Top Ten Canadian Charity Law Compliance Issues, Part 2
By Mark Blumberg
This article concludes Mark Blumberg’s summary of the ten most important items charities and their boards of directors need to know about charity law in Canada. Part 1, reviewing the top five compliance issues for Canadian charities, appeared in the May issue of AFP eWire Canada.
A great deal has been written about legal compliance surrounding charities in Canada. Much of that material, however, is highly specialized, hard to understand and sometimes esoteric. As a result, it can be extremely difficult for charities, employees and volunteers to focus in on the issues that are generally most important for charities.
In this article, the final five most important items charities and their boards of directors need to know about charity law are provided and discussed.
6) NO COMPENSATION FOR MEMBERS OF THE BOARD
In Ontario, board members of charities generally are not entitled to compensation. In fact, directors of charities that operate in Ontario are very much constrained in terms of their dealings with that charity. If there is an accountant serving on a board, the accountant and their firm are prohibited from conducting an audit or charging the charity for accounting services. Similarly, law firms cannot charge for legal services provided to a charity if one of their partners is on the board of directors.
Directors are only entitled to reimbursement of reasonable out-of-pocket expenses incurred to further the activities of the charity. Directors of charities that operate in Ontario generally cannot receive salaries, stipends, grants, honorariums, or consulting fees from that charity, without a court order.
7) MAINTAINENCE OF ADEQUATE BOOKS AND RECORDS
Canadian registered charities must keep adequate books and records at a Canadian office. The charity must also keep source documents that support the information in the books and records. The purpose of these requirements is so that the CRA can review the charity’s revenue and expenditures and verify any official donation receipts that it may have issued.
In terms of record retention, charities are required to keep duplicates of receipts for at least two years from the end of the calendar year in which the donations were made. Most other documents need to be kept for 6 years from the end of the fiscal year. Some other records must be retained in perpetuity or until two years after the charity has been dissolved. This includes such things as "ten year gifts," minutes of meetings and all governing documents such as letters patent. If in doubt, keep it!!
8) AVOIDANCE OF UNRELATED BUSINESSES
Under the Canadian Income Tax Act, charitable organizations and public foundations can carry on "related business" that promotes their charitable objects. For example, a hospital cafeteria that provides food to patients and visitors would be considered a related business.
Charitable organizations and public foundations can also carry on other unrelated business activities, presumably to raise funds for the charity, if "substantially all" (the CRA says at least 90 percent) of the people involved in these activities are volunteers.
Private foundations cannot carry on any business activities whatsoever. The CRA has a Policy Statement on “What is a Related Business?” CPS-019 and Registered Charities: Community Economic Development Programs. Failure to follow these rules can result in penalties and deregistration.
9) AVOIDANCE OF PARTISAN POLITICAL ACTIVITIES
Under the Income Tax Act, a registered charity can be involved in non-partisan political activities, as long as it devotes substantially all of its resources (more than 90 percent) to charitable activities. Any political activities must be related to the charity’s purposes and must involve generally less than 10 percent of resources.
A registered charity cannot be involved in any partisan political activities. A political activity is considered partisan if it involves direct or indirect support of, or opposition to, a political party or candidate for public office. See the CRA policy statement on Political Activities (CPS - 022) and our blog postings on political activities.
Don’t forget that registration of lobbyists (federally, provincially or otherwise) is a separate issue. You may wish to review the federal or provincial lobbyist registration laws to check whether you and your organization are compliant.
10) NO INVOLVEMENT IN TERRORIST ACTIVITIES
A charity cannot support terrorism either directly or indirectly. For more information, see my article “Canadian charities and Terrorism – Preventing Abuse of your favourite charity” as well as the CRA’s recent “Checklist for Charities on Avoiding Terrorist Abuse.”
Canadian charity law encompasses far more than the ten points discussed in this review. But there is little sense in focusing on obscure provincial statutes or interesting court cases at the expense of missing some of these important compliance issues.
Mark Blumberg is a partner at the law firm Blumberg Segal LLP in Toronto and works almost exclusively with Canadian nonprofits and registered charities on compliance issues. Mark is also the editor of CanadianCharityLaw.ca, a Canadian charity law website and globalphilanthropy.ca™ – a Canadian website dedicated to news about the Canadian charitable sector as well as legal and ethical issues for Canadian charities operating in Canada or abroad.
This article is for information purposes only. It is not intended to be legal advice. You should not act or abstain from acting based upon such information without first consulting a legal professional.