The Budget proposes a new measure that will increase the
flexibility available to registered charities in structuring their
Under the current rules in the Act, registered charities are
limited in their ability to pursue business activities.
Charitable organizations and public foundations are permitted to
pursue a "related business" while private foundations are
prohibited from pursuing any business activities. These rules
resulted in limitations on charities investing in limited
partnerships. It has been CRA's administrative view that
an interest that is a partnership is a business interest and thus
the limitations on charities carrying on business applied. In
general, under partnership legislation a general or limited partner
is deemed to carry on the business of the partnership.
In practice, this has meant that registered charities were
largely prevented from investing in limited partnerships or are
required to implement more complex business trust structures to
Many charities felt this limitation was highly impractical and
prevented the effective investment of charitable funds.
Registered charities have a responsibility to invest the assets of
the charity prudently, and limited partnerships are a common
vehicle for private equity and hedge fund investments.
Furthermore, limited partnerships are often desirable as a vehicle
for engaging in impact investments that generate a return on
investment as well as further a social purpose. Registered
charities have argued that they would benefit from a greater
ability to make direct investments in limited partnerships.
The Government has responded to these submissions in Budget
2015. The Budget proposes to remove the restriction on
registered charities investing as passive investors in a limited
partnership. Specifically, the Budget proposes to amend the
Act to provide that a registered charity will not be considered to
be carrying on a business solely because it acquires or holds an
interest in a limited partnership.
The Budget proposes changes to subsection 253.1 of the Act to
provide that a registered charity shall not solely, because of the
acquisition or holding of an interest in a partnership, be
considered to carry on any business of the partnership if the
following conditions are met:
the charity – together with all non-arm's length
entities – holds 20% or less of the interests in the limited
the liability of the members is limited (i.e. it is a limited
the charity deals at arm's length with each general partner
of the limited partnership.
The Budget document states that the excess corporate holdings
rules – which place limits on shareholdings by private
foundations – will be amended so that shares held through
limited partnerships will be caught. The Budget also states
that the rules regarding non-qualifying securities and loanbacks
– which affect the timing and value of gifts of securities of
entities related to the donor – will be amended to apply to
donations of interests in limited partnerships.
The Budget notes that these rules would not apply where a
charitable organization or public foundation carries on a related
business through a limited partnership, as related businesses are
permitted for such charities. The Budget also confirms that
these measures will apply to registered Canadian amateur athletic
This change will be welcome in the sector. Many charities,
and in particular private foundations seeking to engage in social
finance and impact investing, have been constrained by the somewhat
artificial limitation on making investments in limited
partnerships. Limited partnerships are an attractive
investment vehicle (whether in the context of alternative
investments or social finance) and it will benefit the sector to
enable charities to invest in limited partnerships without having
to implement complex structures to comply with the rules.
This will allow more efficient and effective use of charitable
capital. On the other hand, charities with existing
limited partnership investments held through business trusts should
seek advice on whether to unwind these trusts.
The inclusion of the 20% limit on holdings is unfortunate and
could give rise to unnecessary complexity. It is difficult to
understand why the Government saw the need for this requirement
(and likely addition of complicated forms to track it).
The Budget papers confirmed our long held view that charitable
organizations and public foundations could invest in limited
partnerships that would be considered "related
businesses". This confirmation is welcome as some have
challenged this conclusion in the past.
The Budget confirms that this measure applies in respect of
investments in limited partnerships that are made or acquired on or
after April 21, 2014.
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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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