It is well-known that a Canadian registered charity ought not to
transfer funds to a foreign or domestic entity that is not a
qualified donee. However, it is also important to bear in mind the
application of the Income Tax Act (the "Act") to
transfers of property other than cash. One context where this
arises is in transactions involving intellectual property.
The Act provides that a registered charity that makes a gift
other than to a qualified donee or in the course of charitable
activities may have its registration revoked. The Federal Court of
Appeal has upheld a number of revocations of charities that
transferred funds to foreign charities.
A gift is defined as a voluntary transfer of property made
without consideration or anticipation of benefit. As intangible
property is still property; it can be the subject of a gift from a
Canadian charity to a non Canadian charity.
We have seen a number of situations involving proposed transfers
of intellectual property from a Canadian registered charity to
another entity, usually in the context of an international network
of charities. Most such networks typically wish to consolidate
trademarks into a central entity to protect the international
brand, with trademark licences back to affiliates worldwide.
Similarly, some international organizations require that all new
intellectual property (for example copyrighted works) created in
each affiliate should be transferred to the international
If internationally standard branding is licensed to the Canadian
charity at the time that the branding or the Canadian charity is
created, then the licence typically involves a gift of property
(the brand) from the foreign entity to the Canadian charity,
subject to usage conditions. This transfer is not one to which the
Canada Revenue Agency ("CRA") will object. However, if
the Canadian charity simply started off using branding similar to
the international branding without any formal licence agreement,
then the Canadian charity likely owns the resulting Canadian
trademarks. The trademarks are property of the Canadian charity
which cannot simply be transferred into the affiliate international
entity as a gift without being offside the requirement that the
Canadian charity not make gifts to a foreign entity, even if such a
transfer may be in the best interest of the overall charitable
Instead, whenever intellectual property is to be transferred
from a Canadian charity to a foreign entity, the Canadian charity
needs to receive fair market value consideration for it. This
consideration is structured typically as back office services
provided to the Canadian charity (and other national charities) by
the central body or as a trade of one kind of intellectual property
(perhaps the main trademarks) for another (perhaps the ability to
use particular fundraising programs or particular programming
created outside of the Canadian charity). If the value of what the
Canadian charity receives from its affiliation with the
international affiliation can be shown to be worth at least as much
as the intellectual property to be transferred either on a one time
or a continuing basis, then the CRA should not seek to
recharacterize the transfer as a gift to a foreign charity.
Otherwise, any Canadian charity that transfers intellectual
property to an affiliated foreign charity risks loss of charitable
This article was previously published in the December 2014 issue
of the Ontario Bar Association's Charity and Not-for-Profit
Law Section Newsletter.
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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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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