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Charities, not-for-profits and the Income Tax Act: recent developments

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Image taken from: http://www.abmonline.ca

I recently read a couple of articles dealing with the relationship between not-for-profit organizations and the Canada Revenue Agency.

In the first, Adam Aptowitzer of Drache LLP in Ottawa writes about a director of a not-for-profit being tried for contravening subsections 163.2(4) and (5) of the Income Tax Act. These subsections are aimed at individuals, often tax advisors, who assist others to make what the CRA believes is a false statement or omission on their tax returns. This case revolves around a plan to donate weeks of a time-share in the Turks and Caicos Islands to a charity in exchange for charitable tax receipts. As it turned out, however, zoning restrictions prevented the property from being designated as a time share, so the CRA alleged that the gift failed because there was nothing to give. And because a director of the charity gave blank pre-signed official tax receipts to the promoter for distribution to donors, the director was personally assessed for third party civil penalties of more than half a million dollars.

The second article, by Robert Hayhoe of Miller Thomson LLP in the March 5 issue of the Lawyers Weekly deals with the CRA’s interpretation of the non-profit tax exemption in section 149(1)(l) of the Act contained in a November 2009 CRA opinion letter. Every Canadian not-for-profit that is not a charity relies on Section 149(1)(l) to establish its tax-exempt status. The question raised by the CRA letter is whether any profit earned by an NPO is unacceptable, even if the profit is inadvertent or will be used for a related not-for-profit activity or a capital expenditure. The CRA opinion indicates little wiggle-room on this question, which contradicts much of the case law. Needless to say, this issue is being closely watched.

Not-for-Profit PolicyPro from First Reference includes a chapter on Corporate Administration, which covers Taxes and Charitable Returns, among many other valuable topics.

Colin Braithwaite
First Reference Internal Controls Managing Editor

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Colin Braithwaite

Freelance writer at Colin Braithwaite Editorial Services
Colin Braithwaite has more than 20 years experience in writing and publishing. From 2004–2010, Colin was the Managing Editor responsible for the products in the Internal Control Library at First Reference Inc.Read more
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