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Bill S-222

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Second Session, Forty-third Parliament,
69-70 Elizabeth II, 2020-2021
SENATE OF CANADA
BILL S-222
An Act to amend the Income Tax Act (use of resources)
FIRST READING, February 8, 2021
THE HONOURABLE SENATOR Omidvar
4322019


SUMMARY

This enactment amends the Income Tax Act to permit charities to provide their resources to a person who is not a qualified donee, provided that they take reasonable steps to ensure those resources are used exclusively for a charitable purpose.
Available on the Senate of Canada website at the following address:
www.sencanada.ca/en


2nd Session, 43rd Parliament,
69-70 Elizabeth II, 2020-2021
SENATE OF CANADA
BILL S-222
An Act to amend the Income Tax Act (use of resources)

Preamble

Whereas Canadian registered charities benefit significantly from tax subsidies under the Income Tax Act;
Whereas registered charities must devote their resources to charitable activities;
Whereas registered charities must also be able to operate efficiently when devoting their resources to charitable activities;
Whereas registered charities must be held to reasonable standards in the proper use of their resources;
Whereas registered charities should promote local capacity building, ownership and participation and collaborative decision-making when working with communities in Canada, such as indigenous communities, and with communities abroad as part of their charitable activities;
Now, therefore, Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:

Short Title

Short title
1This Act may be cited as the Effective and Accountable Charities Act.
R.‍S.‍, c. 1 (5th Supp.‍)

