Those who follow the news closely may recall the name of a charity called IRFAN (International Relief Fund for the Afflicted and Needy) based in Mississauga. Several years ago it was the subject of comments by Stockwell Day and others that the charity was tied to the terrorist group Hamas. On April 13, 2010 IRFAN’s receipting privileges were suspended. The suspension itself is interesting as, to our knowledge, it has only been used 4 or 5 times since being passed into law seven years ago.

Now, it appears that IRFAN has been revoked (see here for the Canada Gazette announcement http://www.gazette.gc.ca/rp-pr/p1/2011/2011-04-09/html/commis-eng.html#f103). While it is unclear whether the revocation is based on the same principles as the original suspension; that the revocation action is being taken now is in itself interesting. A suspension is supposed to be a sanction in and of itself, suspension and revocation for the same infraction would be a bit like hanging and shooting someone for the same capital offense. It will be interesting to see if the CRA issues a press release on the topic but even if it does not we will work to find out the reasoning here.

More information on the story is available here http://www.theglobeandmail.com/news/politics/mississauga-charity-loses-licence-to-issue-tax-receipts/article1978187/.

It is not commonly known among charities that the last official step before revocation of charitable status is publication of the step in the Canada Gazette. The Gazette is not sold on newsstands, nor is it widely read, but it is the official publication in which government notices are often published. The latest edition revoked the following charities (the Gazette is available here http://canadagazette.gc.ca):

My colleague Arthur Drache has been watching and commenting on Canadian budgets probably longer than anyone else alive today - and his considered opinion is guessing the content of this budget is a mug’s game (see http://www.drache.ca/articles/charities/charities-directorate-plans-for-2011). Nevertheless, I am going to take a shot at guessing some of the contents of the Federal Budget.

One of the major initiatives of the Conservative government over the past year or so has been reformation of the pension system. Coupled with the fact that the scheduled increases to the RRSP limits end this year, I think we can expect to see an increase to the RRSP limit.

Environmental policy is seemingly another bete noire of the government, but with a potential election in the offing, one would imagine that the budget will have some allocation for the environment. This could take the form of CCA deductions for investments in environmental technology.

With respect to charities, there has been significant lobbying over the past year for a variety of initiatives. It is unlikely that any new policy resulting in reduced tax revenues will make it into the budget. That said, perhaps the simplest measure that could be taken would be to remove the arbitrary treatment of the first $200 donated. Of an amount donated the first $200 is credited at the lowest tax rate and anything over at the highest. While treating the entire amount of the donation at the highest tax rate will clearly cost something, it is relatively simple compared to some of the more technically complex suggestions which will either cost significantly more tax revenue or necessitate an entirely new bureaucracy. Nevertheless, there is only a small chance we’ll see this in the budget.

Adam Aptowitzer

Do not wait until you are in a situation where you find yourself gaping across a boardroom table at a board member who obviously does not recognize they have a conflict of interest. The old saying “it is not what you don’t know but what you don’t know you don’t know” applies to many organizations when it comes to conflicts of interest. You need to know what governs your organization before the need for action. 

According to Duhaime.org legal dictionary (http://www.duhaime.org/LegalDictionary.aspx) “Conflicts of interest can arise for directors when they or their friends of family stand to benefit financially from the actions of the board of directors, or when a director serves two or more organizations that may have adverse interests”.  It is easy to identify but sometimes awkward to deal with.  What is the procedure once it happens? 

There are three places to look to be prepared to deal with these conflicts when they arise.  The first and supreme place to look is the law that applies to the organization i.e. the legislation that created it in the first place.  For example if the organization is a Non Profit Corporation in Saskatchewan there are very specific provisions that apply about when to declare and how to deal with a conflict of interest.    For a great tutorial on this by the Government of Saskatchewan on this and other aspects of their legislation go to http://www.justice.gov.sk.ca/NPT/CHP2-conflict.shtml.

If there is no specific mention of conflict of interest in the legislation that created the organization then the second place to look is in the bylaws or any policy that the reorganization has adopted.    Bylaws are part of the fundamental documents of the organization and policies are rules that the organization has adopted to help operations go smoothly.  You may find a policy in place such as that indicated as model by one of my alma maters.   The Non-profit Sector Leadership Program at Dalhousie University has Board Development resources including as a sample Conflict of Interest policy at:  http://collegeofcontinuinged.dal.ca/Files/NP_Conflict_ of_Interest.pdf .  There are others out there.  It is important to have one that fits your organization.

