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Charities Handbook, 2010 edition.

21Introduction

23Churches and Denominations: A Special Note About Terminology

25SECTION I - CHARITIES: STRUCTURES & ACTIVITIES

27Chapter 1: Establishing a Canadian Charity

27Part 1 - General introduction
28Part 2 - Choosing the name
29Part 3 - Selecting board members
29Part 4 - Clarifying the group’s purpose
31Part 5 - Deciding on the organizational structure

31Advantages of Incorporation
32Disadvantages of Incorporation
32Special situations of religious organizations

33Part 6 - Considering the options available in Canada

34Operating without Incorporating

34Part 7 - Establishing the powers and special provisions
35Part 8 - Applying to CRA for registered charity status

36In all cases
36Description of Actual/Prospective Charitable Activities
37Denial of Registration and the Appeal Process
37Grounds for Refusing Charitable Organization Status
37Registering in Quebec

39Chapter 2: Charitable Organizations and Private or Public Foundations

40Arm’s Length Defined
Charitable Organizations:

41Characteristics and Summary of Permitted Activities
44Summary of a Charitable Organization’s Characteristics

44Charitable Foundations
Charitable Public Foundation:

44Characteristics and Summary of Permitted Activities
47Summary of a Public Foundation’s Characteristics

Public Foundations and the Contribution Test:

4750 per cent or 75 per cent of Capital?

48Charitable Organizations, Public Foundations and the Control Test
Charitable Private Foundation:

48Characteristics and Summary of Permitted Activities
49Summary of a Private Foundation’s Characteristics

50Changing a Charity’s Designation

51Chapter 3: Operating a Charity

52Nationally and Internationally: Options for How a Charity Can Carry on Activities Itself
53Activities Carried on by Volunteers and/or Employees
53Activities Carried on Through Contracts
54Activities Carried on by Agents
55Drafting the Agency Agreement
57Activities Carried on Through an Independent Individual
58Activities Carried on Jointly
59Activities Carried on Co-operatively
59Activities and the Obligation to Keep Records
59ITA Provisions and Administrative Practices Facilitating Charitable Activities

601) Transfers to Qualified Donees

60a) Transfers to Qualified Donees Made Out of Income
61The Meaning of “Income” for the Purposes of Transfers to Qualified Donees
64b) Transfers to Qualified Donees Not Made Out of Income

642) Associated Charity Status
653) The “Charitable Goods” Policy

67Chapter 4: Scholarship and Student Aid Programs

69Tax Implications of Scholarships & Bursaries

71Chapter 5: Related Business Activities

71Mixing Charitable and Business Activities
74Decision Tree - for identifying an unrelated business

75Chapter 6: Advocacy, Political Activities and Lobbying

76Charitable Activities: Advocacy or Education
77Political Activities
78Charities as Lobbyists
78Who is a Lobbyist?
79Who Can be Lobbied?
79What is Lobbying?
79What is Not Lobbying?
80The Registry of Lobbyists
81The 20 Per Cent Rule
81Initial Registration and Monthly Returns
82Recommendations

83Chapter 7: Penalties that Apply to Charities

84Infractions Triggering Intermediate Sanctions

841) Late Filing of the T3010B
852) Incorrect Receipts
853) Receipts Containing False Information
864) Failure to Keep Proper Books and Records
875) Unrelated Business
876) Foundation Acquiring Control of a Corporation
887) Undue Personal Benefit
898) Attempting to Circumvent the Disbursement Quota

89(i) Delay of Expenditures to Circumvent the Disbursement Quota
89(ii) Inappropriate Transfer of Property by a Foundation to Circumvent the Disbursement Quota

90Eligible Donee Defined
90Implication of the Suspension of Receipting Privileges
91Public Disclosure of Penalties
91Penalties: A Charity’s Right to Object and Appeal
92 Summary of Infractions/Actions & Possible Penalties Applicable to Charities

99Chapter 8: Operational Issues

99Liability Insurance
100Computer Backups
100Personal Information Privacy Policy
101Fiscal year end Changes
102Borrowing Equipment
103Copyright
104To Copy or Not to Copy - the Basic Process
105Do Not Call List

