The document summarizes key information from a presentation on accounting and tax updates for not-for-profits held on October 21, 2015. It includes summaries of updates on charity tax rules, non-profit organization tax rules, employer health tax exemptions, employment insurance rebates, and restrictions on business activities for not-for-profits and charities. Presenters provided case studies and discussed issues such as leveraging intellectual property as a new income stream, liability considerations for certification programs, and determining related versus unrelated business for charities.

1. welchllp.com
2015 Accounting Updates
for Not-for-Profits
Wednesday, Oct. 21st, 7:30am-10:30am

2. welchllp.com
EVENT AGENDA
 Charity Tax Update
 NPO Tax Update
 EHT Exemption, EI Rebate & HST Update
 New Income Streams for Not-for-Profit Corporations
 Restrictions with Respect to Business Activities of NPOs & Charities
 Q & A
 10 Minute Break
 Update on Accounting & Audit Standards
 Controlled Entities, Branches & Divisions
 Disaster Planning
 Q & A

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Charity Tax Update
Damian Laflamme – Senior Manager, Taxation – Welch LLP

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CHARITY UPDATE
 Donations Involving Private Company Shares or
Real Estate
 Investments in Limited Partnerships by
Registered Charities
 Gifts to Foreign Charitable Foundations
 Recap of New Rules for Donations by Will
(2014 Budget Measure)

5. welchllp.com
Donations Involving Private Company
Shares or Real Estate
 Currently, publicly traded securities, ecologically sensitive land or Canadian
Cultural Property donations to charities exempt from capital gains tax
 After 2016, similar tax benefits will apply to donation of private company shares
and real estate where cash proceeds from disposition donated to charity within
30 days after disposition
 Must be sold to purchaser who deals at arm’s length with both donor and donee
 Cannot be reacquired by donor within 5 years of disposition
 For donors, cost of making a donation after 2016 can be reduced by gifting
proceeds from sale of private company shares and real estate (no tax)
 For charities, means potential larger donation receipt since donor required to pay
less tax

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 Currently charitable organizations and public foundations permitted to engage in business if
activities qualify as “related business”, but private foundations are not
 Partners, including limited partners, considered to be carrying on business carried on by
partnership
 Consequently, many limited partnerships (LP’s) do not carry on business which would be
related to activities of a particular charity or public foundation, few charitable organizations
and public foundations and no private foundations can hold interest in LP
 Many portfolio investments set up using LP structure
 Budget provides changes to allow charity to invest in LP by providing that charity will not be
considered to be carrying on business solely because it invests in LP
 Charity required to own 20% or less of LP and charity must deal at arm’s length with general
partner(s) of LP
 Applies to investments in LPs made on or after April 21, 2015
Investments in Limited Partnerships by
Registered Charities

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 Budget proposes to allow foreign charitable foundations to be
registered as qualified donees in Canada under same conditions
currently available to foreign charitable organizations
 Qualified donee status may be granted to foreign charitable
foundation if they receive gift Government and are pursuing
disaster relief, urgent humanitarian aid, or carrying on activities in
national interest of Canada
 Approved foreign charitable foundations listed on CRA website
(http://www.cra-arc.gc.ca/chrts-gvng/qlfd-dns/qd-
lstngs/gftsfrmhrmjsty-lst-eng.html)
Gifts to Foreign Charitable Foundations

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• Currently, gifts made by individuals pursuant to Will
considered to be made by individual immediately
before death and reported on final personal tax
return. Donation tax credits used in final tax return
or previous tax year
• Starting 2016, gifts made by individuals pursuant to
Will deemed to be made by estate (not individual) at
time property actually transferred to charity
• Value of gift = value at time of donation
• Estate can carry-forward unused credit 5 years
New Rules for Donations by Will

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• If estate is Graduated Rate Estate (GRE) when donation made,
credit can be claimed in:
• Year of death or immediately preceding year
• GRE or any prior year of GRE
• 5 year carry-forward available if estate continues after GRE status
ceases
• Therefore, gift made in last year of GRE status, could have up to 10
years to use credits
• Tax credits can be allocated to different years to maximize use
• Imperative that gift is made by GRE (i.e. within 36 months of
death) - Can be difficult if complex estate or litigation
• Must ensure GRE does not inadvertently lose status
New Rules for Donations by Will

