1. C. Yvonne Chenier, Q.C. ychenier@drache.ca CANADIAN LEGAL CONFERENCE 2012 CHARITIES, NOT-FOR-PROFIT ORGANIZATIONS AND SOCIAL ENTERPRISE SOME ISSUES TO CONSIDER

2. C. Yvonne Chenier, Q.C. ychenier@drache.ca GENERAL Is the social enterprise: 1.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

3. C. Yvonne Chenier, Q.C. ychenier@drache.ca NOT-FOR-PROFIT (NFP) ORGANIZATION subsection 149(1)(l) of the Income Tax Act a)It is not a charity, b)It is organized exclusively for social welfare, civic improvement, pleasure, recreation or any other purpose except profit, c)It is in fact operated exclusively for the same purpose for which it was organized or for any other purpose in (b), and d)It doesn’t distribute income to members.

4. C. Yvonne Chenier, Q.C. ychenier@drache.ca 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

5. C. Yvonne Chenier, Q.C. ychenier@drache.ca 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?”

6. C. Yvonne Chenier, Q.C. ychenier@drache.ca 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

7. C. Yvonne Chenier, Q.C. ychenier@drache.ca 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.

8. C. Yvonne Chenier, Q.C. ychenier@drache.ca 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.

9. C. Yvonne Chenier, Q.C. ychenier@drache.ca OTHER CONSIDERATIONS: 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%

10. C. Yvonne Chenier, Q.C. ychenier@drache.ca Social Enterprise using Intermediary Entities Financial Separation Separate boards (not controlled by board of non-charity) Distinctive names Separate equipment, personnel and space Legal agreements between entities