107Chapter 9: Reorganization and Revocation

107Merging or Amalgamating Charities
108Revocation: Summary of the Reasons a Charity can Lose its Charitable Status
110Revocation by Voluntarily Abandoning Registration with CRA
111Summary of the Process When a Charity Receives Notice of the Minister’s Intent to Revoke Charitable Status
112Revocation Tax
113Revocation Tax: Example
114Revocation Tax: Possible Liability of Third Parties
115Revocation Tax: Abandonment of Notice of Intent to Revoke Status
115Winding-up Period
117Revoked Charity’s Obligation to File Returns
117Revocation: A Charity’s Right to Object and Appeal
118Reorganization or Revocation: Note on Transfer of Property versus Transfer of Trusteeship
120Annulment

121SECTION II - GIFTS & RECEIPTS

123Chapter 10: Donor Gifts to Charities

124A. Gifts: The Basics

1241) Definition of a Gift
1252) The Donor’s Requirement to Have an “Intention to Make a Gift”
1263) A Charity’s Requirement to Reduce a Donor’s Gift by the Value of the Consideration (Including Any Advantage, Benefit or Compensation)

127B. Use of Unreceipted Gifts
128C. How to Deal with Non-Cash Gifts: Gifts in Kind

1281) Establishing a Value for Gifts in Kind

129Questions to Ask Before Accepting Gifts in Kind
130Tax Paid on Gifts in Kind

1302) When the Value of a Gift in Kind Must be Reduced to the Donor’s Cost

131D. Gifts with Strings Attached: Donor Designated, Restricted, or Directed Gifts

1321) Why Every Charity Should Have a “Designated Giving Policy”

133Sample Designated Giving Policy

1332) The Problem with Gifts Given for the Purpose of Channeling or Funneling through a “Conduit” Charity
1343) Can this Donation Be Receipted?

135Can this Gift be Accepted and Receipted?
136Receipting Decision Tree for Charities

1374) Channeling Either Receipted or Unreceipted Funds to Foreign, Including U.S., or Sister Organizations or Individuals

137(a) Foreign & Sister Organizations
138Can this gift be accepted and receipted?
140(b) Individuals
140(c) Gifts Collected for Individuals in the Form of a “Love Offering” in Churches

1415) Gifts Designated to Support Missionaries and Mission Programs
1426) Gifts Designated for Projects, Including Where a “Linkage” Exists Between the Donor and Project
1467) Gifts Designated for Short-Term Projects
147Can this gift be accepted and receipted?
1478) Gifts Designated for a Benevolence Fund

149E. Gifts: Some Practical Issues

149Donor Lists
149December 31st and Gifts Made by Mail
150Dishonoured Cheques
150Loose Offerings
150Receipting Gifts of Nominal Value
150Gifts to Colleges & Universities Outside of Canada
151Gifts to U.S. Charities by Canadian Residents Employed in the U.S.
151Gifts by Canadian Residents from Their U.S. Sourced Income

153Chapter 11: Split-Receipting

154A. Split-Receipting and Definitions of Key Words Used

154Eligible Amount of a Gift
154Advantage
155De minimis Threshold

155B. When May a Charity Give an Advantage to a Donor?
156C. Examples Where a Benefit is Not an Advantage that Reduces the Eligible Amount of a Donor’s Gift

1561) Payments to Members, Directors & Trustees

156Reimbursements
157Payment for Salary or Services
157User of Charitable Programs

1572) Membership Fees
1583) Refreshments at Meetings
1594) Free Dinners

160Receiving Donations for Dinners

1615) Free Items Provided by a Charity

161D. Examples of Benefits that Reduce a Donor’s Gift (i.e., Would Reduce a Donor’s Charitable Tax Receipt)

161The General Concept of Split-Receipting

1621) Discounts to Members and Donors Including Facility Rentals
1642) Fundraising Activities and Events
1653) CRA’s Guidance on Charitable Fundraising

165Fundraising or Charitable Activity?
165Solicitation of Support
166Allocation of Fundraising Expenditures
166Part A - the substantially all test
166Part B - the four-part test
166Reporting Fundraising Revenues and Expenditures
168Is this Activity Fundraising?