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Damian Laflamme
Senior Manager - Taxation
dlaflamme@welchllp.com
@WelchLLP
CONTACT

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NPO Tax Update
Don Scott, FCPA, CA – Tax Partner, Director of Tax Services – Welch LLP

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NON-PROFIT ORGANIZATIONS (NPOs)
 NPO Consultation Paper – Update
 Income from Fundraising Event –
Exempt from Tax?
 Third Party Fundraising –Exempt from Tax?
 Income from Lottery – Exempt from Tax?
 T1044 Filing Requirements

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Don Scott, FCPA, CA
Tax Partner, Director of Tax Services
dscott@welchllp.com
@WelchLLP
CONTACT

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EHT Exemption, EI Rebate
& HST Update
Mona Tessier, CPA, CA - Senior Manager, Indirect Tax – Welch LLP

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AGENDA
 Employer Health Tax (EHT)
 Employment Insurance (EI) Rebate
 HST Update
o Claim period
o Rate change

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EHT
 Exemption increase to $450,000 January 1, 2014
 No exemption if salaries exceed $5 million
 Registered charities still eligible for exemption even if
payroll exceeds $5 million

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EHT
 Reminder separate locations – charities
o Charities with multiple locations treated as separate employer
for purposes of exemption
o Eligibility
 Registered Charity
 Not under control of government
o Formalized evidence that location is separate
 Supporting evidence – i.e. lease or ownership documents
in name of charity
 Location advertised on letterhead, business cards etc. OR
 Separate charity number OR
 Separate charity return

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EI REBATE –
SMALL BUSINESS JOB CREDIT
 Announcement September 11, 2014
 Two year measure
 Registered charities and non-for-profit
organizations eligible if 2015 and/or 2016
employer EI premiums ≤ $15,000
 Rebate calculation applies a reduced rate of
$1.60 per $100
 Regular rate is $1.88 per $100

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EI REBATE –
SMALL BUSINESS JOB CREDIT
 Example 14 employees earning $40,000
o Employer remittance
($40,000 x 14 x 1.88% x 1.4 ) = $14,740
o Reduced remittance
($40,000 x 14 x 1.60% x 1.4) = $12,540
o Savings = $2,200
 No action required. Rebate will be automatically
calculated based on T4 information

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HST UPDATE
 Claim period
o Excise Tax New #96 June, 2015
o Letters sent March 2015
o Explanation of proper claim period
o Registrant vs non-registrant
o Only one claim period per rebate application
o Claim can only be made in the applicable period

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HST UPDATE
 Upcoming Rate Change
o Newfoundland and Labrador
o Increase from 13% to 15%
o January 1, 2016

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Mona Tessier, CPA, CA
Senior Manager, Indirect Tax
mtessier@welchllp.com
@WelchLLP
CONTACT

23. Neil McCormick
October 21, 2015
Case Studies: New Income
Streams for Not-for-Profit
Corporations

24. New Income Streams – Leveraging IP
• Many not-for-profit corporations are finding it
difficult to rely upon traditional forms of revenue
generation – membership dues are down, and
grants are hard to come by
• We have seen a trend where our not-for-profit
clients are looking to new ways to generate
revenue and to stay relevant
• More particularly, we have seen clients
“leveraging” their intellectual property to increase
revenues
24

25. New Income Streams – Leveraging IP
• Intellectual Property
• Patents
• Industrial designs
• Trademarks
• Copyright
• Trade secrets
25

26. New Income Streams – Leveraging IP
• Case Study # 1
• Our client developed a training program in Canada
• Partners in developing countries showed interest in the
training program
• Our client has entered into contracts with partners in
developing countries to deliver the training program
• Increased revenues, but also pitfalls
26

27. New Income Streams – Leveraging IP
• Mitigating risks
• contracting with foreign corporations
• corporate searches
• Corruption of Foreign Public Officials Act
• enforcing judgments
• Canadian laws
• ensuring payment
• protecting intellectual property
• controlling copies
• obliging other party to identify risks “on the ground”
27

