TITLE Subtitle Is Your Charity Tax Status at Risk?
Is Your Charity Tax Status at Risk? Chair Lyne Bouret Controller (Interim) Concordia University Barry Travers - Partner KPMG LLP Presenters Joanne McKee Chief Financial Officer Ryerson University Brad Klaiber Director, Financial Reporting University of Calgary 2
Agenda 1.1 Qualifying activities with Charitable Purpose 1.2 Charity receipting guidelines 2.1 Ryerson University 2.2 Lifeline Syria Challenge 2.3 Meeting the Objects of Ryerson 3.1 Issues associated with an Unrelated Business 4.1 University of Calgary 4.2 Overview of Unrelated Business Analysis Process 4.3 Review 3 examples of separate businesses 5.1 Summary and Questions 3 3
The Changing Landscape of a Charity Growing & Evolving Organization Organizations in the NPO/Charity Sector grow and evolve; Charities are diverse, complex organizations that may have grown beyond original Charitable Purpose. Funding Shortfalls Funding shortfalls create the need to expand revenue sources CRA Audit This has caught the eye of CRA with Public Sector Audit teams and TEBA program 4
Definition of Charitable Purpose Eligibility for Charity Registration based on: 1. Constituted for purposes that are exclusively charitable Define the scope of activities 2. Devotes its resources to charitable activities that further those purposes 5
Charitable Organization Criteria Is established as a corporation, a trust or under a constitution Has exclusively charitable purposes Primarily carries on its own charitable activities, but may also gift funds to other qualified donees (e.g. registered charities) More than 50% of its governing officials must be at arm s length with each other Generally receives its funding from a variety of arm s length donors Its income cannot be used for the personal benefit of any of its members, shareholders, or governing officials 6
Charitable Purpose Categories Relief of poverty Advancement of education Advancement of religion Purposes beneficial to the community Example To advance education by establishing and operating a public post-secondary school for qualified scholastic candidates in prescribed programs. 7
Charity Receipting Guidelines Donation does not include a gift of service as it is not property Donation is not a gift if part of contractual or other obligation (e.g. split-receipting) Donor cannot receive an advantage Donation can be made to a specific program but not to the benefit of a non-arm s length person Donation must be given freely 8
Charitable Purpose Overview Presented by Joanne McKee - CFO
Ryerson University Located in downtown TO, heart of one of the world s most culturally and linguistically diverse urban centres. Offering more than 100 undergraduate and graduate programs and the Chang School of Continuing Education Students: 38,950 Faculty and staff: 2,700 Alumni: 170,000 Endowment Fund: $ 120,000,000 Total Assets: $1,516,000,000 Total Revenues: $ 660,000,000 Operating Budget: $ 543,000,000 15/16 Donations & Pledges: $ 25,900,000 LifeLine Syria Donations: $ 4,300,000 10
Program Beginnings: Faculty and board members were members of the citizens group Lifeline Syria. Lifeline Syria set a goal to encourage private sponsorship of 1000 refugees. The President called upon the Ryerson community to take a leadership role! The Ryerson University Lifeline Syria Challenge, led by the VP Research Innovation, was launched in June 2015. The aim was to encourage Ryerson community to sponsor 25 families. U of T, OCAD and York joined with the goal to sponsor 75 families. 11
Program Structure: Encourages private sponsorship to resettle Syrian refugees to Canada. Mobilize individuals from the universities and communities. Coordinating the matching of Syrian refugees with Sponsoring Teams. Sponsoring Teams provide settlement support to Syrian refugees. Ryerson accepts charitable donations to be used toward the Sponsoring Team s financial commitment as set by the Government of Canada. Sponsoring Teams are not matched with a family until they are able to raise sufficient funds to meet its financial commitment. 12
Fundraising Issues to Address Would the Program donations qualify as a donation to Ryerson and thus be eligible for a charitable tax receipt? Do the Program activities conform with the charitable purpose of Ryerson as a Higher Education institution? Would the Program be considered Advancement of education or Relief of poverty? Any issues with the Administration of the Program through an Intermediary (i.e. the Sponsoring Teams)? Will Ryerson direct and control the use of resources when operating decisions are delegated to the Teams? 13
Ryerson University Act Objects 1) The advancement of learning, and the intellectual, social, moral, cultural, spiritual, and physical development of the University's students and employees, and the betterment of society. 2) The advancement of applied knowledge and research in response to existing and emerging societal needs and in support of the cultural, economic, social, and technological development of Ontario. 3) The provision of programs of study that provide a balance between theory and application and that prepare students for careers in professional and quasi-professional fields. 14
Ryerson s Charitable Objects Met? RULSC Program meet the Ryerson objects: Program supports the betterment of society Consistent with the Government of Canada s commitment to resettling Syrian refugees. Extensive involvement of Ryerson Students in the Program Minimum of 3 students assigned to each team Vast network of student volunteers - over 400 Students signed up Program provides experiential learning and applied research opportunities for Ryerson students. Student volunteers divided into specialized cross-disciplinary support groups. 15
Dedicated Ryerson Students! Arabic-speaking students: Commerce students: Politics students: Peer mentoring: ESL Program: Tutoring: Employment: Nursing Students: Immigration and Settlement Studies: Translation and interpretation Financial literacy and banking support Civic engagement, role of government, nature of elections Youth - leadership, mentorship, and community activities On-location support for language skills development Students - tutoring support across a variety of subjects Provide job seekers with skills for resume writing, mock interviews Assist with applications and access to healthcare services Resource mapping and connection to services 16