Income Tax Act

2(1)The definition charitable activities in subsection 149.‍1(1) of the Income Tax Act is replaced by the following:
charitable activities includes
(a)public policy dialogue and development activities carried on in furtherance of a charitable purpose; and
(b)making resources — including grants, gifts or transfers — available by transactions, arrangements or collaborations of any kind whatsoever in furtherance of a charitable purpose to a person that is not a qualified donee if those resources are made available by a charity that takes reasonable steps to ensure that those resources are used exclusively for a charitable purpose in accordance with subsection (27). (activités de bienfaisance)
(2)Paragraph (a.‍1) of the definition charitable organization in subsection 149.‍1(1) of the Act is replaced by the following:
(a.‍1)all the resources of which are devoted to charitable activities,
(3)Paragraph (e) of the definition non-qualified investment in subsection 149.‍1(1) of the Act is replaced by the following:
(e)a corporation all of the property of which is used by a registered charity in its administration or for charitable activities, or
(4)Paragraph 149.‍1(2)‍(b) of the Act is replaced by the following:
(b)fails to expend in any taxation year, on charitable activities and by way of gifts made by it to qualified donees, amounts the total of which is at least equal to the organization’s disbursement quota for that year; or
(5)Paragraph 149.‍1(2)‍(c)‍(i) of the Act is replaced by the following:
(i)in the course of charitable activities, or
(6)Section 149.‍1 of the Act is amended by adding the following after subsection (2):
(2.‍1)For greater certainty, a charitable foundation, as defined in subsection 149.‍1(1), may make resources — including grants, gifts or transfers — available by transactions, arrangements or collaborations of any kind whatsoever to a person that is not a qualified donee if the charitable foundation takes reasonable steps to ensure that those resources are used exclusively for a charitable purpose in accordance with subsection (27).
(7)Paragraph 149.‍1(3)‍(b) of the Act is replaced by the following:
(b) fails to expend in any taxation year, on charitable activities and by way of gifts made by it to qualified donees, amounts the total of which is at least equal to the foundation’s disbursement quota for that year;
(8)Subparagraph 149.‍1(3)‍(b.‍1)‍(i) of the Act is replaced by the following:
(i)in the course of charitable activities, or
(8)Paragraph 149.‍1(4)‍(b) of the Act is replaced by the following:
(b)fails to expend in any taxation year, on charitable activities and by way of gifts made by it to qualified donees, amounts the total of which is at least equal to the foundation’s disbursement quota for that year;
(10)Subparagraph 149.‍1(b.‍1)‍(i) of the Act is replaced by the following:
(i)in the course of charitable activities, or
(11)Paragraph 149.‍1(4.‍1)‍(d) of the Act is replaced by the following:
(d)of a registered charity, if it has in a taxation year received a gift of property (other than a designated gift) from another registered charity with which it does not deal at arm’s length and it has expended, before the end of the next taxation year, in addition to its disbursement quota for each of those taxation years, an amount that is less than the fair market value of the property, on charitable activities or by way of gifts made to qualified donees with which it deals at arm’s length;
(12)Subsection 149.‍1(5) of the Act and the portion of subsection (6) before paragraph (a) are replaced by the following:
Reduction
(5)The Minister may, on application made to the Minister in prescribed form by a registered charity, specify an amount in respect of the charity for a taxation year and, for the purpose of paragraph 149.‍1(2)‍(b), 149.‍1(3)‍(b) or 149.‍1(4)‍(b), as the case may be, that amount shall be deemed to be an amount expended by the charity in the year on charitable activities.
Devoting resources to charitable activity
(6)A charitable organization shall be considered to be devoting its resources to charitable activities to the extent that
(13)Subsection 149.‍1(10) of the Act is replaced by the following:
Deemed charitable activity
(10)An amount paid by a charitable organization to a qualified donee that is not paid out of the income of the charitable organization is deemed to be a devotion of a resource of the charitable organization to a charitable activity.
(14)Subsections 149.‍1(20) and (21) of the Act are replaced by the following:
Rule regarding disbursement excess
(20)Where a registered charity has expended a disbursement excess for a taxation year, the charity may, for the purpose of determining whether it complies with the requirements of paragraph 149.‍1(2)‍(b), 149.‍1(3)‍(b) or 149.‍1(4)‍(b), as the case may be, for the immediately preceding taxation year of the charity and 5 or less of its immediately subsequent taxation years, include in the computation of the amounts expended on charitable activities and by way of gifts made by it to qualified donees, such portion of that disbursement excess as was not so included under this subsection for any preceding taxation year.
Definition of disbursement excess
(21)For the purpose of subsection (20), disbursement excess, for a taxation year of a charity, means the amount, if any, by which the total of amounts expended in the year by the charity on charitable activities and by way of gifts made by it to qualified donees exceeds its disbursement quota for the year.
(15)Section 149.‍1 of the Act is amended by adding the following after subsection (26):
(27)A charity is considered to have taken reasonable steps to ensure its resources are used exclusively for a charitable purpose if
(a)before providing resources to a person who is not a qualified donee it collects the information necessary to satisfy a reasonable person that the resources will be used for a charitable purpose by the person who is not a qualified donee, including information on the identity, experience and activities of the person who is not a qualified donee; and
(b)when providing resources to a person who is not a qualified donee, it establishes measures, imposes restrictions or conditions, or otherwise takes actions necessary to satisfy a reasonable person that the resources are being used exclusively for a charitable purpose by the person who is not a qualified donee.
3Paragraph (b) of the description of B in subsection 188(1.‍1) of the Act is replaced by the following:
(b)an expenditure made by the charity during the winding-up period on charitable activities, or
4(1)Subparagraph 188.‍1(5)‍(b)‍(i) of the Act is replaced by the following:
(i)in the case of a registered charity, in the course of a charitable act in the ordinary course of charitable activities, unless it can reasonably be considered that the eligibility of the beneficiary for the benefit relates solely to the relationship of the beneficiary to the charity, and
(2)Subsection 188.‍1(12) of the Act is replaced by the following:
Gifts not at arm’s length
(12)If a registered charity has in a taxation year received a gift of property (other than a designated gift) from another registered charity with which it does not deal at arm’s length and it has expended, before the end of the next taxation year, in addition to its disbursement quota for each of those taxation years, an amount that is less than the fair market value of the property, on charitable activities or by way of gifts made to qualified donees with which it deals at arm’s length, the registered charity is liable to a penalty under this Act for that subsequent taxation year equal to 110% of the difference between the fair market value of the property and the additional amount expended.
5Subparagraph 189(6.‍2)‍(a)‍(i) of the Act is replaced by the following:
(i)the total of all amounts, each of which is an expenditure made by the charity, on charitable activities, before the particular time and during the period (referred to in this subsection as the “post-assessment period”) that begins immediately after a notice of the latest such assessment was sent and ends at the end of the one-year period
6(1)The Minister of National Revenue must, within five years after the day on which this Act comes into force, undertake a review of the provisions enacted by this Act.
(2)The Minister must, within one year after the review is undertaken, cause a report on that review to be laid before each House of Parliament within the first fifteen sitting days of that House after the report is completed.

