receipt may be issued to the donor for the full amount. • Example: An individual donates $75 cash to a charity. The donor receives nothing in return for the gift. The amount on the receipt (eligible amount) is $75.

15. Split Receipting • Split receipting is a legislated concept where a donor can receive something in return for their gift and still be eligible for a tax receipt. • The gift must be a voluntary transfer of property. • Must meet the intention to make a gift threshold, meaning there is a limit on how much advantage a donor can receive and still get a tax receipt.

16. Information you Need to Know Before Issuing a Receipt • What is the fair market value (FMV) of the property transferred? • Has the donor received something in return for their gift? • Is this gift eligible for a tax receipt? • What is the amount to be receipted?

17. What is the Fair Market Value (FMV)? • FMV is not defined in the Income Tax Act. • FMV is generally the highest price, expressed in a dollar amount, that the property would bring in an open and unrestricted market between a willing buyer and a willing seller who are both knowledgeable, informed, and prudent, and who are acting independently of each other. • If the FMV cannot be reasonably determined, then an official donation receipt cannot be issued.

18. Why is the FMV important? • To issue a receipt, the charity must know the value of what it has received. • Charity must determine the FMV of any non-cash gifts on the day that it is transferred. • Onus is on the charity to reflect the true FMV of the gift on all receipts.

19. Deemed Fair Market Value (FMV) • This new rule applies to any property donated within three years of acquisition or acquired through a gifting arrangement. • Deemed FMV is the lesser of actual FMV or donor’s cost to acquire. • Exceptions: • Gifts made as consequence of taxpayer’s death; • Inventory; • Real property situated in Canada; • Certified cultural property; • Gifts of certain publicly-traded securities; and • Ecological gifts.

20. 2) Are you Giving the Donor Something in Return For their Gift? • A charity may choose to give a token of appreciation to the donor in return for their gift. • This “token of appreciation” is called consideration/advantage. Examples of consideration/advantage are: • Property – pen, mug, t-shirt; • Use of a property – cottage, lodge; • Provision of service – giving free daycare services; and • Other benefits – assumption of debts (e.g., mortgage). • The eligible amount of the gift may need to be reduced by the amount of the advantage.

21. What if the Donor Receives Something Worth Very Little? • Certain advantages are considered too small (de minimis) to affect the amount of the gift. • De minimis threshold – is the lesser of 10% of the value of the property transferred or $75. • Example: • Donor gives $200. • The charity gives a tote bag worth $17. • The de minimis threshold is $20 (10% of $200). • The $17 tote is less than $20. • A receipt can be issued for $200. • De minimis does not apply to cash or near cash equivalents (e.g., gift certificates, coupons, vouchers).

22. What is the FMV of the Consideration/Advantage? • A charity must determine the FMV of the consideration/advantage, regardless of its cost to the charity. • The FMV of the consideration/advantage is the value of the advantage received by the donor. For example: • 100 books are donated to the charity from a retailer. • The books are worth $15 each. • Charity chooses to give a book to donors who donate $100 or more. • The donor’s received an advantage worth $15. • Generally, the donor’s donation must be reduced by $15 even though the charity did not pay for the books.

23. 3) Is the Gift Eligible for a Tax Receipt? • The intention to make a gift threshold: • The amount of advantage received by the donor can not exceed 80% of FMV of total property transferred. • To qualify for a tax receipt, the gift must meet this threshold. • Example: • A donor gives $200 and receives a dinner and theatre package worth $175 in return. • The intention to make a gift threshold is 80% of $200 = $160. • The dinner and theater package worth $175 exceeds the intention to make a gift threshold, therefore the gift is not eligible for a tax receipt.

24. 4) What is the Amount to be Receipted? • A receipt may be issued for the “eligible amount of the gift”. Example: • The donor donates $5,000. The charity gives a $250 hotel stay as a thank you. • $250 is greater than $75, but less than $4,000. • The eligible amount of the gift is calculated as follows: Total FMV of property transferred: $ 5,000 Less the FMV of the advantage: $ 250 The eligible amount of the gift: $ 4,750 • The $250 hotel stay is below the intention to make a gift threshold, but greater than the $75 de minimus threshold, therefore it reduces the eligible amount of the receipt.

