The International Journal
of Not-for-Profit Law
Volume 1, Issue 2, December 1998
Framework and Tax Legislation
The recent decision (January 28, 1999) in the Vancouver Society of Immigrant and Visible Minority Women v. Minister of National Revenue case is an important one for the definition of “charity” in Canada. What follows is a brief description of the decision in the case, written by our correspondent Arthur Drache, QC. A longer analysis of the case will appear in Issue 3 of the Journal. The text of the decision itself can be found at the website of the Supreme Court of Canada [https://www.scc-csc.gc.ca/].
Supreme Court Refuses Appeal…But Broadens Charity Law
The Supreme Court of Canada, by the narrowest of margins (four to three) refused the appeal of the Vancouver Society of Immigrant and Visible Minority Women against Revenue Canada’s refusal to register it as a charity. But while the Society itself must be unhappy in the extreme, the majority judgement (which becomes the law of the land) does significantly broaden the law of charity in Canada, at least insofar as it involves education.
Mr. Justice Frank Iacobucci, writing for the majority which included Justices Cory, Major and Bastarache, has rejected the tradition definition of what is “educational” in Canada. Revenue Canada and the Federal Court of appeal consistently took the position that to be educational, the activities must be limited to “the formal training of the mind” or “improvement of a useful branch of knowledge.” Iacobucci, after discussing the matter writes:
“Thus, so long as information or training is provided in a structured manner and for a genuinely educational purpose-that is, to advance the knowledge or abilities of the recipients-not solely to promote a particular point of view or political orientation, it may properly be viewed as falling within the advancement of education.”
He goes on to say that activities such as “workshops, seminars, self-study and the like” are acceptable modes of education and that there is no reason “to exclude education aimed at advancing a specific practical end”.
This part of the decision in itself is a sweeping change in Canadian law and is closely modelled on the current English approach.
The Society lost on two points. While Iacobucci found that in broad terms, the Society would have been treated as an educational charity, some of its activities were not educational in the charitable sense. These included the provision of a job skills directory and the establishment of support groups for professionals.
The Society had also claimed charitable status under the legal catch-all phrase of carrying on activities beneficial to the community. But to the surprise of many, Iacobucci wrote that providing support to immigrant women (or immigrants generally) is not a charitable activity, though he seemed more than prepared to accept that providing help to refugees as opposed to immigrants would be charitable. The basis of the distinction, it seems is that in his view, non-refugee immigrants are allowed to enter Canada based upon criteria which assume their success, and are thus not disadvantaged.
The three dissenting judges, Gonthier, L’Heureux-Dube and McLachlin, essentially split from the majority on this point, which is why they would have allowed the Society’s appeal.
In light of the fact that there is a strong movement in Canada amongst the charity community to legislate some definition of the term “charity” in the Income Tax Act, it is noteworthy to find that Iacobucci suggests no less than eight times that Parliament should be charged with legislating on the topic.
In the short run, the impact of this decision will be two-fold. Many of the decided Canadian cases on “what is a charity” will have to be looked at again in light of this judgement. In one case where a decision was pending from the Federal Court of Appeal, counsel for the charity was phoned three hours after the Supreme Court judgement came out and was invited to make additional submissions based on the decision.
Revenue Canada will have to change it’s approach to determining where or not a charity is “educational”, which may mean that many charities whose applications were rejected in the past might had a new lease on life. In the long run it appears that serious attention will need to be given to the legislative definition of charity. A “new approach” to the defintion was suggested in a brief filed by the Canadian Center for Philanthropy in the case. Further information about the suggestions made can be obtained by contacting the Canadian Center for Philanthropy or Arthur Drache [email@example.com].
University of Toronto Conference
The weekend of January 22 – 23 was an exciting one for persons interested in the “charity” sector in Canada. The University of Toronto Law Faculty held an important conference to discuss “Charities Between State and Market.” The conference was divided into four panel topics:
- Charity of Canada and Beyond; Empirical and Ethical Perspectives
- The Legal Meaning of Charity: Select Problems
- Tax Policy and Practice
- Regulatory Challenges to the Charitable Sector
A number of very interesting papers were presented and commented on by an audience of lawyers, legal academics, charity practitioners, and students. A book containing the conference papers is due to be published later this year. The conference was sponsored by the Kahanoff Foundation. Further information about the conference, please contact Professor Jim Phillips of the University of Toronto Law Faculty, firstname.lastname@example.org.
The Mexican Center for Philanthropy (CEMEFI), the Convergence of Civil Organizations for Democracy, the Mutual Support Forum, the Miguel Aleman Foundation and the Iberoamerican University have worked for 5 years on a draft law that would ease cooperation with the government in Promoting Social Development Activities of Civil Organizations. In November, they presented this draft law to the Citizens Participation, Constitutional Issues and Governance, and Social Development Commission of the lower chamber of Parliament.
