1 Cross-Border Legal and Tax Issues for Ministries Robert B. Hayhoe Canadian Council of Christian Charities September 2003 Annual Conference Mississauga, Ontario M I L L E R T H O M S O N LLP Barristers & Solicitors, Patent & Trade-Mark Agents

2 International Ministry Scenarios MILLER THOMSON LLP

3 International Ministry Scenarios MILLER THOMSON LLP

4 International Ministry Scenarios MILLER THOMSON LLP

5 Canadian Background Any foreign charity can fundraise in Canada Only donations to “qualified donees” result in a Canadian individual tax credit/corporate tax deduction –exceptions in Canada US tax treaty US college attended by a family member donations to US charities tax- recognized against Canadian taxes on US-source income

6 MILLER THOMSON LLP Qualified Donees Canadian Registered Charities UN and UN agencies Crown (Canadian federal or provincial government) Foreign charities with Canadian government patronage Prescribed foreign universities customarily attended by Canadians

7 MILLER THOMSON LLP Registered Charity Income Tax Act definition of “registered charity” –corporation, trust or association with charitable purposes –must be both: “resident in Canada”; and “created or established in Canada” Therefore non-Canadian charities cannot become registered charities

8 MILLER THOMSON LLP Establishment of Registered Charity Create Canadian legal entity –majority Canadian board Canadian residence requirement Apply for registration with Canada Customs and Revenue Agency –T2050 form

9 MILLER THOMSON LLP Grants by Registered Charities Registered charities –must devote their resources to their own charitable activities, or –make grants to qualified donees Canadian Registered charities may not make grants (gifts) to foreign charities –explicit grounds for revocation of registration

10 MILLER THOMSON LLP Consequences of Revocation of Charitable Registration No intermediate sanctions in Canada Loss of tax exempt status Loss of tax recognition for donors Imposition of penalty tax equal to 100% of charity’s assets –capital punishment Two recent high profile revocations –Canadian Magen David Adom for Israel

11 MILLER THOMSON LLP Foreign Activities by Registered Charities Canadian registered charities can operate anywhere in the world –consistent with charitable purposes mission activities are just as charitable in Nairobi or Dallas as in Toronto Direct foreign activities –local or Canadian employees

12 MILLER THOMSON LLP CCRA Approach to Foreign Activities Formerly very flexible Now increasingly complex and stringent –RC 4106 “Registered Charities Operating Outside Canada” –T3010 annual return questions –T2050 application for registration questions –significant audit attention

13 MILLER THOMSON LLP Indirect Foreign Activities by Registered Charities Always subject to “own activities” test RC 4106 “Registered Charities Operating Outside of Canada” –need binding written agreements –agency/joint ministry arrangements

14 MILLER THOMSON LLP Joint Ministry Agreement Core elements: –pooling of resources for common project –requires decision-making structure Canadian votes proportional to monetary contribution –joint liability –stringent recordkeeping requirements –term and termination

15 U.S. Perspective on Joint Ministry Agreements Some US lawyers believe that “Joint Venture” terminology suggests a separate entity under US law and may create additional tax and liability issues –agreements must be drafted carefully to reduce this concern MILLER THOMSON LLP

16 MILLER THOMSON LLP Agency Agreement Principal (Canadian charity) hires agent (foreign charity) to complete some task Project choice is made by principal Operational decisions can be made by agent Liability flows from agent to principal

17 Fee for Service Canadian charity may hire foreign charity for specific services –missionary training –evacuation facilities –supervision of short terms teams Need invoices Need prior written contract unless nominal amount (under $5,000 per year) MILLER THOMSON LLP

18 MILLER THOMSON LLP Recordkeeping Registered charities must keep records in Canada to show charitable nature of all activities Foreign indirect activities: –agency or joint venture agreement –operational reports –financial reports (with backup) –segregated bank accounts for agents

19 MILLER THOMSON LLP Choice of Arrangement Multi-Lateral Integrated Ministry –joint ministry arrangement –may be limited to Canadian participation Multi-Lateral Partitioned Ministry –joint ministry arrangement possible –agency arrangement preferred

20 MILLER THOMSON LLP Choice of Arrangement Canadian Funding of U.S. Based Ministry –joint ministry arrangement possible –agency arrangement preferred

21 MILLER THOMSON LLP Anti -Terror Law in Canada Post 9/11/01 Bill C-36 Refuse or revoke charitable registration for: –making any resources available to a terrorist organization (directly or indirectly) secret appeal process CCRA initially targeting specific Islamic terrorist fundraising charities, not aid or mission agencies

22 Key General Legal Issues Allocation of liability risk should be carefully considered: –activities conducted as an independent contractor –activities conducted as an agent –activities conducted “jointly” –insurance coverage –indemnification MILLER THOMSON LLP

23 MILLER THOMSON LLP General Legal Issues Immigration Law –visa requirements for ministry staff transfers NAFTA Intellectual property law –possible to deal with trademark licensing issues to confirm ownership of names –website integration issues Real and personal property

24 MILLER THOMSON LLP Recommended Approach Ministry structure should be driven by institutional values (not Canadian tax law) –Limit overhead and extraneous processes –An ignored arrangement is an admission of wrongdoing Canadian legal compliance is a spiritual obligation of Canadian ministries

25 Cross-Border Legal and Tax Issues for Ministries Robert B. Hayhoe Canadian Council of Christian Charities September 2003 Annual Conference Mississauga, Ontario M I L L E R T H O M S O N LLP Barristers & Solicitors, Patent & Trade-Mark Agents