publication date: Dec 21, 2011
author/source: Adam Aptowitzer
Many people are aware that charities can engage in related
business only where the business activity is (in the Canada Revenue Agency
's view) both related and ancillary to the
organization's charitable activities. On the other hand, charities can engage
in any business activity so long as "substantially all persons employed by the
charity in the carrying on of that business are not remunerated for that
employment" (i.e. they are volunteers).
I recently came across a situation in which a charity had
substantial real estate holdings. The reasons for its holdings were varied but
in all cases it required the aid of various professionals and contractors to
help with the acquisition and maintenance of the buildings.
For example, the organization hired a lawyer to help with
the real estate transfer documents, hired accountants to help keep track of the
monies and hired contractors of various types to help in the fit-ups and
maintenance of the building.
Eventually, the charity was revoked for failure to file.
Upon its application for re-registration, the CRA raised the issue that the
organization was engaged in an unrelated business activity because it had
engaged the services of these employees. In other words, it considered the use
of the lawyer, accountant and contractors as people who were paid for their
But the words "employment" and "employee" are loaded terms
in tax law, and as a result they have specific definitions. While the drafters
of those definitions may not have contemplated their use for the related
business rules, the fact is that the definition does apply here as well.
Even a related
business may pay professionals
Fortunately for charities, the typical lawyer, accountant
and contractor fall outside the usual tax law meaning of employee, and so
paying professionals for their work would still allow the organization to fall
within the exemption for a business run substantially by volunteers.
Nevertheless, the related business rules are quite
complicated. Being run by volunteers is not carte blanche to conduct activities
as one wishes, despite the fact that the wording of the law would lead one to
believe that this is true. I would recommend that any charity engaging in such
activities consider consulting with counsel how to best structure any business
of Drache Aptowitzer LLP is a
charity law lawyer with a national practice based in Ottawa. He has been
published in Canadian Taxpayer, Canadian Fundraiser (now Canadian Fundraising
& Philanthropy) and the Not-for-Profit News. He has also published a widely
distributed study on the regulation of Canadian charities with the C.D. Howe
As a speaker, he has presented to the National Symposium
of Charity Law, the C.D. Howe Institute, the Association of Fundraising
Professionals, the Canadian Association of Gift Planners, the Ottawa Estate
Planning Council and various large and small Canadian charities. He has also
given expert advice on Parliament Hill. Adam is an executive member of the
Canadian Bar Association's Charity and Not-for-Profit Law section.
For speaking engagements and consultations, contact
him at 613-237-3300 or visit http://www.drache.ca.