Administration of the Program Agreement between Ryerson and the Sponsoring Team: Roles and responsibilities Activities performed by the Team Responsibility of Team for fulfilling its financial obligations for resettlement Financial guidelines governing the process and disbursement of the donations Ryerson Senior Administrative Offices exercises Direction and Control: Vice-President, Research Outreach, oversight of program and Innovation: and communications Ryerson Project Coordinators: Provide a central point of contact for all Sponsoring Teams Vice-President, Advancement: Monitoring, tracking, receipting of Team donations CFO/Financial Services: Approval of advances, financial recording, detailed review of supporting documentation and financial reports 17
Due Diligence & Documentation Sought external professional tax and legal advice Support of internal legal counsel Coordinated effort between VP Research & Innovation, VP Advancement and CFO (and respective teams) Support from Executive and Board Hired part-time staff to assist with administration of the Program Developed system tracking, prescribed forms and processes Safeguarding of Ryerson s charitable status Formal document prepared by Internal legal counsel Documentation of program structure and outline Details of processes and procedures Summarize rationale of Program and consistency with Ryerson objects 18
Expansion of Funding Opportunities Land Development Retail Operations Hotel Operations University Charity Energy Generation Commercializing Research Expansion of service offerings Which of these may be an unrelated business to a Charity? House of Holy God (2009 FCA 148) 19
What is a Related Business Criteria 1. Regular recurring income generating activity 2. Not Passive in nature Run substantially by volunteers; or Linked & subordinate to its charitable purpose Example Retail operated by students (1) Food Services (2) Paid Parking areas (2) Bookstore and Computer Stores (2) 20
Structural Planning Considerations University Charity Considerations: 1.Protects charity 2.Moderately tax efficient 3.Governance to maximize opportunities 4.Labor Union issues Holdco (Unrelated Business Activities) 21
Structural Planning Considerations University Charity Foundation Considerations: Corp Trustee 1. Protects charity 2. Highly tax efficient 3. Governance model for Corp Trustee 4. Arrangements with Third Parties 5. Trust not consolidated with Charity as beneficiary 6. Labour Union Issues Sublease and Partner Agreement with Third Parties Trust Service Providers and Contractors (i.e. Senior Management Team) 22
Related and Unrelated Business Activities Presented by Brad Klaiber Director, Financial Reporting 23
About the University of Calgary Canada s leading next generation university located in Calgary at the foothills of the Canadian Rocky Mountains 200+ Academic Programs 14 Faculties 50+ Research Institutes & Centres 30,200 Students 5,000 Faculty & Staff $325+ M Research Income $772.3 M in Endowments $1,266.7 M Annual Budget 24
Overview As a sector, we often look for additional sources of revenues or savings to better support the student learning experience, teaching, research, and community service In assessing new options, we need to consider implications to not-for-profit and charity status Three University of Calgary Examples and the steps we took to ensure appropriate structure and documentation Cogeneration of Heat & Electricity Hotel Residence Land Development 25
Cogeneration Facility 13 MW facility Combines electricity generation with heat generation $18.0 M incremental cost to construct $3.5 M in annual savings 80,000 tonne reduction of CO2 26
Cogeneration Facility Are cogeneration operations a business? We do sell power to the electricity grid, but Need to use the electricity grid to move electricity to our other campus locations located away from main campus Generation meets our base load requirements we remain a net consumer of electricity We do not sell our heat to other customers Is it a business yes Is it a related business yes as it exclusively supports operation of the University 27
Cogeneration Facility Considerations going forward: What if power exceeded base load requirements? What if heat or electricity were sold to third parties? If third parties are involved, are they related not for profit organizations such as a hospital, or would the third parties be for profit organizations Net production of electricity and/or heat may result in cogeneration facilities as being viewed as an unrelated business Classification of related or unrelated business should then be considered 28
Hotel Alma Located in the heart of main campus 96 rooms and suites 125 year round apartments & seasonal residence 29
Hotel Alma A place where visiting professors, university contractors, parents, short term and prospective students can stay in a facility integrated with the campus community Is it a business yes Is it a related business yes, and requires periodic reassessment to ensure it continues to meet the test of a related business 30
Hotel Alma When assessing if Hotel Alma is a related business, we consider: Service provided to visiting professors, family members, students, and community members attending university sporting events Space used for seasonal residence University meeting rooms and event space in the building Use as a training facility by our Haskayne School of Business Hospitality Management Program 31
Development of West Campus Lands 200 acres located adjacent to and west of main campus Offering diverse housing, office and retail space, and outdoor and community areas 32
Development of West Campus Lands Goal receive benefit from west campus lands in support of the University s mandate for teaching and learning, research, and community service Land development activities needed to monetize and generate benefit to support the University would be an unrelated business. Conclusion Business yes Related business no Unrelated business 33
Development of West Campus Lands University was unable to develop the land, but We could still receive benefit by: Leasing the land at fair market value to arms length development trust (passive income) Receiving beneficiary allocations from the Trust as development activities generate surplus lease revenues Both beneficiary allocations and FMV lease income support teaching and learning, research, and community service activities 34
Development of West Campus Lands Overview of Trust Structure West Campus Development Corp. Lease land to Trust Corp. acts as Trustee over trust activities West Campus Development Trust Development and sub leasing activities Receive lease pmt. @ FMV Receive surplus sub lease revenues as beneficiary distribution to University University of Calgary 35
Summary - Transactions to Consider Transactions not conducted at Fair Market Value Distributions or reimbursements to third parties that do not tie back to charitable purpose Allocation of funds to an entity that is not a qualified donee Revenue sources that constitute business income that is unrelated to charitable purpose 36
The Audit Risk!! 37
Questions and Merci!! 38