Don't Shoot The Messenger
This reprint comments on a number of specific topics to remind readers, yet again, that the devil is in the details. The variety and number of rules which non-profits and charities must consider continue to increase. Keeping track is a constant chore. And so to your already over-full in-basket, we add the following. But please don't shoot the messenger.
Penalty Fines - NPO Returns - Late
Filing
It seems remarkable that with the wealth of information available
to non-profit managers, boards, and their advisers, many people
remain unaware that non-profits are usually required to file
tax returns (Charities are exempt under the Income Tax Act
from filing an income tax return but they must file Form T3010
as discussed in "Who Shall Return?" LawNow April/May
1997) This obligation exists even though there may be no income
tax to pay. As well as the income tax return, many non-profits
are required to file a NPO Return, Form T1044.
A number of non-profits have reported that Revenue Canada has
imposed fines of $25 a day up to $2,500, the maximum allowed,
for late filing. The first point to note is that Revenue Canada
is imposing the penalty. But, apparently, as a result of a number
of complaints it has sent letters to some non-profits with its
policy on late filing of T1044. In that letter, the following
policy is set out which is our second point:
For non-profits that have never filed, the department is prepared
to accept the T1004 for the next fiscal period, if it is filed
within the required filing time. The department will not question
prior years. But non-profit organizations must file on-time for
subsequent taxation years or late filing penalties will be levied.
If you are at all unsure about whether you need to file T1044,
check with your organization's accountant.
Meal Allowances
Many non-profits and charities provide meal or other allowances
to their directors and employees. It is common for organizations
not to account for this as income to the recipient and for the
people receiving it to treat the amount as an honorarium. Recently
a number of non-profits and charities have been surprised when
they have been challenged on this practice.
The Federal Court of Appeal has stated that an allowance "is
an amount given to an employee (or director) to cover expenses,
such as travel for entertainment on the employer's behalf. The
employee is not required to account to the employer later for
what is actually spent. If the employee accounts to the employer
for the actual expenses, neither an initial advance given by
the employer nor any subsequent payment by the employer to reimburse
the individual for expenses is an allowance. The scope for abuse
of allowances is greater: because the employee does not have
to account for an allowance, large allowances might be given
as a form of hidden remuneration. Hence the general rule that
allowances form part of employment income."
In another case, the Federal Court of Appeal set down three principles
for determining allowances:
· The amounts are arbitrary or fixed, determined in advance
(even though based on an estimate of the potential cost);
· Allowances are paid to cover personal expenses in lieu
of reimbursement; and
· There is no obligation to account for them.
Where these conditions are met, payments to the individual are
taxable as income, because the recipient has the discretion to
use the money in any way they see fit, without the requirement
of submitting receipts.
So allowances are income for the people who receive them. And
the organization providing the allowance is required to complete
a T4 Supplementary Slip for all individuals who received income
from an office or employment during the year, if the remuneration
is $500 or more. But no matter what the amount of an allowance,
a director or employee must account for it as income on his or
her tax return.
Charitable Receipts for Dinner and
Banquets
If you're involved with charity fund-raising, you should know
that Revenue Canada has recently changed its policy about fund-raising
events and donation tax receipts. Normally, if you sell tickets
for an event such as a dinner dance you can issue a donation
receipt for the difference between the ticket price and the value
of the food and entertainment provided.
Under the new policy, if you are holding a combined dinner dance
and a silent auction, (for example) your organization won't be
able to issue a donation receipt for any portion of the ticket
price. Because of the auction, Revenue Canada will no longer
consider any portion of the ticket price to be a donation. If
you want to a issue donation receipts, you will have to issue
two separate tickets, one for the dinner dance and one for the
auction. People must be able to buy either ticket without the
other.
A final note. In mid-October, the Supreme Court of Canada heard
argument in B.(P.A.) v. The Children's Foundation
and T.J.(G), J.(R.C.) and S.(J.M.) v. Griffiths and
Boys' and Girls' Club of Vernon both of which deal with the
liability of organizations for the sexual misconduct of employees
with children for whom the organizations are responsible. We
have commented on these important cases in "Who is responsible?
Who should be?" LawNow August/September 1996 and "The
Need for Vigilance: Supervising the Supervisors." LawNow
August/September 1997. As soon as the judgments are released
we will devote another column to this very important topic. The
normal time for release of judgments is four to six months after
hearing.
Laird Hunter is a lawyer with the firm of Worton and Hunter
in Edmonton, Alberta.