1684) Fundraising Dinners

168Entrance/Ticket Prices and the Fair Market Value of the Meal

168a) Where entrance/ticket price equals the fair market value of dinner
169b) Where entrance/ticket price exceeds the fair market value of dinner
169c) Where there is no stated entrance/ticket price for the dinner

170Sponsoring/Buying a Table’s Worth of Tickets

170a) Where a business or individual sponsors/buys a table for its staff/guests
171b) Where a business or individual sponsors/buys a table for the charity to determine guests
172c) Golf Tournaments
174d) Auction Sales

174Concluding Tips
175Split-Receipting: Summary of Rules to Keep in Mind

177Chapter 12: Charities Operating and Funding Religious Schools

179Schools Providing Religious Instruction Exclusively
179Schools Providing General Education and Religious Instruction
187Calendar Year Contributions
187Funding Charities

188Computing the Benefit
189Computing the Eligible Amount

189Treatment of Contributions Made Without Benefit
189Scholarships and Bursaries to Children
190T4A Reports
190Contributions From Non-Parents
190Definitions

195Chapter 13: Donors and Deferred Gifts

195A. Gifts Made Through a Will

196Note on Restricted Gifts

197B. Gifts Made Through a Trust

1991) A Revocable Trust
2002) An Irrevocable Trust
2013) Remainder (Residual) and Equitable Interests
2024) Remainder Interest in a Personal Residence and Other Real Property
2035) Charitable Remainder Trust
2046) General Note on Charities Receiving Gifts via Trust

205C. Loans
205D. Loan Trust Arrangement
207E. Charitable Gift Annuity

208Separate the Charitable Gift and Annuity Components

208F. Setting up a Trust as a Charity

209A Charity Acting as Trustee

209G. Life Insurance
211H. Gifts of a Residual Interest in RRSP’s, RRIF’s and Tax Free Savings Accounts (TFSA’s)
212I. Wealth Replacement Insurance

213Chapter 14: Tax Treatment of Charitable Gifts

213Reducing Income Tax Payable - Tax Credits and Deductions
214A. Charitable Tax Credits for Individuals

215Carry-over of Charitable Gifts
215Gifts in the Year of Death

216B. Charitable Gift Deduction for Corporations
217C. Tax Treatment of Gifts in Kind

2171) Tax Treatment of Capital Property in General

218Depreciable Capital Property

2182) Gifts of Appreciated Capital Property (Other than Publicly Traded Securities)

218The Value Used when Receipting Gifts of Capital Property
219Donors and the Special Election for Capital Property Gifts

2203) Gifts to the Crown, Gifts of Cultural Property, and Ecological Gifts
2214) Gifts of RPP’s
2215) Gifts of Appreciated Publicly Traded Securities

222Private Foundations

2236) Gift of Securities Received Under an Employment Stock Option Plan
2247) Gifts of Non-Qualifying Securities

226Can the gift be receipted?
227Recognition of Gain for the Donor
228Excepted Non-Qualifying Securities and Loanbacks or Use of Charity’s Property by a Donor

2298) Gift of Business Inventory Property

229Gifts of Medicine from Inventory
231Note on a Gift of Inventory Mixed with Advantage or Consideration

233Chapter 15: Charitable Tax Receipts

233A. Form and Content of Official Receipts

235Sample receipts
236Date of Gift
236Name of Donor
237Signature on the Official Receipt

238B. Electronic Receipts
238C. Replacing Official Receipts
238D. Receipting Transfers from Other Charities
238E. Receipting for Individuals Taxable in Quebec

241SECTION III - EMPLOYMENT ISSUES

243Chapter 16: Employee or Self Employed

243Determination of Relationship
244Control
245Ownership of Equipment and Supplies
245Profit Opportunity and Loss Risks
246Integration of the Work with the Worker’s Economic Activities
246Questions for Analysis
248Employer Responsibilities
248Hiring New Employees and SIN’s

249Chapter 17: Income Tax and Individuals Engaged in Ministry

250A. What is Included in Employment Income? - Overview
252B. Note on Payroll Deductions
252C. Note on GST/HST and Taxable Benefits
253D. Allowances versus Reimbursements of Ministry Expenses
254E. Benefits Included in Employment Income