Coming into Force

Two years after royal assent
7This Act comes into force two years after the day on which it receives royal assent.
Published under authority of the Senate of Canada



explanatory notes

Income Tax Act
Clause 2: (1) to (3)Existing text of relevant portions of subsection 149.‍1(1):
149.‍1(1)In this section and section 149.‍2,
. . .
charitable activities includes public policy dialogue and development activities carried on in furtherance of a charitable purpose; (activités de bienfaisance)
. . .
charitable organization, at any particular time, means an organization, whether or not incorporated,
. . .
(a.‍1)all the resources of which are devoted to charitable activities carried on by the organization itself,
. . .
charitable organization, at any particular time, means an organization, whether or not incorporated,
. . .
(a.‍1)all the resources of which are devoted to charitable activities carried on by the organization itself,
. . .
non-qualified investment of a private foundation means
. . .
and, for the purpose of this definition, an excluded corporation is
. . .
(e)a corporation all of the property of which is used by a registered charity in its administration or in carrying on its charitable activities, or
. . .
(4) and (5)Existing text of relevant portions of subsection 149.‍1(2):
(2)The Minister may, in the manner described in section 168, revoke the registration of a charitable organization for any reason described in subsection 168(1) or where the organization
. . .
(b)fails to expend in any taxation year, on charitable activities carried on by it and by way of gifts made by it to qualified donees, amounts the total of which is at least equal to the organization’s disbursement quota for that year; or
(c)makes a disbursement by way of a gift, other than a gift made
(i)in the course of charitable activities carried on by it, or
. . .
(6)New.
(7) to (11)Existing text of relevant portions of subsections 149.‍1(3) to (4.‍1):
(3)The Minister may, in the manner described in section 168, revoke the registration of a public foundation for any reason described in subsection 168(1) or where the foundation
. . .
(b)fails to expend in any taxation year, on charitable activities carried on by it and by way of gifts made by it to qualified donees, amounts the total of which is at least equal to the foundation’s disbursement quota for that year;
(b.‍1)makes a disbursement by way of a gift, other than a gift made
(i)in the course of charitable activities carried on by it, or
. . .
(4)The Minister may, in the manner described in section 168, revoke the registration of a private foundation for any reason described in subsection 168(1) or where the foundation
. . .
(b)fails to expend in any taxation year, on charitable activities carried on by it and by way of gifts made by it to qualified donees, amounts the total of which is at least equal to the foundation’s disbursement quota for that year;
(b.‍1)makes a disbursement by way of a gift, other than a gift made
(i)in the course of charitable activities carried on by it, or
. . .
(4.‍1)The Minister may, in the manner described in section 168, revoke the registration
. . .
(d) of a registered charity, if it has in a taxation year received a gift of property (other than a designated gift) from another registered charity with which it does not deal at arm’s length and it has expended, before the end of the next taxation year, in addition to its disbursement quota for each of those taxation years, an amount that is less than the fair market value of the property, on charitable activities carried on by it or by way of gifts made to qualified donees with which it deals at arm’s length;
. . .
(12)Existing text of subsection (5) and relevant portion of subsection (6):
(5)The Minister may, on application made to the Minister in prescribed form by a registered charity, specify an amount in respect of the charity for a taxation year and, for the purpose of paragraph 149.‍1(2)‍(b), 149.‍1(3)‍(b) or 149.‍1(4)‍(b), as the case may be, that amount shall be deemed to be an amount expended by the charity in the year on charitable activities carried on by it.
(6)A charitable organization shall be considered to be devoting its resources to charitable activities carried on by it to the extent that
(13)Existing text of subsection 149.‍1(10):
(10)An amount paid by a charitable organization to a qualified donee that is not paid out of the income of the charitable organization is deemed to be a devotion of a resource of the charitable organization to a charitable activity carried on by it.
(14)Existing text of subsections (20) and (21):