Thirdly, if there is no specific legislation that applies to your organization and no bylaw or policy has been adopted then you must look to the rules that have been selected to formally operate the procedures of the meetings of the organization.  Many organizations default to the widely known Robert’s Rules of Order Newly Revised http://robertsrules.com .  This could be the definitive rule on conflict of interest and the last resort for organizations is stated as:

No member should vote on a question in which he has a direct personal or pecuniary interest not common to other members of the organization.  For example, if a motion proposes that the organization enter into a contract with a commercial firm of which a member of the organization is an officer and from which contract he would derive personal pecuniary profit, the members should abstain from voting on the motion.  However, no member can be compelled to refrain from voting in such circumstances. RONR (10th ed.  p. 394, l. 15-25).

In the end however, that might be a weaker rule than what you and your organization would prefer for every situation that presents itself as a conflict.  Relying on this rule alone may be unsatisfactory, especially if you are of the view where you feel that a conflicted member should excuse himself or herself not only from the vote but from the room when discussion is going on. So get busy and write your own policy so you will be prepared and you will not have to rely on the default.    

-Yvonne Chenier

One of the few recommendations of the Voluntary Sector Initiative actually implemented (I won’t count the intermediate sanctions until the CRA is actually serious about using them) is the general availability of information sent by the CRA to various charities.  Unfortunately, the CRA does not release a charity’s response to its letters. Thus, the only information available to the public is framed by the CRA. As a result, when the information becomes public (as in the following recent cases http://www.cra-arc.gc.ca/nwsrm/rlss/2011/m01/nr110114-eng.html, http://www.cra-arc.gc.ca/nwsrm/rlss/2011/m01/nr110107-eng.html and one set of letters in which I was involved http://www.cbc.ca/news/pdf/revocation-of-charity-status-cdn-ptach-society.pdf).

As an example, the CRA says that the first two charities ‘falsified’ bank records. That may be true, on the other hand, maybe the charity’s recordkeeping was just sloppy and they attempted to put together the pieces when the CRA audit began. The bottom line is that the CRA’s comments are  just one side of the story and cannot be taken as true in the absence of comments from lawyers for the charity.

-Adam Aptowitzer

Social Enterprise has been a hot topic in the sector for several years. One of its most high profile supporters in Canada has been former Prime Minister Martin. Mr. Martin has spoken on the topic at the Munk Centre (http://www.paulmartin.ca/en/speeches-20071108-1), published an adaptation of his speech in the charity journal The Philanthropist (http://www.thephilanthropist.ca/index.php/phil/article/view/5/5) and put his own money towards advancing the cause. Now Mr. Martin has banded together with a small group of like minded and influential people to petition finance on one aspect of social enterprise.

As reported in today’s Globe and Mail (http://www.theglobeandmail.com/report-on-business/business-makes-push-for-charity-innovation/article1875007/page1/) this group, calling itself the Task Force on Social Finance, presented its ideas on Social Bonds to Finance Minister Flaherty. Social Bonds have been in use for some time in other parts of the world but are hard to define because the terms of the bond are dependent on the circumstances for which they are used. Essentially, the ‘investor’ puts up the money to reduce some social problem. Solving the social problem theoretically results in less money paid by the state to fix the problem. These savings are used to provide a return on the bond.

As the article notes, the current legal envrionment is not designed for social enterprise (the definition of social enterprise is a topic for another post) from either a corporate or legal perspective. If Social Enterprise is to succeed we are going to need legal reform of the Income Tax Act. As it happens, I will be publishing some thoughts on that in the near future.

-Adam Aptowitzer

Every year charities need to file an annual information return. The form is called a T3010. In the past, the majority of the form was dedicated to reporting financial information. This information was necessary to determine if the charity complied with its disbursement quota (the “DQ”). As the DQ was eliminated in the March 2010 budget much of this reporting became redundant. Nevertheless, various pressures (and laws) require additional transparency and reporting from charities.

In the result, the Charities Directorate has just released a new T3010 form. Charities whose year end is after March 4 2010 (yes that’s supposed to be 2010) and who haven’t already reported should use the new form.

It’s available here: http://www.cra-arc.gc.ca/E/pbg/tf/t3010-1/t3010-1-10e.pdf.

- Adam Aptowitzer

Thanks for taking the time to visit our blog.

Drache Aptowitzer LLP is one of the country’s leading firms dedicated to serving the charitable, not for profit and non taxable sector. Our lawyers include Arthur Drache who is both a Queen’s Counsel and a member of the Order of Canada. He is one of the most widely published authors in the field and an internationally recognized expert in the area. You can read more about him and our other lawyers on our website www.drache.ca.

For now, we welcome you to our site and hope that as we publish this blog you’ll get a chance to learn from our group of collegial, friendly and knowledgable lawyers.

- Adam Aptowitzer