On August 27, 2014, the Canada Revenue Agency
("CRA") published guidelines to the
"ineligible individual" rules under the Income Tax
Act. These rules provide the CRA with the discretion to refuse
or revoke the registration of a "registered organization"
(defined to include registered charities and registered Canadian
amateur athletic associations), or to suspend its receipting
privileges, based on the past actions of a director, officer,
trustee, or person who controls or manages the registered
organization or who made the application to obtain the
organization's registered status. The CRA's authority in
respect of the ineligible individual provisions of the Income
Tax Act is limited to making determinations regarding the
registration status of a registered organization, and does not
extend to the sanctioning of the ineligible individuals
WHO IS AN "INELIGIBLE INDIVIDUAL"?
Generally, an individual is an "ineligible individual"
if he or she:
has been convicted of an offence (criminal or non-criminal)
that is related to financial dishonesty or is relevant to the
operation of the organization, such as fraud, forgery or the
misappropriation of funds; or
was connected to an organization whose registration was revoked
for a serious breach of the registration requirements, such as the
issuance of fraudulent receipts or participating in abusive gift
tax shelters, and the connection is through holding a
as a director, trustee, officer, or like official with the
of control or management of the revoked organization (directly
or indirectly); or
as a promoter of the tax shelter that caused the revocation of
The "ineligible individual" designation lasts for five
years from the date of conviction, except in the case of a criminal
offence whereby the designation remains in place until a valid
pardon has been granted or a record of suspension ordered.
HOW DOES THIS AFFECT THE CHARITY?
There is nothing in the Income Tax Act that prevents an
"ineligible individual" from serving a position with a
registered organization (i.e. director, officer, controller or
manager). For this reason, there is no process in place to allow a
registered organization to obtain a pre-approval or clearance
authorization from the CRA. Similarly, there is no requirement for
a registered organization to disclose the involvement of an
"ineligible individual" to the CRA.
If the CRA believes that an "ineligible individual"
poses a risk to a registered organization's beneficiaries
and/or assets, it will notify the registered organization. The
registered organization will have an opportunity to respond with
evidence addressing (i) whether the person is actually an
"ineligible individual"; (ii) the measures the
organization has in place to minimize any risk; and/or (iii) the
benefits arising from the individual's contribution to the
organization. In some cases, it may be difficult satisfy the CRA
that risks have been mitigated without removing the individual from
his or her current position within the registered organization.
The CRA will then use its discretion to refuse or revoke the
registration of the registered organization, suspend its receipting
privileges for one year, or take no action.
WHAT STEPS SHOULD A CHARITY TAKE?
Unless the CRA notifies a registered organization that it is
considering taking action regarding an "ineligible
individual", there are no steps that are required to be taken.
Nonetheless, there are procedures that can be taken by the
registered organizations in order to protect themselves from
becoming affiliated with ineligible individuals. For example, the
Income Tax Act does not require an individual to advise a
registered organization of his or her status as an ineligible
individual. Therefore, it may be prudent to include a provision in
the registered organization's by-laws requiring all officers
and directors (and the like) to disclose their status as an
ineligible individual, therefore, allowing the registered
organization the ability to proactively mitigate any risks that may
result from becoming associated with such an individual.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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