25. Example: Golf Tournament • Charity X holds a fundraiser golf tournament and sells 100 tickets. The elements of the event are as follows: • Ticket Price - $300 • Green fees - $75 • Cart rental - $25 • Food & beverage - $50 • Door prizes - Total value $3,000  Average $30 per participant • Golf hat (each participant receives) -$20 • Hole-in-one is use of car for 1 year  nominal (ignore) • Raffle tickets  sold separately (ignore)

26. Example: Golf Tournament • Are the prizes and complimentary items de minimis? • Door prizes = advantage of $30 per person. • Complimentary items (hat) = advantage of $20 per person. • Total advantage for the purposes of de minimis rule = $50. • Total property transferred - $300 ticket price • Threshold is the lesser of 10% or $75 = $30. • $50 advantage exceeds $30 threshold. • The prizes/complimentary items are not de minimis and the amount must be included as an advantage.

27. Example: Golf Tournament • Is there an intention to give? • Does the amount of the advantage received by the donor exceed 80% of FMV of total property transferred? • Total property transferred = $300 ticket price (Intent to give threshold = $300 x 80% = $240) • Amount of Advantage = $150 (Green fees, cart rental, food & beverage) +$50 (Prizes and complimentary items) $200 Total Advantage • Is there an intention to give? Yes • A receipt can be issued with an eligible amount of $100

28. Example: Auction • Auctions generally involve two separate transactions that need to be considered: • Property is donated to the charity for the auction. • Property is purchased at the auction.

29. Example: Auction 1) Property donated for the auction: • Receipt can be issued for FMV of the property: • Must be property (not services). • If acquired within previous 3 years, then “deemed FMV” applies  lesser of actual FMV and donor’s cost. • Businesses donating inventory may receive tax receipt for retail value. • If FMV cannot be established, then no receipt should be issued. • We recommend that gifts over $1,000 be appraised.

30. Donations to an auction • A business donates a new computer: • That normally sells for $800. • The charity can issue a receipt for $800. • Gifts out of inventory are exempt from the deemed FMV rule. • An individual donates a painting: • It was purchased for $1,000 in 2006. • The FMV of the painting is now $1,700. • The charity can issue a receipt for $1,000. • The deemed FMV rule applies, as the donation is within the 3 year period. • A business donates a gift certificate worth $200: • The charity does NOT issue a receipt. Unless a gift certificate has been purchased, it is not property.

31. Example: Auction 2) Property bid on during auction: • To be eligible for a receipt: • FMV of item must be established and announced in advance. • Bid must meet the intent to give threshold. • Example: • Sculpture donated worth = $500. • Minimum bid for receipt to be issued = $625 (500 is 80% of 625) Bid price = $750. • Purchaser of sculpture is entitled to tax receipt = $250. • Charity can calculate the intent to give threshold in advance by multiplying the FMV by 125%.

32. When should an Official Income Tax Receipt be Issued? • There is no requirement in the Income Tax Act that a charity must issue a receipt for gifts received. • A charity may issue one annual cumulative tax receipt for cash donations. • Gifts in kind require individual receipts. • A charity may not issue a receipt if the donor has directed the charity to give the funds to a specified person or family. • CRA suggests that charities issue receipts to donors by February 28th of the following year so that donors may claim the deduction on their income tax return.

33. Contents of Receipts • Mandatory elements of a receipt: • a statement that it is an official receipt for income tax purposes; • the serial number of the receipt; • the name and address of the charity, as recorded with Canada Revenue Agency; • the charity's registration number; • the eligible amount of the gift; • day or year donation was received; • the name and the address of the donor; • the place or locality where the receipt was issued; • the signature of an authorized individual; and • the name and Web site of the Canada Revenue Agency –www.cra.gc.ca/charities. • If giving an advantage: • the FMV of the property transferred to the charity; and • the value of advantage. • For property other than cash (gifts in kind): • the actual date of donation; • a brief description of the property; • the name and address of the appraiser (if appraised); and • the day on which the receipt was issued when it differs from the date of the donation.

34. Charities DirectorateCharities Information Sessions 2009 Amendments to Name, Fiscal Period End, and Designation

35. Name Changes • A registered charity that changes its name must submit documents to the Charities Directorate showing that the name has been legally changed • Examples of such documents are: • For a corporate entity, a copy of the supplementary letters patent, certified copy of special resolution, or certificate of amendment bearing the seal, stamp, or signature of the federal or provincial authority approving the new name • For an unincorporated entity (such as an entity established by a constitution or trust deed), a copy of a resolution or written agreement, signed by two directors/trustees of the charity, indicating the new name, and showing the effective date of the change of name

36. Fiscal Period End • The Income Tax Act (ITA) requires that a charity obtain our permission before it changes its fiscal period • A charity that wants to change its fiscal period must advise us in writing and include: • the reason for the change • the effective date of the change • the signature of at least two authorized representatives • Such changes may affect the charity's T3010 reporting obligations under the ITA • A charity may have to amend previously filed T3010s by completing a Registered Charity Adjustment Request (T1240)and forward it to the Client Service Section of the Charities Directorate • Once the adjustments have been processed, the charity will receive a Registered Charities Information Return Summary (SUM)