Report of the Mexican Center for Philanthropy (CEMEFI)
Dada la creciente importancia de la participación de las organizaciones de la sociedad civil para el desarrollo social de nuestro país sin interés lucrativo ni compromiso partidista, resulta inminente la necesidad de que, a través de un marco legal adecuado, sea reconocida jurídicamente su aportación social y se logren mecanismos que faciliten las relaciones institucionales de cooperación y colaboración con el gobierno en materia de desarrollo social.
Desde hace más de cinco años, el Centro Mexicano para la Filantropía, la Convergencia para los Organismos Civiles por la Democracia, el Foro de Apoyo Mutuo, la Fundación Miguel Alemán y en una primera etapa la Universidad Iberoamericana como apoyo académico, hemos venido trabajando en una propuesta de ley que de un marco legal a la labor de las organizaciones no lucrativas promoviendo y estimulando su trabajo.
Como resultado de un proceso ampliamente consensado y enriquecido, se elaboró la propuesta de Ley de Fomento a las Actividades de Desarrollo Social de las Organizaciones Civiles la cual hicimos llegar a la Comisión de Participación Ciudadana, de Gobernación y Puntos Constitucionales y de Desarrollo Social de la Cámara de Diputados del Congreso el 24 de noviembre de 1998.
El proceso de lograr una marco regulatorio que incentive a las organizaciones civiles ha sido una ardua labor, confiamos en contar con la disposición amplia, abierta y comprometida de los legisladores en el próximo periodo de sesiones de la Cámara de Diputados para atender y apoyar este esfuerzo de varios años.
For Further information, please contact Consuelo Castro [email@example.com].
Recent Federal Legislation Affecting Private Foundations
On October 21, 1998, President Clinton signed into law the Omnibus Consolidated and Emergency Supplemental Appropriations Act (the “Act”). The numerous provisions of the Act include Section 1004 which addresses contributions of stock to private foundations and the public inspection of private foundations’ annual returns (Form 990-PF) and applications for recognition of exemption (Form 1023). The impact of Section 1004 of the Act on private foundations is described below.
Permanent Extension of Fair Market Value Tax Deduction for Contributions of Publicly Traded Stock to Private Foundations
The Act makes permanent Section 170(e)(5) of the Internal Revenue Code (the “Code”) that allows donors a tax deduction equal to the fair market value of “qualified appreciated stock” contributed to a private foundation. The Act thus ends the flurry of activity and the speculation concerning the extension of this provision that occurred in the past each time it expired. This provision had expired most recently on June 30, 1998, and the Act applies the permanent provision to all contributions made after that date. “Qualified appreciated stock” continues to be defined as publicly traded stock that is capital gain property.
Public Inspection of Annual Returns and Applications for Recognition of Exemption
The Act imposes upon private foundations the Code provisions governing the public inspection of annual returns and applications for recognition of exemption that apply to public charities.
Pursuant to the Act, the provisions described below are effective after the later of December 31, 1998, or the 60th day after the Treasury Department issues final regulations concerning when annual returns are considered widely available. Because such regulations have not been issued yet, the effective date will be the 61st day after the regulations are issued.
Public Inspection Rules Applicable to Private Foundations and Public Charities
- A tax-exempt organization that files an annual return (Form 990 or Form 990-PF) with the IRS must make copies of its annual returns for its three most recent tax years available for public inspection at its principal office and at any regional or district office with three or more employees. The organization also must provide copies of such returns to any person that requests them. (Prior to the Act, a private foundations had to make its annual return available for public inspection at its principal office for 1 80 days after the date of publication of a notice of availability of the annual return and did not have to provide copies.)
- An organization that has filed an application for recognition of exemption under Code Section 501 also must make a copy available for inspection at its office(s) and must provide a copy of the application to any person that requests it. (Under proposed regulations, this requirement would not apply to an organization that filed its application before July 15, 1987 and did not have a copy of the application on that date.)
- Exceptions to the requirement that an organization provide copies are provided if:
- the requested documents are widely available (under proposed regulations, this means posting the documents on the Internet), or
- the IRS determines that the organization is subject to a harassment campaign.
- An organization must comply with a request for such copies within 30 days if the request is in writing and immediately if the request is made in person.
- The organization may charge a reasonable fee to cover reproduction and mailing costs. (Under proposed regulations, the maximum charges are actual mailing costs and copying charges of $1 for the first page and 15 cents for each additional page.)
Elimination of Annual Return Public Notice Requirement
The Act eliminates the requirement that private foundations publish a notice in a newspaper stating that the annual return is available for inspection.
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Numerous other articles relating to the the United States appear elsewhere in this issue, including:
ICNL has in its library and documentation center and library numerous books, articles, conference proceedings, laws, self-regulatory guides, regulations etc. For further information on what is available on United States law, please contact ICNL.