Schedule VIII Universities and "Friends"
By: Arthur B. C Drache

One of the new provisions related to the non-profit sector will potentially create some compliance problems for foreign universities and the myriad "friends of" organizations which raise funds in Canada for such institutions.

In the words of the Budget, the proposals are designed "to enhance transparency and accountability and provide greater certainty to donors, Budget 2011 proposes that qualified donees be required to be on a publicly available list maintained by the Canada Revenue Agency.

As is the case for registered charities, these measures will enable members of the public to determine which organizations may issue an official donation receipt and will enable registered charities, which may only make gifts to qualified donees, to determine whether an organization is a qualified donee for grant-making purposes."

On the face of it, this proposal would not create problems for the foreign universities because being listed on Schedule VIII, they are compliant with the requirement of public listing.

But there is a new obligation.

These universities will also be required to keep books and records supporting any official donation receipts they issue, and to provide these to the CRA upon request. If a Prescribed University Outside Canada fails to keep books and records supporting any official donation receipts it issues, and to provide these to CRA upon request, or is involved in the improper issuance of donation receipts, the CRA may suspend its receipting privileges or revoke its qualified donee status.

The CRA takes the logical position in saying that prescribed universities may keep their books and records in their own jurisdiction but must make them available in Canada at the request of the CRA.

The rules will apply on or after the later of January 1, 2012, and Royal Assent of the implementing legislation. During the interim period, prescribed universities outside Canada will continue to be eligible for qualified donee status based on the current rules.

This new rule in effect gives the CRA the power to audit foreign universities, something they did not have in the past. Presumably, this in turn would create a situation where foreign universities can make an onward transfer of funds received to non-charitable projects and entities.an "abuse" which the CRA sees as being widespread.

As of this writing, the CRA has not set out a procedure which the universities must follow to assure that they are compliant with the books and record requirement. We assume (but don't know) that a separate set of records will have to be kept for Canadian sourced donations.

The CRA says on its web site that as further information is developed, it will be available on the Charities and Giving Web site at: Charities and Giving. 

So what is the problem?

Our experience is that it is exceedingly difficult to arrange for foreign organizations and foreign universities in particular to take steps to make them compliant for Canadian purposes when no other country makes similar demands. Indeed, we have found that it is difficult to even identify what part of the universityshould be contacted to make the arrangements. While it is likely American Schedule VIII universities can be more easily worked with, that is not the case with those in the score of other countries which have Schedule VIII institutions.

Domestically, the problem is that if a foreign university is not compliant and is struck from Schedule VIII, Canadian "friends of" organizations cannot simply transfer funds to the university which would no longer be a qualified donee. Such a transfer would lead to revocation of the domestic organizations registration.

Given that the "friends" organizations presumably have some direct contact with the university administration, it seems to us to be both important and indeed crucial that contact be made as soon as possible to alert the foreign institution to the new requirements and to keep them abreast of obligations which are required to maintain the status quo. 

Given the January 1, 2012 start date, this matter should have a high priority with Canadian  Friends organizations.