1.Canada Revenue Agency guidelines for registering a charity, meeting the public benefit: to be charitable at common law, an organization must not only engage in activities that are intended to achieve its charitable purpose, but such activities must also result in a benefit to the public, or a sufficient section of it. The meaning and significance of this notion of “public benefit”, however, has been surrounded with much confusion, leading charitable organizations and legal commentators to express concerns with its lack of clarity and uncertainty.

In response to this confusion, on March 10, 2006, CRA released its long-awaited policy on meeting the public benefit test, entitled “Guidelines for Registering a Charity: Meeting the Public Benefit Test”. The guidelines attempt to clarify the meaning of the term “public benefit” and explain how it factors into CRA’s determination of charitable status. Thus, the Guidelines will be of great interest to both potential and current charitable organizations, as they set out CRA’s requirements for meeting and maintaining its standards with respect to the public benefit test.

The test is described in the Guidelines’ introduction as being “at the heart of every inquiry into an organization’s claim to charitable status”. CRA’s Guidelines indicate that applicants for registered charitable status are required to establish three elements: (1) the benefit must generally be shown to be tangible; (2) the benefit must generally be shown to be direct; and (3) there must be a net benefit for the public.

2. Registered charities newsletter no. 26 – winter 2006: in January 2006, CRA released the Winter 2006 edition of its Registered Charities Newsletter. Many questions relating to books and records had been raised by charities involved in work outside of Canada in the wake of the December 2004 tsunami which devastated areas of southeast Asia. In response, CRA provided guidance in this newsletter concerning the ways in which charities can ensure that they are maintaining adequate books and records.

Their summary for books and records is as follows: “A registered charity must keep adequate books and records at a Canadian address it has on file with us, so that we can verify official donation receipts issued, as well as its revenue and expenditures. It must also include information that will enable the Minister to determine if there are any grounds for revocation. A charity must also keep source documents that support the information in the records and books of account.” There is also commentary on several Federal Court of Appeal decisions related to the books and records of charities.

3. CRA registered charities newsletter no. 27 – fall 2006: in December 2006, CRA released the Fall 2006 edition of its Registered Charities Newsletter. Included in the newsletter is information concerning the application of new intermediate sanctions for non-compliance of charities. CRA’s Guidelines concerning these penalties will be made available on the Charity Directorate’s website at www.cra-arc.gc.ca/charities. There is a series of questions and answers relating to identifying the donor with respect to official donation receipts, enduring property, and planned giving arrangements, including charitable gift annuities, life insurance policies and charitable remainder trusts.

The newsletter also addresses CRA’s policy on “public benefit”, debts incurred by charitable foundations, restrictions on private foundations, the definition of “nonqualified investment” under the ITA, and the gift of residue qualifying as a “gift by an individual’s will”. The decisions noted under Court News include: A.Y.S.A. Amateur Youth Soccer Association v.

Canada Revenue Agency (in relation to the promotion of amateur sports), Bayit Lepletot v. Minister of National Revenue (with regard to conducting activities in a foreign country), and MacDonald Estate v. The Queen (with respect to donations where there is no provision in the will).

4. CRA eliminates Charity Advisory Committee: effective September 25, 2006, the government announced that as a result of its decision to reduce program expenditures, the advisory committees of CRA would be eliminated, including the Charity Advisory Committee. The CAC functioned well over the last two years in providing an effective bridge between the charitable sector and CRA, as well as the Minister of National Revenue, and as such, it is disappointing that the CAC has been eliminated.

5. CRA policy regarding pending legislation: on November 28, 2006, at the Annual Conference of the Canadian Tax Foundation, a representative of CRA participated in a round-table discussion of the CRA’s policies on a variety of issues, including the reintroduction and application of the draft technical amendments to the ITA. CRA was asked whether it has any further comments regarding the position enunciated at the 2005 CTF Annual Conference concerning the filing of income tax returns in the context of pending legislation amending the ITA.

The response was that its administrative practice continues to be to ask taxpayers to file their returns based on proposed legislation. However, where proposed legislation increases government expenditures (such as an increase in refundable tax credits), CRA’s practice is to wait for the legislation to be enacted. When a taxpayer files a return in accordance with draft legislation and the implementation date for the legislation is subsequently postponed, CRA will permit the taxpayer to refile his/her return in accordance with the unamended legislation.

6. Policy commentary on publishing magazines and advancement of education: on February 3, 2006, CRA released a Policy Commentary, “Charitable purposes – Whether publishing

a magazine can be considered a charitable activity under the advancement of education”. It clarifies the CRA’s position on granting charitable status to organizations that publish magazines in furtherance of educational purposes, indicating that CRA accepts that registered charities can advance education through the publication and distribution of magazines, but the contents of the publications must be predominantly educational in the sense understood by charity law. Material that would not be considered educational, eg games, entertainment, opinion and advertising, is allowable provided that it is highly limited and always remains ancillary and incidental to the main educational purpose.

7. CRA clarification regarding fair market value: in an update to its “Gifts and Income Tax” Guide, CRA clarified how the fair market value of a gift is to be calculated. With respect to the FMV of donated property, it is necessary to determine the “eligible amount” of the gift, which CRA also clarified. The Guide contains a section on donation appraisals with guidelines for donors and qualified donees approaching appraisers and dealers. One or more appraisals may be required in order to establish the FMV of the property a person is donating. The appraised FMV is used to calculate the eligible amount of the gift unless the deemed FMV rules apply.

1. New anti-terrorism legislation passed/granted royal assent: on October 5, 2006, the Minister of Finance introduced Bill C-25, An Act to amend the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and the Income Tax Act and to make a consequential amendment to another Act. It received royal assent on December 14, 2006 and represents one of the most substantial pieces of anti-terrorism legislation since 2001.

Some of the most important amendments in Bill C-25 that are applicable to charities and their legal counsel are amendments that will: (1) bolster client identification, record-keeping and reporting measures applicable to financial institutions and intermediaries; (2) allow the Financial Transactions and Reports Analysis Centre of Canada to disclose additional information to both foreign and domestic law enforcement and intelligence agencies, and to make disclosures to additional agencies; (3) allow CRA to disclose to FINTRAC, RCMP and the Canadian Security Intelligence Service information about charities, including identifying information of the charities’ directors and officers suspected of being involved in terrorist financing activities; and (4) exempt lawyers from reporting obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. The Federation of Law Societies will likely reach an accord to undertake professional standards to combat money laundering and terrorist financing voluntarily.

These amendments would increase the level of information-sharing and collection among virtually all federal agencies that would potentially investigate or bring allegations and charges against charities and their directors and officers. These amendments also highlight the increasing focus on, and investigation of, charities and their possible links to terrorism.

2. Interim report on Anti-Terrorism Act issued: on October 23, 2006, the Standing Committee on Public Safety and National Security recommended that two clauses contained in Canada’s Anti-Terrorism Act that were to expire on December 31, 2006, should be extended for a further five years, and subjected to another review at that time. The clauses deal with investigative hearings and preventive detentions. The committee also recommended that the investigative hearing clause be amended so that it could only be used “when there is imminent peril that a terrorist offence will be committed”. Two members of the committee submitted a dissenting opinion, suggesting that the clauses should only be renewed for three years. The two dissidents agreed with the amendment to the investigative hearing clause. A final report is required to be tabled no later than December 22, 2006, but was not available at the time of writing.