2541) Accommodation Supplied by Employer
2552) Automobile Allowances and Per Kilometre Reimbursement

255Exempt Allowances
256Reasonable Amount
257Records

2573) Automobile Supplied by Employer

258a) Calculating the Standby Charge
259b) Calculating Automobile Operating Expense Benefit
261Employer-Provided Motor Vehicles Requred to be Taken Home at Night
261Note on Employer-Paid Parking
262c) GST/HST

2624) Cell Phone and Internet Services
2625) Childcare
2626) Death Benefits
2637) Gifts from Employers
2648) Group Benefits

264Health Care
264Counselling
264Critical Illness/Accident Insurance
264Life Insurance

2659) Loans and Employer Financing (Generally and for Homes)

265a) Generally
266b) Rates for Home Purchase or Home Relocation Loans
266c) Home Relocation Loan
267d) Reimbursement of Loss Due to Home Relocation

26710) Loyalty Programs
26811) Moving Expenses
26812) Private Health Services Plan
26813) Travel

268a) Reimbursement of Spouse’s Travelling Expenses
269b) Clergy and Minister Allowances
269c) Other Employees

27014) Tuition for Children Attending Boarding Schools
27115) Tuition and Education for Employees

271F. Income Related Deductions and Credits

2711) Child Care Services

272Child Care and Income Splitting

2722) Clergy Residence Deduction
2733) Moving Expenses
2764) Northern Residents Deductions
2765) Supplies Consumed in the Performance of Employment Duties
2776) Travel Expenses
2787) Tuition and Education Credits

279G. Income Splitting

281Chapter 18: Clergy Residence Deduction

281Deduction Overview
281Box 30 of the T4 Slip
283Two Clergy Residence Deduction Computation Methods Allowed by the ITA for T4 slip and Form T1223 Reporting Purposes
284Individuals Eligible for the Clergy Residence Deduction
284Eligibility in Quebec
285Members of the Clergy
285Regular Minister
286Religious Denomination
286Ministering
286Congregation
287Full-time Administrative Service
287Appointment by a Religious Order or Religious Denomination
288Religious Order
290Obtaining an Advance Ruling for Religious Order Status
290How to Determine the Body that is the Religious Order
292Specialized Ministries
292Teaching and Ministering
293Teaching and Administration
293Summary of Clergy Residence Deduction
294CRA Form T1223 Clergy Residence Deduction
296Payroll Administration and the Clergy Residence Deduction

296Income Tax
297Employment Insurance (EI)
297Canada Pension Plan (CPP)

299Chapter 19: OAS, CPP & Social Security Agreements

300Old Age Security
301Special Deemed Residence Rules for Missionaries
302Canada Pension Plan
302CPP and Time Limitations
302CPP and Employment in Countries Not Having a Social Security Agreement With Canada

305Chapter 20: Non-Resident Withholding Tax

306A. The General Withholding Rule
306B. Who is a Non-Resident Person?
307C. What is Required to be Withheld?
308D. Remitting and Records
309E. Steps the Non-resident Service Provider Should Take
309F. Potential Cost for Non-compliance
310G. Waivers: Relief from the General Rule
310H. Relief from Tax Withholding Through Reciprocal Tax Treaties

3111) Income/Profit Attributable to Permanent Establishments in Canada
3122) Exempt Organizations
3133) Certificates of Exemption
3134) Payments to Non-Resident Employees for Services

315Chapter 21: Residency and the Income Tax Act

315Residency for Income Tax Purposes
316Determining Factual Residency
317Determining Deemed Residency

319SECTION IV - ANNUAL REPORTING & KEEPING RECORDS

321Chapter 22: Annual Disbursement Quota Obligations

321Background to the Disbursement Quota
323Disbursement Quota Formula
333Definition of Enduring Property
335Background to the Definition of Capital Gains Pool

336Definition of Capital Gains Pool

336Definition of Specified Gift
337Determining the Value of Investment Assets not Used in Charitable Activities
340Expenditures that May Not be Used to Satisfy the Disbursement Quota
341Provisions Providing Charities Relief from the Disbursement Quota

341Carry Over Provision
341Permission to Accumulate Funds
342Arbitrary Reduction of Disbursement Quota

