Commentary on October 24, 2012: Notice of Ways and Means Motion Relating to Tax Matters - Charitable Foundations

more+
less-

The Notice of Ways and Means Motion (“NWMM”) proposes amendments to the definitions of “charitable organization” and “public foundation” in section 149.1 of the Act which would add a “control” test to the current “contributions” test, effective January 1, 2000.

The current definition of a charitable organization, which has been designated as a private or public foundation, requires, among other things, that not more than 50% of the organization’s capital have been contributed by a person or a group of persons not dealing with each other at arm’s length.  Thus, for example, the receipt by an organization from a person of a donation that comprised more than 50% of the organization’s capital would be sufficient by itself to disqualify the organization, even if the person had no ongoing relationship with the organization.  Under the proposed amendment to the definition of “charitable organization,” the organization would not be disqualified solely because it received more than 50% of its capital from a person or a group of persons not dealing with each other at arm’s length, provided (i) the person or group does not have control, directly or indirectly in any manner whatever, over the organization and (ii) the person or group do not represent more than 50% of the directors, trustees, officers and similar officials of the charity.

Similarly, the current definition of a public foundation is proposed to be amended to provide that a foundation would not be disqualified as a public foundation solely because it received more than 50% of its capital from a person or a group of persons not dealing with each other at arm’s length, provided (i) the person or group does not have control, directly or indirectly in any manner whatever, over the organization and (ii) the person or group do not represent more than 50% of the directors, trustees, officers and similar officials of the charity.

The proposed definitional changes would affect, among other things, the application of the exclusion from capital gains tax under paragraphs 38(a.1) and (a.2) of the Act to certain gifts in kind made after 1999 to a qualifying donee.  A private foundation is defined to mean a foundation that is not a public foundation.  Capital gains arising on ecological gifts to a private foundation are not excluded from the definition of taxable capital gain.  Likewise, any capital gains realized on gifts of publicly-traded securities made before May 2, 2006 to a private foundation are not excluded from capital gains tax.

The proposed changes were first recommended in Comfort Letters, dated September 11, 2001 for charitable organizations and December 13, 2002 for public foundations.  Similar proposals appeared in the February 18, 2004 Technical Bill and the July 16, 2010 Technical Bill.

 

Reporters on Deadline

CONNECT

Osler is a leading business law firm practising nationally and internationally from its offices... View Profile »


Follow Osler, Hoskin & Harcourt LLP: