Canada: Charities And Not-For-Profit Newsletter - April 2014

Miller Thomson Welcomes New Charity Law and Private Client Specialist

We are pleased to announce that Sheila Crummey has joined Miller Thomson's Private Client and Charities and Not-for-Profit Groups.  Sheila is a leading expert in the area of Wills and estate planning as well as in charity and non-profit law.

2014 National Charity Law Symposium

The Canadian Bar Association and Ontario Bar Association National Charity Law Symposium will be held in Toronto on Friday, May 23, 2014, at the Toronto Board of Trade.  It is an annual day-long conference featuring a range of leading experts discussing timely and cutting edge issues in the world of charity law.  The Symposium is co-chaired by Kate Lazier.

Andrew Valentine will be among the speakers presenting at this year's Symposium.  Andrew will be speaking on developments in the Federal Budget that affect charities and non-profit organizations. 

Information and registration details are available here.

Canadian Senate Proposes Amendments to the Personal Information Protection and Electronic Documents Act (PIPEDA)

J. Andrew Sprague, Toronto

On April 8th, the Senate of Canada introduced Bill S-4, which proposes various amendments to the Personal Information Protection and Electronic Documents Act (PIPEDA).  The short title of this Bill is the Digital Privacy Act.

PIPEDA applies to all organizations that collect, use or disclose personal information in the course of commercial activities.  A commercial activity is defined as, essentially, any transaction, act or conduct that has a "commercial character", including the selling, bartering or leasing of donor, membership or fundraising lists.  To the extent that charities or non-profit organizations engage in the sale of goods or services, or otherwise engage in commercial activities, any personal information collected, used or disclosed in the context of that activity will be subject to PIPEDA.  PIPEDA imposes various requirements, including the requirement to obtain informed consent for the collection, use and disclosure of personal information, as well as limitations on the use of personal information and requirements for the safekeeping of such information.

The Digital Privacy Act proposes several amendments to PIPEDA.  One of these amendments specifies the elements of valid consent for the collection, use and disclosure of personal information.  This amendment provides that the consent of an individual is only valid if it is reasonable to expect that an individual to whom the organization's activities are directed would understand the nature, purpose and consequences of the collection, use or disclosure of the personal information to which they are consenting.  Thus, it is very important that consent be informed.

Permitted Disclosure of Personal Information without Consent

The Digital Privacy Act also sets out certain circumstances in which personal information can be disclosed without the knowledge or consent of an individual.  Such personal information may be disclosed by an organization:

(a)        to another organization where it is reasonable for the purposes of investigating a breach of an agreement or a contravention of laws, and it is reasonable to expect that if the individual knew about the disclosure, it would compromise the investigation;

(b)        to another organization where it is reasonable for the purposes of detecting, suppressing or preventing fraud that is likely to be committed, and it is reasonable to expect that if the individual knew about the disclosure, the ability to detect, suppress or prevent the fraud would be compromised; or

(c)        to a government institution, a part of a government institution or the individual's next of kin or authorized representative, where:

(i)         the organization has reasonable grounds to believe that the individual has been, is or may be the victim of financial abuse;

(ii)        the disclosure is made solely for the purposes relating to preventing or investigating the abuse; and

(iii)       it is responsible to expect that if the individual knew about the disclosure, the ability to prevent or investigate the abuse would be compromised; and

(d)        to a government institution, a part of a government institution or the individual's next of kin or authorized representative, where it is necessary to identify an individual who is injured, ill or deceased; however, if the individual is alive, the individual must be promptly advised, in writing, of the disclosure by the organization.

The proposed amendments to PIPEDA would also permit the collection, use and disclosure of personal information that is:

(a)        contained in a witness statement and necessary to assess, process or settle an insurance claim, or

(b)        produced by an individual in the course of his or her employment, business or profession, and the collection, use and disclosure is consistent with the purposes for which the information was produced.

Organizations would also be permitted to collect, use and disclose personal information for purposes related to prospective and completed business transactions.  Federal works, undertakings and businesses will also be permitted to collect, use and disclose personal information about an individual, without his or her knowledge or consent, as is necessary to establish, manage or terminate their employment relationship with the individual.

New Obligations in the Event of Security Safeguard Breaches

The Digital Privacy Act creates new obligations for organizations pertaining to breaches of security safeguards. In the event of any breach of security safeguards involving personal information under the control of an organization, the organization must promptly:

(a)        report the breach to the Canadian Privacy Commissioner if it is reasonable to believe that the breach creates a real risk of significant harm to an individual;

(b)        notify affected individuals if it is reasonable to believe that the breach of security safeguards creates a real risk of significant harm to an individual.  The notification must contain sufficient information to allow individuals to understand the significance to them of the breach and to take steps, if any are possible, to reduce the risk of harm that could result from it or to mitigate that harm; and

(c)        after notifying an individual, notify any other organization, a government institution or a part of a government institution of the breach if the notifying organization believes that the other organization, the government institution or part concerned may be able to reduce the risk of harm that could result from it or to mitigate that harm.

