1 cross-border legal and tax issues for ministries robert b. hayhoe [email protected]...
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Cross-Border Legal and Tax Issues for Ministries
Robert B. [email protected]
416.595.8174
Canadian Council of Christian CharitiesSeptember 2003 Annual Conference
Mississauga, Ontario
M I L L E R T H O M S O N LLPBarristers & Solicitors, Patent & Trade-Mark Agents
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International Ministry Scenarios
MILLER THOMSON LLP
Canadian Funding of U.S. BasedMinistry
U.S.
Field Ministry Activities by U.S. Employees
Africa Asia EuropeLatin
America
Canada$
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International Ministry Scenarios
MILLER THOMSON LLP
C om bined fie ld m in istry activ ities:-U .S . em ployees-C anadian em ployees-G erm an em ployees
Africa Asia EuropeLatin
Am erica
C anada$ $
$
Multi-Lateral Integrated Ministry(possibly U.S. Centered)
U .S .
G erm any
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International Ministry Scenarios
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Multi-Lateral Partitioned Ministry
Canada
AFRICA
Sta
ff +
$U.S.
ASIAEUROPE
LATINAMERICA
Staff + $
Sta
ff +
$ Staff + $
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Canadian Background
• Any foreign charity can fundraise in Canada• Only donations to “qualified donees” result
in a Canadian individual tax credit/corporate tax deduction – exceptions in Canada US tax treaty
• US college attended by a family member
• donations to US charities tax-recognized against Canadian taxes on US-source income
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Qualified Donees
• Canadian Registered Charities• UN and UN agencies• Crown (Canadian federal or provincial
government)• Foreign charities with Canadian
government patronage• Prescribed foreign universities customarily
attended by Canadians
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Registered Charity
• Income Tax Act definition of “registered charity” – corporation, trust or association with
charitable purposes– must be both:
• “resident in Canada”; and• “created or established in Canada”
• Therefore non-Canadian charities cannot become registered charities
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Establishment of Registered Charity
• Create Canadian legal entity – majority Canadian board
• Canadian residence requirement
• Apply for registration with Canada Customs and Revenue Agency– T2050 form
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Grants by Registered Charities
• Registered charities– must devote their resources to their own
charitable activities, or– make grants to qualified donees
• Canadian Registered charities may not make grants (gifts) to foreign charities– explicit grounds for revocation of
registration
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Consequences of Revocation of Charitable Registration
• No intermediate sanctions in Canada• Loss of tax exempt status• Loss of tax recognition for donors• Imposition of penalty tax equal to 100% of
charity’s assets– capital punishment
• Two recent high profile revocations– Canadian Magen David Adom for Israel
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Foreign Activities by Registered Charities
• Canadian registered charities can operate anywhere in the world– consistent with charitable purposes
• mission activities are just as charitable in Nairobi or Dallas as in Toronto
• Direct foreign activities– local or Canadian employees
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CCRA Approach to Foreign Activities
• Formerly very flexible• Now increasingly complex and stringent
– RC 4106 “Registered Charities Operating Outside Canada”
– T3010 annual return questions– T2050 application for registration
questions– significant audit attention
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Indirect Foreign Activities by Registered Charities
• Always subject to “own activities” test
• RC 4106 “Registered Charities Operating Outside of Canada”– need binding written agreements– agency/joint ministry arrangements
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Joint Ministry Agreement
• Core elements:– pooling of resources for common
project– requires decision-making structure
• Canadian votes proportional to monetary contribution
– joint liability– stringent recordkeeping requirements– term and termination
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U.S. Perspective on Joint Ministry Agreements
• Some US lawyers believe that “Joint Venture” terminology suggests a separate entity under US law and may create additional tax and liability issues– agreements must be drafted carefully to
reduce this concern
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Agency Agreement
• Principal (Canadian charity) hires agent (foreign charity) to complete some task
• Project choice is made by principal• Operational decisions can be made by
agent• Liability flows from agent to principal
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Fee for Service
• Canadian charity may hire foreign charity for specific services– missionary training– evacuation facilities– supervision of short terms teams
• Need invoices• Need prior written contract unless nominal
amount (under $5,000 per year)
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Recordkeeping
• Registered charities must keep records in Canada to show charitable nature of all activities
• Foreign indirect activities:– agency or joint venture agreement– operational reports– financial reports (with backup)– segregated bank accounts for agents
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Choice of Arrangement
• Multi-Lateral Integrated Ministry– joint ministry arrangement– may be limited to Canadian participation
• Multi-Lateral Partitioned Ministry– joint ministry arrangement possible– agency arrangement preferred
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Choice of Arrangement
• Canadian Funding of U.S. Based Ministry– joint ministry arrangement possible– agency arrangement preferred
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Anti -Terror Law in Canada
• Post 9/11/01 Bill C-36• Refuse or revoke charitable registration for:
– making any resources available to a terrorist organization (directly or indirectly)
• secret appeal process• CCRA initially targeting specific Islamic
terrorist fundraising charities, not aid or mission agencies
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Key General Legal Issues
• Allocation of liability risk should be carefully considered:– activities conducted as an independent
contractor– activities conducted as an agent– activities conducted “jointly”– insurance coverage– indemnification
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General Legal Issues
• Immigration Law– visa requirements for ministry staff
transfers• NAFTA
• Intellectual property law– possible to deal with trademark
licensing issues to confirm ownership of names
– website integration issues• Real and personal property
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Recommended Approach
• Ministry structure should be driven by institutional values (not Canadian tax law)– Limit overhead and extraneous
processes– An ignored arrangement is an
admission of wrongdoing• Canadian legal compliance is a spiritual
obligation of Canadian ministries
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Cross-Border Legal and Tax Issues for Ministries
Robert B. [email protected]
416.595.8174
Canadian Council of Christian CharitiesSeptember 2003 Annual Conference
Mississauga, Ontario
M I L L E R T H O M S O N LLPBarristers & Solicitors, Patent & Trade-Mark Agents