37. Fiscal Period End • If the change results in a period which extends beyond 12 months, a charity may have to file two separate annual returns • If a charity's fiscal period end is December 31 and it wants to change it to March 31, the charity would have to file a 12-month return covering January to December plus a three-month return for the January-March period • It will then begin its next 12-month fiscal period on April 1 • The charity will receive a SUM to acknowledge that we have received and processed the annual Registered Charity Information Return (T3010)

38. Designation of a Registered Charity Upon registration, we designate a registered charity as either a: • charitable organization • generally carries out its own activities • public foundation • gives more than 50% of its income to qualified donees • private foundation • 50% or more of the directors, trustees, officers or like officials do not deal at arm’s length with each other • 50% or more of the directors, trustees etc. do not deal at arm’s length with the major donor or a person related to the major donor and/or • the major donor or anyone related to the major donor controls the charity directly or indirectly in any manner whatever

39. Change of Designation • A charity that makes significant changes to its mode of operation (e.g., changes its activities and/or the composition of its board) may have to apply for re-designation • A charity may apply for re-designation by submitting a Registered Charities: Application for Re-Designation (T2095) • If we agree with the charity's request for re-designation, we will advise the charity of its new designation by registered mail • In most cases, the charity's new designation will take effect at the beginning of its next fiscal period • However, the Charities Directorate may also re-designate a charity without a request by giving written notice

40. Change of Designation • If we refuse a request for re-designation or if the charity disagrees with the Directorate’s re-designation, the charity has the option to file a notice of objection with the Appeals Branch • If the charity disagrees with the Appeals Branch's decision and wishes to seek further recourse, it can appeal to the Federal Court of Appeal

41. Change of Designation • Example #1: • In 1999, a charity is registered as a public foundation • arm’s length board • plans to gift 80% of its income to other registered charities • it does not intend to receive more than 50% of its annual revenues from one person who will have ongoing involvement in the charity • By 2007, 75% of the charity’s annual revenues are spent on its own activities • All other factors remain the same • It must apply for re-designation as a charitable organization by filing form T2095

42. Change of Designation • Example #2: • In 2001 a charity is registered as a charitable organization • arm’s length board • carrying out its own activities • varied sources of funding • In 2006, the composition of the board of directors changed and one family now represents 2/3rds of the board • The charity must apply for re-designation as a private foundation by filing form T2095

43. Charities DirectorateCharities Information Sessions 2009 Seeking Charitable Registration

44. What is a registered charity? • A registered charity is an organization: • that operates on a not-for-profit basis; • that is established for purposes that are charitable at law; • that has applied for and been granted registration as a charity under subsection 149.1(1); • that can issue official donation receipts.

45. What is a non-profit organization? • A non-profit organization: • is an association organized and operated exclusively for a purpose other than profit (e.g., a club, society, or association); • can have purposes that are not considered “charitable” by the courts (e.g., non‑profit social clubs, service clubs or fraternal lodges); • will generally be exempt from tax if no part of its income is payable to, or available for, the personal benefit of a proprietor, member, or shareholder; • cannot issue official donation receipts.

46. What are the advantages of being a registered charity? A registered charity: • is exempt from paying income tax under Part I of the Act; • can issue official receipts for gifts it receives. This reduces the individual donor’s income tax payable, and reduces the taxable income of a corporate donor; • is eligible to receive gifts from other registered charities such as foundations; and • may have increased credibility in the community, as registered charities must follow rules and guidelines.

47. Qualifying for Registration • To qualify for registration, an organization must: • be established and operate for exclusively charitable purposes, and it must devote all of its resources to charitable activities; • be a charity under the common law; • be resident in Canada; • cannot use its income to benefit its members; and • its purposes must fall within one or more of the following categories: • the relief of poverty; • the advancement of education; • the advancement of religion; or • certain other purposes that benefit the community in a way the courts have said is charitable.

48. What disqualifies an organization from being charitable under the law? • Personal Benefits • Private Benevolence • Political Purposes • Activities that are illegal or contrary to public policy

49. The review process of an application • There are 3 types of charities identified by the Act: • charitable organization; • public foundation; and • private foundation. • What type of governing document is required for registration? • Charitable organizations can either be incorporated, or established by a constitution or trust document. • Public or private foundations must either be incorporated, or established in the form of a trust.

50. The review process of an application (Continued) • First in, first out approach • For us to be able to review an application, it is important to ensure that: • all the questions on the application are fully answered; • all the required documents are provided; and • detailed and specific information is given.