In determining whether a breach of security safeguards creates a real risk of significant harm to an individual, a number of facts will be considered, including: (a) the sensitivity of the personal information involved in the breach; (b) the probability that the personal information has been, is being, or will be misused; and (c) other factors that may be set out in regulations. The Digital Privacy Act also defines "breach of security safeguards" and "significant harm".

If the Digital Privacy Act becomes law, organizations will also be required to keep and maintain a record of every breach of security safeguards involving personal information under its control, and the Canadian Privacy Commissioner has the right to access or copy the records.

New Powers for Privacy Commissioner

The Digital Privacy Act also gives the Canadian Privacy Commissioner the power, in certain circumstances, to enter into a compliance agreement with an organization to ensure compliance with Part 1 (Protection of Personal Information in the Private Sector) of PIPEDA. 

The Commissioner may now also, if the Commissioner considers it to be in the public interest, make public any information that comes to his or her knowledge in the performance or exercise of any of his or her duties or powers under Part 1.  Previously, the Commissioner was only permitted to make public any information relating to the personal information management practices of an organization.  This will increase the reputation risk associated with a breach of the standards in PIPEDA.

Furthermore, the Commissioner may disclose, or may authorize any person acting on behalf or under the direction of the Commissioner, to disclose to a government institution, any information that is contained in a report that it receives in respect of the disclosure of a breach of security safeguards, if the Commissioner has reasonable grounds to believe that the information could be helpful in the investigation of a contravention of laws.

As the Digital Privacy Act makes its way through the Canadian Senate and the Canadian Parliament, we will provide further updates on the progress of the legislation and how it will affect charitable and not-for-profit organizations.  J. Andrew Sprague can also be followed on Twitter® @canadaprivacy.

City of Toronto Studies Social Programs in Churches After Sale of Church Properties

Andrew Jeanrie, Toronto

Churches and religious groups have always worked to improve the communities in which they operate, often including the provision of services for those in need.  These services have sometimes received funding from government and sometimes not, but have always been delivered at the option of the religious group, which ensures that the services are delivered by choice by these groups and are consistent with their mission. 

At its meeting of April 1-3, 2014, City of Toronto Council adopted a recommendation to do the following: (i) create an inventory of facilities and programs funded by the City and located within churches across the City; and (ii) study means for maintaining charitable and community services in their existing locations when a church is sold (together the "Study").  Despite a request by an interested party for clarity as to whether the latter objective was limited to City funded programs, no such clarification was given at Council.  Staff are to report back to the June 25, 2014 meeting of the Community Development and Recreation Committee.

While on its surface the Study appears innocuous, its impact could prove very real to those religious organizations impacted by the Study.  As set out in the report adopted by Council, the sale of a church can lead to additional costs to the City (presumably either to replace a program run by a church, or to find new space for an existing program) and the intent of the Study is to find a way to reduce the impact of such costs on the City.  If such costs are transferred back to the church, it will have a negative impact on the value of the church property and, therefore, have a direct impact on the funding available to the religious organization in order to achieve that organization's mission.

In essence, depending on the City's decision, the City's actions could result in a change from a voluntary to a mandatory transfer of funding or partial funding responsibility for aspects of social programs and services from the City to religious organizations.  This transfer could occur even though the sale of a church is a clear indication that the objectives of the religious organization in a particular area have changed, quite often as a result of changing demographics in one area and the need to allocate limited resources to other areas. 

If your church currently provides any sort of program assisting the community, you should take an interest in the Study and consider contacting the City.  Depending on the conclusions reached through the Study process, the value of your organization's property could be lowered, which could, in turn, reduce the resources available to your organization to achieve its specific objectives and mission.

CRA Updates Policy on Charitable Provision of Housing

Natasha Smith, Toronto

Earlier this year, CRA released an updated Guidance (CG-022) on Housing and Charitable Registration.  The new Guidance replaces CRA's former policy statement on the subject, and sets out CRA's position on the tax rules surrounding the provision of housing that relieves poverty or that includes specially adapted facilities to assist individuals overcome difficulties associated with disabilities or aging.  Charities that work in this space should review this new Guidance carefully.