28. New Income Streams – Leveraging IP
• Case Study # 2
• Our client sought to implement a certification
program in Canada
• Certification would involve passing examinations
and charging candidates to write the
examinations
• Legal Considerations
• Consistent with purposes of the corporation?
• Potential Liabilities?
28

29. New Income Streams – Leveraging IP
• Liability to third parties
• Negligence in setting standards for certification
• Negligence in testing candidates
• Liability to candidates
• Mistake or unfairness in administering certification
scheme
• Liability for breaches of confidential information
• Candidates typically provide significant Personal
Information
• Duty to protect Personal Information
• Reduce liability by adopting a scheme consistent
with model ISO standards for certification
29

30. montréal  ottawa  toronto  hamilton  waterloo region  calgary  vancouver  moscow  london
Thank You
Neil McCormick
neil.mccormick@gowlings.com
(613) 786-0274

31. Carole Chouinard
October 21, 2015
RESTRICTIONS WITH RESPECT
TO BUSINESS ACTIVITIES OF
NOT-FOR-PROFIT ORGANIZATIONS
AND CHARITIES

32. NOT-FOR-PROFIT ORGANIZATIONS
• An organization will not be taxable if it meets the
requirements of paragraph 149(1)(l) of the
Income Tax Act.
- the organization cannot be a charity;
- the organization must be organized and operated
exclusively for a purpose other than profit; and
- none of the organization's income can be available
for the benefit of its members.
32

33. NOT-FOR-PROFIT ORGANIZATIONS (CONTINUED)
• In determining whether an organization has a
profit purpose, CRA will consider whether:
- there is a trade or business ;
- goods or services are restricted to members and
their guests;
- the business is operated on a profit basis rather than
a cost-recovery basis;
- the business is operated in competition with taxable
entities carrying on the same trade or business.
33

34. NOT-FOR-PROFIT ORGANIZATIONS (CONTINUED)
• An organization will not be exempt from tax if
earning profits is a purpose of the organization,
even if the profits are destined to support the
not-for-profit purposes of the organization.
• An organization that claims a tax exemption
under paragraph 149(1)(l) can earn a profit, as
long as the profit:
- is incidental; and
- arises from activities directly connected to its not-for-
profit purposes.
• This means that the profits must not be material
and must result from activities that the entity
carries out to meet its not-for-profit purposes.
34

35. NOT-FOR-PROFIT ORGANIZATIONS (CONTINUED)
• Fundraising is considered by CRA to be a profit
activity.
• CRA accepts that the following fundraising
activities can be carried on by a 149(1)(l) entity
without jeopardizing its tax-exempt status:
- games of chance (e.g. lotteries, draws);
- sale of donated or inexpensive goods (e.g. bake
sales or plant sales, chocolate bar sales)
35

36. NOT-FOR-PROFIT ORGANIZATIONS (CONTINUED)
• If an organization wishes to carry on a for-profit
business for the purpose of providing funds to
the organization, the business should be carried
on through a taxable entity.
• Loans should not be made to the taxable entity.
In CRA’s view, such loans suggest that an
organization is not using its income to support
its non-profit purposes.
36

37. CHARITIES
• Paragraph 149.1(2)(a) of the Income Tax Act
provides that the charitable registration of a
charitable organization may be revoked if the
organization is carrying on an unrelated
business.
• Subsection 188.1(1) of the Income Tax Act
imposes a penalty equal to 5% of the gross
revenue for a taxation year of a charity from a
business not related to the charitable activities
of the charity. Subsection 188.1(2) increases the
penalty for a repeat infractions to 100%.
37

38. CHARITIES (CONTINUED)
• First determination is whether or not the
particular activity of the charity constitutes the
carrying on of a business.
• Next question is whether the business is a
related or unrelated business.
• Policy Statement CPS-019, “What is a Related
Business?”, outlines the Charities Directorate’s
policy for determining whether a charity is
carrying on a related business or an unrelated
one.
38

