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CANADIAN LEGAL CONFERENCE 2012 . CHARITIES, NOT-FOR-PROFIT ORGANIZATIONS AND SOCIAL ENTERPRISE SOME ISSUES TO CONSIDER. GENERAL. Is the social enterprise: A for profit organization? Regular Income T ax r ules apply 2. A not-for-profit organization?

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Canadian legal conference 2012
CANADIAN LEGAL CONFERENCE 2012

CHARITIES, NOT-FOR-PROFIT ORGANIZATIONS AND SOCIAL ENTERPRISE

SOME ISSUES TO CONSIDER


General
GENERAL

Is the social enterprise:

  • A for profit organization?

    Regular Income Tax rules apply

    2. A not-for-profit organization?

    Special Income Tax Act sections apply

    3. A registered charity?

    Special Income Tax Act provisions apply


Not for profit nfp organization
NOT-FOR-PROFIT (NFP) ORGANIZATION

subsection 149(1)(l) of the Income Tax Act

  • It is not a charity,

  • It is organized exclusively for social welfare, civic improvement, pleasure, recreation or any other purpose except profit,

  • It is in fact operated exclusively for the same purpose for which it was organized or for any other purpose in (b), and

  • It doesn’t distribute income to members.


Nfp social enterprise caution
NFP SOCIAL ENTERPRISE CAUTION

  • If the social enterprise is structured such that the activities can be described as follows, then may not be tax exempt under s. 149(1)(l):

    • Intentionally making profit from activities with non- members

    • Making income payable or otherwise available to the personal benefit of members

    • Earning profits from business lines


A registered charity
A REGISTERED CHARITY

  • CRA’s Guide CG 014 “Community Economic Development Activities and Charitable Registration”

  • CRA’s policy statement CPS-019 “What is a Related Business?”


Registered charity social enterprise caution
REGISTERED CHARITY SOCIAL ENTERPRISE CAUTION

  • Charitable organizations, public foundations and private foundations are prohibited from carrying on any unrelated business

  • Charitable organizations and public foundations can carry on related business


Is the social enterprise of a charity a business
Is the social enterprise of a charity a business?

Q: Is the social enterprise commercial?

Q: Does the charity intend to profit from the social enterprise?

  • If no to either question: the social enterprise is not a business.If yes to both questions:

    Q: Is the social enterprise simply the sale of donated goods?

  • If yes: the social enterprise is not a business.If no:

    Q: Is the social enterprise carried out on a systematic, regular basis?

  • If no: the social enterprise is not the carrying on of a business.If yes: the social enterprise is the carrying on of a business.


Is the social enterprise of a charity an unrelated business
Is the social enterprise of a charity an unrelated business?

Q: Is the social enterprise of a charity an unrelated business?

Q: Are substantially all the people running the social enterprise volunteers?

  • If yes: the charity is carrying on a related business.If no:

    Q: Is the social enterprise linked to the charity's purpose?

  • If no: the charity is carrying on an unrelated business.If yes:

    Q: Are the business activities subordinate to a dominant charitable purpose?

  • If no: the charity is carrying on an unrelated business.If yes: the charity is carrying on a related business.


Other considerations
OTHER CONSIDERATIONS: business?

  • Governance documents/legislation

  • Fundraising legislation

  • Disbursement quota requirements

  • Private foundations cannot engage in any business activities and are subject to excess corporate holding rules requiring public disclosure over 2% and divestment over 20%


Social enterprise using intermediary entities
Social Enterprise using Intermediary Entities business?

  • Financial Separation

  • Separate boards (not controlled by board of non-charity)

  • Distinctive names

  • Separate equipment, personnel and space

  • Legal agreements between entities


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