With respect to housing that relieves poverty, CRA confirms that the provision of comfortable, modest housing to poor beneficiaries at less than fair market value rates can relieve poverty.  It is also acceptable to provide ancillary amenities and support services, such as meals, basic utilities, clothing, furniture or counselling.  CRA confirms that organizations must assess all prospective beneficiaries to ensure that they qualify as being in financial need.  CRA expects that charities will establish policies around how eligibility of individuals will be determined, which should include an assessment of their income, assets and liabilities.  CRA indicates that it also expects a charity to have policies confirming how they will deal with individuals who no longer qualify.

CRA also comments on the provision of housing that includes special services for the disabled or the elderly.  CRA confirms that the provision of comfortable and modest accommodation for such beneficiaries can qualify as charitable.  Unlike housing that relieves poverty, however, housing that includes specially adapted facilities for the disabled or aged does not need to be provided at less than fair market value to qualify as charitable.  It is thus not necessary for the organization to assess the financial circumstances of potential beneficiaries, provided that they are either disabled or elderly.  CRA does note that charities must ensure that the type of housing helps residents manage their particular conditions.

Organizations providing housing with specialized services for the elderly should also consult CRA policy on Charitable Relief of the Aged (CPS-002). 

The updated Guidance also addresses the information that must be provided when registering a charity that will provide charitable housing.  Among other things, organizations will be required to specify the criteria and process used to select beneficiaries, determine rental rates and ensure that only eligible beneficiaries receive charitable benefits.  If tenancy in a facility includes both charitable beneficiaries as well as non-charitable tenants, the organization must supply the proportion of each and confirm that non-charitable tenants pay market rent.  The organization must also confirm the goods, services and amenities that are available to both types of tenant.

These can also be expected to be the issues which the Charities Directorate will review when conducting an audit of a registered charity that provides charitable housing services.

Charities and prospective charities that provide housing services should review their policies and practices in light of this new Guidance.

New CRA Resources

Andrew Valentine, Toronto

The CRA Charities Directorate has released new resources in 2014 that will be of interest to charities and their donors.

New Videos on Political Activities

CRA has released three short videos that provide an outline of the rules related to political activities.  As part of the 2012 Budget, CRA was provided with additional funding to support its education and compliance activities in relation to political activities.  CRA has published various resources related to political activities, which should be reviewed by any organization that engages (or may engage) in public calls to action to encourage political change, or which engages generally in public policy analysis and/or advocacy and wants to ensure that it fully understands the rules.

CRA Updates Charities Media Kit for 2013-2014

CRA recently updated its online Charities Media Kit to include data from the 2013-2014 fiscal year (ending March 31, 2014).  The Media Kit provides information on various aspects related to the regulation of registered charities.  It also includes facts and figures on the Charities Directorate's activities in 2013-2014.  The Kit confirms as follows for 2013-2014:

  • as of December 31, 2013, there are a total of 86,617 registered charities;
  • CRA conducted 845 audits of registered charities;
  • CRA revoked 695 registered charities for failing to file their T3010 returns;
  • CRA revoked the registration of 23 charities for cause;
  • CRA received 3917 new applications for charitable registration; and
  • CRA received 418 applications for re-registration.

These statistics confirm the importance of filing T3010 returns on time each year.  The T3010 is required to be filed within 6 months of a registered charity's year end.  Failure to file the information return on time initiates in an automatic revocation process.  Once a charity has been de-registered for failure to file, it must re-apply for registration and pay a $500 fee.  It is clear from the statistics in the Media Kit that failure to file the T3010 return is by far the most common reason for revocation.

The statistics also show that charities should be aware that CRA is an active regulator and audits a significant number of registered charities each year.  Some audits arise through random selection, while others follow-up on possible non-compliance or complaints.  It is important that charities review their compliance with the rules in the Income Tax Act regularly so as to be prepared in the event of an audit.  Charities that have entered into past compliance agreements with the Charities Directorate, or which engage in activities that tend to draw particular CRA scrutiny (e.g., foreign activities) should be particularly vigilant, as they face a higher risk of audit.

What's Happening Around Miller Thomson?

Sandra Enticknap spoke at the 21st Annual CAGP*ACPDP National Conference in Vancouver on "Donations from Wills and Trusts" on April 9, 2014 and April 11, 2014. At the same conference on April 10, 2014, Sandra participated in a panel with Grant Monck, Janice Loomer Margolis, and York Wong on "Demystifying Complex Gifts by Working with Advisors"

Susan Manwaring presented "Social Enterprise and Social Finance - What's New and What Does it Mean for Gift Planners?" at the 21st Annual CAGP*ACPDP National Conference in Vancouver on April 11, 2014.

Susan Manwaring spoke with W. Laird Hunter, Q.C. on "The Politics in Activities - What Charity Law Has to Say" at a workshop held in Ottawa by CCIC on April 24, 2014.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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