Canadian Charities Operating Overseas

September 20, 2010 By Drache Aptowitzer Professional Corporation Published Articles Overseas operation is fundamental to the operation of many charities, especially religious charities, and so it is important for these charities to have a good understanding of the law regarding carrying out charitable activities overseas. Given that the government subsidizes registered charities to the extent that it gives tax credits for the amount donated, it should not be surprising that the CRA attempts to exert as much control over funds spent overseas as funds spent domestically. In the past, the CRA has insisted on onerous documentation requirements for funds spent overseas although this requirement was disputed by many in the sector. The Federal Court of Appeal recently weighed in on the debate in the case of Bayit Lepletot v. MNR .

The primary lesson to learn from Bayit Lepletot is that Canadian charities must be scrupulous about keeping records when operating overseas. Assuming the overseas work falls within the charity's objects the Bayit rule manifests itself in different ways depending on whether the charity conducts its overseas operations 1) on its own 2) through an agent or 3) through a joint venture with another charity.

Where the charity is fulfilling its objects by acting alone in a foreign country its bookkeeping requirements are fairly easy to satisfy as it controls every dollar that is spent. That is, there would not seem to be a problem accounting for resources in situations where the charity owns a building overseas, conducts its operations in that building, and hires its own staff to do so, without the involvement of any other parties. On the other hand, charities must be on their guard when distributing items which can be used for purposes other than for strictly charitable uses (although this is beyond the scope of this article).

In cases where a charity partners with another group (either a charity or not) it must ensure that its contributions is controlled so that it is only going for purposes that fulfill its charitable objects, no more and no less. One way to do this is to retain an agent in the foreign country who can act on behalf of the charity. Generally, these agreements should be written and should require constant communication from the foreign agent to the charity so that it is clear where funds are being spent. It should also include minutes of the charity's meetings authorizing the release of funds.

In Bayit Lepletot the charity ostensibly operated by way of agency agreement. There, the Court held that the charity must have enough documentation to allow the CRA to ensure that funds are being spent in accordance with the Charity's objects. The CRA's policy on the documents required

when operating overseas with an agent is broad (some would say overly so), so it would be in the charity's best interests to ensure that there is as much documentation as possible. For example, before money is transferred, the agent should transmit a written request for funds and the reason the funds are required, the Canadian charity should consider the request and record its approval in its minutes. All documents regarding the transfer of funds should be kept (i.e. bank documents, checks, records of exchange rates, and the date the funds were received). The agent should then meticulously record the payment of funds to whom and their purpose (always ensuring that the money goes toward fulfilling the charity's objects) and transmit copies of these records (as well as receipts) back to the charity. It would also be wise for the agent to give a periodic report to ensure that the charity's assets are still being used for their original charitable purpose. Given the CRA's seeming distrust of charities it would probably even be beneficial for the charity to take pictures of its work to evidence the work it does.

Charities can also operate overseas through a joint venture. The definition of a joint venture is somewhat more nebulous than that of an agency relationship. In a joint venture two or more groups contribute resources toward the fulfillment of a particular object. For example, a Canadian charity may contribute funds and an African organization may contribute a building and staff towards running an orphanage in Africa. In cases such as these the CRA will likely look to see that the Canadian charity has control over the project proportionate to the amount of resources it contributes. (Of course, it will also look to see that funds are being spent towards charitable purposes). While the Bayit Lepletot case did not deal with joint ventures specifically, the principle of meticulous record keeping would seem to apply here as well and the prudent course of action would be to document as much control over the spending of funds as possible. Given the different arrangements a joint venture can take on, it would be best to call our firm if your organization conducts overseas operations by way of a joint venture, or if you have any other questions.

ABOUT THE AUTHOR: Adam Aptowitzer Adam Aptowitzer, LL.B., has been speaking and writing on the topic of charity law for several years. He has been published in several publications including the Canadian Taxpayer, the Canadian Fundraiser and the Not-for-Profit News and has been cited as an expert in several publications including the national media. He has recently published a widely circulated paper on the regulation of charities in Canada with the C.D. Howe Institute.

As a speaker he has presented to the C.D. Howe Institute, the Association of Fundraising Professionals, the Canadian Association of Gift Planners, the Canadian Bar Association and has given expert opinion testimony at a Parliamentary Roundtable. He has also appeared at the Tax Court of Canada and the Federal Court of Appeal. Adam co-hosts the popular A to Z of charity law in Canada with CharityVillage.com and is an executive member of the Canadian Bar Association's Charity and Not-for-Profit Law section.

Not for Profit Bankruptcy Case Shows the Law in the Area is Clear as Mud Canada
September 20, 2010 By Drache Aptowitzer Professional Corporation Published Articles We are periodically faced with the unfortunate situation when a charity or not for profit is forced into bankruptcy or receivership. Unfortunately, giving clear advice in the area is complicated by the relative lack of applicable law. In one circumstance we were confronted with a situation as to whether a going concern operating as a charitable trust could make a proposal in bankruptcy. So it is with some interest that we read of the recent case of Corporation of the City of Peterborough v. Kawartha Native Housing Society Incorporated et al. ("KNHS") heard at the Court of Appeal for Ontario on September 13th, 2009.

While the KNHS case is unique in a variety of aspects perhaps the most fundamental is that in this case the corporation was placed under receivership because of defaults under certain agreements with the Province. (In due course the province was replaced by the City of Peterborough in the litigation). Predictably, the corporate Board litigated the appointment of the receiver and hired lawyers to represent this position in court. As part of the litigation, the Board sued to have the lawyer's fees paid from the assets of the charity. In an odd twist, because the corporate funds were advanced by the City of Peterborough or the Province under the original agreements, the funds to pay the lawyer's fees would be paid by the same parties trying to appoint the receiver in the first place!

Interestingly, amongst other arguments made by lawyers for the corporation, was an argument based on KNHS' not for profit status and that:

"Since the Corporations are "not-for-profit, community-owned, social purpose enterprises", the clear goal of the receivership should be that the affairs of the Corporations are put in such good condition that the receiver can depart as soon as possible and return the management and operation of the Corporations to a community-based board of directors".

On the other hand, the City argued that the nature of not for profit housing corporations, and the terms of the agreement with the government, should in fact give the Receiver more control over the not for profit than in a usual commercial receivership situation.

In its analysis, the Court found that not for profit companies are unique and that case law regarding the receivership of share capital (i.e. for profit) corporations may be analogous, but not necessarily precedential for non share capital corporations. In the result, the Court allowed the corporation to pay some of the legal expenses.

In considering the issue on appeal Justice Blair found that to give a corporation the constitutional right to defend itself but not to give it any ability to hire counsel would be to effectively deny it the right to defend itself in court. This, along with the fact that KNHS' debts were gradually diminishing under the control of the Receiver, led the Court to agree that under these circumstances KNHS could retain counsel paid out of the corporate funds.

The case is interesting for reasons that surpass its various unusual aspects. In particular, it brings into sharp relief the general lack of guidance which exists when non share capital corporations are forced into bankruptcy or similar situations. While the current gray area of the law was a problem before, the fact that the Court found that cases involving for share corporations are not precedential arguably creates even less law in the area than there was previously. While non share capital corporations do not often venture into bankruptcy waters, from time to time it happens, and as this case shows it may be extremely difficult to give such entities clear advice about the application of the law.

ABOUT THE AUTHOR: Adam Aptowitzer Adam Aptowitzer, LL.B., has been speaking and writing on the topic of charity law for several years. He has been published in several publications including the Canadian Taxpayer, the Canadian Fundraiser and the Not-for-Profit News and has been cited as an expert in several publications including the national media. He has recently published a widely circulated paper on the regulation of charities in Canada with the C.D. Howe Institute.

As a speaker he has presented to the C.D. Howe Institute, the Association of Fundraising Professionals, the Canadian Association of Gift Planners, the Canadian Bar Association and has given expert opinion testimony at a Parliamentary Roundtable. He has also appeared at the Tax Court of Canada and the Federal Court of Appeal. Adam co-hosts the popular A to Z of charity law in Canada with CharityVillage.com and is an executive member of the Canadian Bar Association's Charity and Not-for-Profit Law section.

Independent Mental Capacity Advocacy (IMCA)

December 5, 2011 By Purely Probate Published Articles Read this guide concerning independent mental capacity advocacy to enable you to help someone who does not have mental capacity and where there are no appropriate friends or family members. Independent Mental Capacity Advocacy (IMCA)

Aims of the Service

Following the 2005 Mental Capacity Act there is a legal requirement for local authorities to fund independent advocacy services for people who lack capacity to make decisions concerning changes of accommodation or serious medical treatment, where there are no appropriate friends or family members to consult.

All Independent Mental Health Capacity Advocates (IMCAs) are specifically trained professionals who represent their clients to those responsible for making 'best interest' decisions.

When should an IMCA be involved?

An IMCA must be instructed and then consulted, for people lacking capacity who have no-one else to support them (other than paid staff), whenever:

An NHS body is proposing to provide serious medical treatment; or An NHS body or local authority is proposing to arrange accommodation (or a change of accommodation) in hospital or in a care home; and The person will stay in hospital longer than 28 days; or They will stay in the care home for more than 8 weeks.

An IMCA may also be instructed to support someone who lacks capacity to make a decision concerning:

Care reviews, where no-one else is available to be consulted. Protection of Vulnerable Adult procedures, whether or not family, friends or others are involved.

Are there any exceptions?

The only exceptions when an IMCA need not be involved are situations where an urgent decision is needed, for example to provide emergency medical treatment to save a persons life, or when the

person would be homeless unless they were accommodated at a care home.

Who instructs an IMCA?

The person who instructs an IMCA is the professional who will ultimately have to make the decision concerning serious medical treatment or a change of accommodation, or is responsible for a care review or an adult protection case.

What will an IMCA do?

A full and definitive description of the IMCA service and the role of the IMCA is set out in Chapter 10 of the Mental Capacity Act 2005 Code of Practice and will include the following:

Meeting in private with the person who lacks capacity and attempting to communicate with them, using whatever means appropriate; Speaking with the decision maker and any other relevant professionals to understand what is being proposed; Getting the views of anybody else who can give information about the wishes, feelings, beliefs or values of the person who lacks capacity; Consulting any relevant records, including health and social care records and advance directives; Finding out what the person who lacks capacity has had to help them make the specific decision; Finding out what alternative options there are; and Writing a report on their findings for the decision maker.

Will the IMCA be part of the decision making process?

The IMCAs role will be in many ways similar to that of a concerned relative of the person who lacks capacity. They will not be part of the decision making process, but will provide information that the decision maker must take into account when making the decision. The decision maker may choose to disregard the information or recommendation, but must show a reason why they have done so. If the IMCA is concerned about the decision that has been made, or is concerned that the decision maker is not acting in the best interest of the person who lacks capacity, they may go through the existing procedures to challenge the decision.

ABOUT THE AUTHOR: Judith Derbyshire Judith Derbyshire is the principal of Purely Probate, a niche legal practice specializing in probate, wills and powers of attorney. Purely Probate gives clients an efficient and caring service for a sensible preagreed price.