publication date: Oct 18, 2011
author/source: Mark Blumberg
previously discussed in Part I of this article
, the June 2011 federal budget includes a proposal relating to "ineligible
individuals" that gives the Canada
the discretion to refuse or revoke an organization's
charitable status when its directors, trustees or officers are involved in
specific situations, including criminal activity, charity gifting tax shelters,
or involvement with a charity whose registration was revoked for serious
non-compliance within the last five years.
provision sets out that that a charity's registration can only be revoked or
What is "adequate" remedial action?
After a charity or association has
been notified by CRA regarding its concerns in respect of an individual; and
The charity fails to take adequate
If the CRA notifies
a charity that one of the people who controls it is an ineligible individual,
the charity must take "adequate remedial action." The CRA will presumably release
guidance on what is adequate remedial action after receiving such notification.
has been convicted for issuing millions of dollars of false receipts just
removing the person as president of the organization but leaving the person
responsible for receipting is probably not "adequate."
other hand if a person previously convicted of violating securities legislation
is a volunteer driver for a hospital, and has no other involvement in the
organization (such as receipting, signing cheques, etc), then it will probably
not be a problem.
have to wait and see what the Charities
suggests as its approach.
In most cases, I think when a charity brings this issue to the attention
of the "ineligible individual," the person will probably resign quickly to
avoid further discussion.
provisions of the budget do not require charities to conduct any additional
background checks of prospective directors/trustees. Some in the sector are concerned
that it may be difficult or impossible for a charity to know whether an
individual is involved in certain criminal or other unacceptable conduct. That
provision does not impose any new requirements for background checks. It only requires
taking adequate remedial action in the unlikely event that CRA notifies your
charity that an ineligible individual is involved.
many diligent charities with access to Google or other Internet search engines
will have probably already done some background checks on board members, or
asked them for references. For example, board members who will have access to
vulnerable beneficiaries, such as children, would probably have completed a
criminal background check.
The Canadian Council of Christian Charities
has prepared a useful, brief document for charities, titled Declaration of Not Being an Ineligible Individual
. As mentioned previously, the
budget has created no additional legal requirement to carry out background
checks, and there is no requirement to use a form such as this. But from a
practical standpoint, it may be a good idea for a charity to spend a few
minutes conducting a Google search to check the background of a member, and to
ask each individual to sign a declaration.
a declaration form, the burden and obligation to be up-front with the
organization is put on the shoulders of the person who will be taking on an
important role within the organization.
confidentiality provisions of the Income
make it difficult for CRA, without this kind of a provision, to
disclose such matters to a charity.
Practically, this provision is less about taking away or denying
charitable status and more about the ability of CRA to be able to disclose to a
charity that one of those who are involved with its leadership has been
involved with serious non-compliance, without contravening the confidentiality
provisions of the Income Tax Act.
One of the
best messages that this proposal sends is that those who want to abuse charities
may be restricted in terms of their future participation in the charitable
For a more detailed discussion of these
provisions of the federal budget, see "2011 Federal Budget Provisions on
‘Safeguarding Charitable Assets through Good Governance' and being an
‘ineligible individual'" at www.canadiancharitylaw.ca.
This article is for information purposes only.
It is not intended to be legal advice. You should not act or abstain from
acting based upon such information without first consulting a legal
professional.Mark Blumberg is a lawyer at Blumberg
Segal LLP in Toronto, Ontario. Contact him at firstname.lastname@example.org or at
416-361-1982 x237. For more information, visit his websites, www.canadiancharitylaw.ca or www.globalphilanthropy.ca