(20)Where a registered charity has expended a disbursement excess for a taxation year, the charity may, for the purpose of determining whether it complies with the requirements of paragraph 149.‍1(2)‍(b), 149.‍1(3)‍(b) or 149.‍1(4)‍(b), as the case may be, for the immediately preceding taxation year of the charity and 5 or less of its immediately subsequent taxation years, include in the computation of the amounts expended on charitable activities carried on by it and by way of gifts made by it to qualified donees, such portion of that disbursement excess as was not so included under this subsection for any preceding taxation year.
(21)For the purpose of subsection (20), disbursement excess, for a taxation year of a charity, means the amount, if any, by which the total of amounts expended in the year by the charity on charitable activities carried on by it and by way of gifts made by it to qualified donees exceeds its disbursement quota for the year.
(15)New.
Clause 3:Existing text of relevant portions of subsection 188(1.‍1):
(1.‍1)A charity referred to in subsection (1) is liable to a tax, for its taxation year that is deemed to have ended, equal to the amount determined by the formula
A - B
where
. . .
B
is the total of all amounts (other than the amount of an expenditure in respect of which a deduction has been made in computing income for the winding-up period under paragraph (c) of the description of A), each of which is
. . .
(b)an expenditure made by the charity during the winding-up period on charitable activities carried on by it, or
. . .
Clause 4: (1)Text of relevant portions of subsection 188.‍1(5):
(5)For the purposes of this Part, an undue benefit conferred on a person (referred to in this Part as the “beneficiary”) by a registered charity or registered Canadian amateur athletic association includes a disbursement by way of a gift or the amount of any part of the income, rights, property or resources of the charity or association that is paid, payable, assigned or otherwise made available for the personal benefit of any person who is a proprietor, member, shareholder, trustee or settlor of the charity or association, who has contributed or otherwise paid into the charity or association more than 50% of the capital of the charity or association, or who deals not at arm’s length with such a person or with the charity or association, as well as any benefit conferred on a beneficiary by another person, at the direction or with the consent of the charity or association, that would, if it were not conferred on the beneficiary, be an amount in respect of which the charity or association would have a right, but does not include a disbursement or benefit to the extent that it is
. . .
(b)a gift made, or a benefit conferred,
(i)in the case of a registered charity, in the course of a charitable act in the ordinary course of the charitable activities carried on by the charity, unless it can reasonably be considered that the eligibility of the beneficiary for the benefit relates solely to the relationship of the beneficiary to the charity, and
(2)Text of subsection 188.‍1(12):
(12) If a registered charity has in a taxation year received a gift of property (other than a designated gift) from another registered charity with which it does not deal at arm’s length and it has expended, before the end of the next taxation year, in addition to its disbursement quota for each of those taxation years, an amount that is less than the fair market value of the property, on charitable activities carried on by it or by way of gifts made to qualified donees with which it deals at arm’s length, the registered charity is liable to a penalty under this Act for that subsequent taxation year equal to 110% of the difference between the fair market value of the property and the additional amount expended.
Clause 5:Text of relevant portions of subsection 189(6.‍2):
(6.‍2)If the Minister has, during the one-year period beginning immediately after the end of a taxation year of a person, assessed the person in respect of the person’s liability for tax under subsection 188(1.‍1) for that taxation year, has not after that period reassessed the tax liability of the person, and that liability exceeds $1,000, that liability is, at any particular time, reduced by the total of
(a)the amount, if any, by which
(i)the total of all amounts, each of which is an expenditure made by the charity, on charitable activities carried on by it, before the particular time and during the period (referred to in this subsection as the “post-assessment period”) that begins immediately after a notice of the latest such assessment was sent and ends at the end of the one-year period
exceeds
. . .

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