39. CHARITIES (CONTINUED)
• There are two kinds of related business:
- business run substantially by volunteers: subsection
149.1(1);
- business that is linked to a charity’s purpose and
subordinate to that purpose.
• The Income Tax Act requires that charities have
exclusively charitable purposes. Running a
business cannot become a purpose in its own
right – it must remain subordinated to the
organization’s charitable purpose.
• It is the nature of the business and whether it has
some direct connection to a charity’s purposes
that determines whether it is a related business.
39

40. CHARITIES (CONTINUED)
• The fact that business income will be used to
fund the charitable activities of the charity is not
a factor in determining whether the business is a
related business.
• According to CPS-019, a business will be
considered linked to a charity’s purposes if it fits
within one of the following categories:
- Business activities that supplement charitable
programs: either necessary for the effective
operation of the programs, or they improve the
quality of the service delivered in the programs.
40

41. CHARITIES (CONTINUED)
Examples:
 hospital parking lots, cafeterias and gift shops
 gift shops and food outlets in art galleries and museums
 books stores, student residences and dining halls at
universities
- Off-shoot of a charitable program: a by-product of a
charity’s programs:
Examples:
 sale of bread by pioneer village
 sale by church of recording of choir
41

42. CHARITIES (CONTINUED)
- Use of excess capacity: use of charity’s assets and
staff to gain income during periods when they are not
being used to their full capacity within the charitable
program:
Examples:
 university renting out student residences during the summer
 church renting out parking lot during working hours
- Sale of items that promote the charity: involves sales
that are intended to advertise, promote, or symbolize
the charity:
Examples:
 pens, credit cards and other items clearly displaying the
charity’s name or logo
 T-shirts or posters depicting the work of the charity
42

43. CHARITIES (CONTINUED)
DECISION-TREE FOR IDENTIFYING AN UNRELATED
BUSINESS (FROM CPS-019)
I. Is a particular activity a business carried on by the
charity?
- is the activity commercial in nature—that is, does the
charity derive revenue in consideration for the provision of
goods or services?
- does the charity intend to profit from the activity?
Note:
 A history of profits suggests an intention to profit. However, this
intention may still be present even if there are currently no
profits.
 The mere presence of a fee charged to users of a charitable
program does not confirm an intention to profit.
43

44. CHARITIES (CONTINUED):
If no to either question: the activity is not business.
If yes to both questions:
- is the income-earning activity simply the sale of
donated goods?
If yes: the income-earning activity is not a business.
If no:
- Is the income-earning activity carried out on a
systematic, regular basis?
If no: the income-earning activity is not the carrying
on of a business.
If yes: the income-earning activity is the carrying on
of a business.
44

45. CHARITIES (CONTINUED):
II. Is the business of a charity an unrelated business?
- Are substantially all the people running the business
volunteers?
If yes: the charity is carrying on a related business.
If no:
- Are the business activities linked to the charity's
purpose?
If no: the charity is carrying on an unrelated
business.
45

46. CHARITIES (CONTINUED):
If yes:
- 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.
46

47. CHARITIES (CONTINUED)
• A charity may establish a separate taxable
corporation to carry on an unrelated business.
• The charity may invest in such a corporation on
the same basis that it can invest in any other for-
profit business.
47

48. Thank You
montréal  ottawa  toronto  hamilton  waterloo region  calgary  vancouver  beijing  moscow  london
Carole Chouinard
Tel: 613-786-8668
Email: carole.chouinard@gowlings.com

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Q & A Session

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10 Minute Break

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Update on Accounting &
Audit Standards
Christa Casey, CPA, CA - Partner & Director, Not-for-Profit Sector,
Welch LLP

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CHANGES TO STANDARDS
 Accounting changes in effect
 Upcoming accounting changes
 Upcoming auditing changes

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ACCOUNTING CHANGES IN EFFECT
 2014 Annual Improvements (ASPE)
 Issued in October 2014 effective fiscal years beginning on or
after January 1, 2015 (early adoption permitted)
o Clarity on recognition of hedging transactions that
straddle reporting period end
o Clarity on disclosure of carrying amount of impaired
financial assets
 Not required for current trade receivables

54. welchllp.com
UPCOMING ACCOUNTING CHANGES
 Statement of Principles
o Improvements to Not-for-Profit Standards
o Joint project with PSAB
o Issued in 2013
o Significant volume in responses

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 Statement of Principles
o Project divided into three phases
o Phase 1
 Addresses principles where agreement exists
 Exposure draft expected in first half of 2016
UPCOMING ACCOUNTING CHANGES

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 Statement of Principles – Phase 1
o Tangible Capital Assets
 Apply ASPE for the capitalization, amortization
and disposal of tangible capital assets
 Still have a NPO standard relating to contributed
capital assets
 Introduce guidance for partial write-downs of
capital assets to align with public sector
standards
UPCOMING ACCOUNTING CHANGES

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 Statement of Principles – Phase 1
o Intangible Assets
 Continue to apply current NPO standards
 Introduce guidance for partial write-downs of
tangible assets to align with public sector
standards
UPCOMING ACCOUNTING CHANGES

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 Statement of Principles – Phase 1
o Collections
 Add a requirement to account for collection at
cost or nominal value in the statement of
financial position
UPCOMING ACCOUNTING CHANGES

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 Statement of Principles – Phase 1
o Maintain existing standards
 Items that don’t qualify as a collection
(considered to be tangible capital asset or inventory)
 Related party transactions
 Allocated expenses
UPCOMING ACCOUNTING CHANGES

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 Statement of Principles – Phase 2
o Address whether and how to amend
 Requiring consolidation of controlled NPOs
 Requiring equity method for controlled profit
oriented enterprises
 No change to economic interest
UPCOMING ACCOUNTING CHANGES

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 Statement of Principles – Phase 2
o Present expenses by function in financial statements
and disclose by object in notes
o Present total fundraising expenses and general
support expenses separately in the financial
statements or disclosed in the notes
UPCOMING ACCOUNTING CHANGES

62. What topics in phase 2 do you think will
have the biggest impact on organizations?
A. Changes to accounting for
controlled entities
B. Presenting expenses by function
and disclosing by object
C. Disclosing total fundraising and
general support expenses
D. None of the above
Changesto
accountingfo...
Presenting
expensesbyf...
Disclosingtotalfundraisi..Noneofthe
above
0% 0%0%0%
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63. welchllp.com
 Statement of Principles – Phase 3
o Further research
 Pledges receivable
 Recognition of contributions
• Eliminating deferral/restricted fund methods
 Loosen criteria to recognize contributed materials
and services
UPCOMING ACCOUNTING CHANGES

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 Statement of Principles – Phase 3
o Further research
 Eliminating $500,000 size exemption
• Expensing tangible and intangible capital
asset purchases
 Applying ASPE to financial statement
presentation
• Except for issues unique to NPOs
UPCOMING ACCOUNTING CHANGES

65. What topics in Phase 3 do you think will
have the biggest impact on organizations?
A. Eliminating deferral method
B. Eliminating restricted fund method
C. Requiring small NPOs to capitalize
assets
D. Loosening contributed materials
and services criteria
E. None of the above
Elim
inatingdeferralm
ethod
Elim
inatingrestricted
fu..
Requiring
sm
allNPOsto
...
Looseningcontributed
m
...
Noneofthe
above
0% 0% 0%0%0%
welchllp.com

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 Audit reports
 Upcoming changes due to International Standards
o Three aims:
 Insight
 Transparency
 Improved readability
o Timing of implementation still to be decided
UPCOMING AUDITING CHANGES

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 Audit reports of NPOs
 Effective years ending December 15/17 and after
o Early adoption permitted
UPCOMING AUDITING CHANGES

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 Key changes
o Opinion section presented first
o Basis for opinion (where necessary) presented 2nd
o Enhanced auditor reporting on going concern
o Affirmative statement about independence and
fulfillment of ethical responsibilities
o Enhanced description of auditor’s responsibility and
key features of an audit
UPCOMING AUDITING CHANGES

69. welchllp.com
Christa Casey, CPA, CA
Partner & Director, Not-for-Profit Sector
ccasey@welchllp.com
@ChristaCaseyCPA
CONTACT