345Chapter 23: The Registered Charity Information Return (Form T3010)

347TF725, Registered Charity Basic Information Sheet
348The Purpose of the Registered Charity Information Return (T3010)
349The New T3010B

350Section A: Identification
352Section B: Directors/Trustees and Like Officials
353Section C: Programs and General Information
356Section D: Financial Information
356Financial Statements
356Schedule 6: Detailed Financial Information
357Assets and Liabilities

357Assets
358Liabilities

358Revenue and Expenditures

359Revenues
361Expenditures

364Section E: Certification
365Common Errors in Completing the T3010B
366The Return Summary

369Chapter 24: Reporting Requirements

369A. Payroll Remittances and Penalties
370B. T4 and T4A Information Returns in General

371T4A’s and Scholarship or Bursary Payments

371C. Preparing the T4 Slips

372Multiple T4 Slips for One Employee
373Social Insurance Numbers (SIN)
377Clergy Residence Deduction

380D. Preparing the T4 Summary
381E. Amending T4 and Other Slips
381F. Dealing with a PIER Report
381G. Social Assistance and the T5007 Summary Requirement

382Recipients of Social Assistance Payments
382Benefit Payments to Former Employees

383H. T5's and Payment of Interest to Members and Supporters
383I. T3's and Trusts
383J. U.S. Social Security

385Chapter 25: Record Keeping

385Why Is Good Record Keeping Important?
386How to Get Started
387How Long Should Records be Kept?
388Duplicate Official Receipts Other Than for Ten-year Gifts
389Duplicate Official Receipts for Ten-Year Gifts
389Records Relating to a Business Carried on by a Charity
389Records Relating to Tax Withholding
389Electronic Records
390Electronic Imaging
391Permanent Records
391Other Records
392Record Retention for GST/HST Purposes
392Destruction of Obsolete Records
392Requirement to Keep Records in Canada

395SECTION V - ACCOUNTING & FINANCIAL ISSUES

397Chapter 26: Budgeting

397Strategic Planning is the Context for Budgeting
397The Budget Process

398Sample Budget Process Schedule

398Developing the Budget

398(i) Revenues
398(ii) Expenses

399Integrate Cash Flow Projections to Avoid a Cash Shortfall
400Borrowing
400Reporting & Monitoring
401Program Evaluation
401Common Budget Issues

401(i) Communication
401(ii) Capital Expenses
402(iii) Department “Silos”
402(iv) Monitoring of Budgets
402(v) Unrealistic Projections

403Chapter 27: Accounting Systems

403Accrual vs. Cash Method of Accounting
404Division of Funds
405General Fund
405Capital Fund
405Other Funds
405Handling Cash Receipts
406Handling Disbursements
406Importance of Internal Control
406Classification of Accounts
407General Ledger Accounts

409Chapter 28: Financial Statements and the External Audit

4101. Statement of Financial Position (Balance Sheet)
4112. Statement of Operations and Changes in Fund Balances (Income Statement)

412 Function and Object Reporting

4123. Statement of Cash Flows

413a) Operating activities
413b) Investing activities
413c) Financing activities

4134. Notes to the Financial Statements
4135. Auditors’ Report

414When Should a Charity Have an Audit?
415Board Audit Committee
416Audit Committee Checklist of Questions
416Engaging an Auditor
416Audit Planning
416Review of Audited Statements
416In-Camera Discussion with External Auditor
416In-Camera Discussion with Management
417Review of Financial Statements
417Review Guidelines
417Review Program

4171. Bank Reconciliation
4182. Payroll
4183. Expenditures Other Than Payroll
4184. Receipts
4195. Financial Statements and General

420Review Report

423Chapter 29: Accounting Standards for Financial Reporting

423Changes to the CICA Handbook 4400 series

4231. Introduction
4242. Section 4400, Financial Statement presentation by NFPO’s
4243. Section 4430 - Capital Assets Held by Not-for-Profit Organizations
4244. Section 4450 - Reporting Controlled and Related Entities by Not-for-Profit Organizations
4245. Section 4460 - Disclosure of Related Party Transactions by Not-for-Profit Organizations
4256. Section 4470 - Disclosure of Allocated Expenses