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Controlled Entities,
Branches & Divisions
Garth Steele, CPA, CA – Audit & Indirect Tax Partner, Welch LLP

71. welchllp.com
TWO ISSUES TO DEAL WITH
 Financial Reporting
 Governance Issues

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START WITH AN UNDERSTANDING
OF THE RELATIONSHIPS
 Incorporated / Unincorporated?
 Charter or other constating documents

73. Does your organization have "related"
entities of one form or another?
A. Yes
B. No
C. Uncertain
Yes
No
Uncertain
0% 0%0%
welchllp.com

74. welchllp.com
FINANCIAL REPORTING
 Control
 Significant Influence
 Establish and monitor

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GOVERNANCE ISSUES
 Establish liability for actions of other entities
 Assert control over deemed "owned" activities
or assets

76. welchllp.com
ACTIONS
 Incorporate unincorporated entities
 Amend bylaws to vary level of control

77. Do you need to do some investigating into
this issue after you leave here today?
A. Yes, I’m worried!
B. Yes, but not likely to be a big
issue.
C. No, we've dealt with this issue &
have taken corrective action.
D. No, this is not an issue for us.
Yes,I’m
worried!
Yes,butnotlikelyto
be
a...
No,w
e've
dealtw
ith
this...
No,thisisnotan
issuefo...
0% 0%0%0%
welchllp.com

78. welchllp.com
Garth Steele, CPA, CA
Audit & Indirect Tax Partner
gsteele@welchllp.com
@WelchLLP
CONTACT

79. welchllp.comwelchllp.com
Disaster Planning
Shawn Kelso, CPA, CA – Partner, Director of Professional Standards –
Welch LLP

80. What would you estimate to be the % of
SMEs that fail after being struck by a disaster?
A. <20%
B. <50%
C. <70%
<20%
<50%
<70%
0% 0%0%
welchllp.com

81. welchllp.com
REASONS FOR DELAYS
 The project is overwhelming
 They don’t know where to start
 To many other things going on
Today I am going to provide you with important
considerations with respect to creating a disaster
recovery plan…

82. welchllp.com
GET STARTED!
a. Buy in from management
b. Create an emergency operations team
i. Identify a project leader
ii. Establish roles and expectations
c. Have a kick off meeting
i. Introduce the purpose
ii. Create time lines
iii. Set goals and establish accountability

83. welchllp.com
KEY COMPONENTS
 Assess risk
 Involve all key functions/departments must
 Get it on paper
1. Templates
2. Checklists
3. Contacts (supplier, customer, employee)

84. welchllp.com
KEY FUNCTIONS
 Understand critical resources required to maintain
operations
o software, access to websites, hardware etc.
 Establish “must do” in their areas (RPO)
o Recovery point objectives
 Establish how quickly you need to recover (RTO)

85. welchllp.com
KEY RESOURCE REQUIREMENTS
 People (Cross Training, Outsourcing, Scheduling,
Prioritizing)
 Data
 Infrastructure

86. What We Do
Agility provides the 4 key Elements
of Disaster Recovery
1. Office Space:
Everything needed for
your employees to work
2. Power for the office
3. Communications:
Telephone and Internet
access & equipment
4. Computer System:
Computers, servers,
printers, fax
welchllp.com

87. Prepare to Survive.
For Welch Promotional Pricing
Please contact
Daniel McCarter
720-490-4528
Daniel.McCarter@agilityrecovery.com
welchllp.com

88. Does your organization have a
documented disaster recovery plan?
A. Our plan is documented
B. Tested on a regular basis
C. Don’t know
Ourplan
isdocum
entedTested
on
a
regularbasis
Don’tknow
0% 0%0%
welchllp.com

89. welchllp.com
Shawn Kelso, CPA, CA
Partner, Director of Professional Standards
skelso@welchllp.com
@WelchLLP
CONTACT

90. welchllp.comwelchllp.com
Q & A Session

91. welchllp.comwelchllp.com
Thank you!
In the next few days, you will receive a digital copy of the slides
and links to all of our applicable content.