1. 1 MANAGING THROUGH DIFFICULT FINANCIAL TIMES PRESENTATION BY OASIS BUSINESS RESOURCES COMMITTEE (OBRC) MAY 2011

2. 2 OBRC Who are we Whats our purpose Who are on the committee Our Terms Of Reference (TOR) What have we done in 2010-11 Presenters today

3. 3 SCENARIO LIGHTS…… CAMERA….. ACTION…….

4. 4 INTRODUCTION VISUALIZE THIS………. You are a charitable organization You dont have a lot of resources especially admin resources You can barely keep up with your funders admin and reporting requirements You are still trying to come to grips with the realities of transformation Your admin staff play jack of all trades….

5. 5 INTRODUCTION CONTINUED To supplement your funders revenue you have…. Some fundraising activities Some NFP social enterprises which earn revenue to supplement your programs A housing corporation to protect your core assets

6. 6 SETTING THE STAGE Key pieces of new legislation in 2010 1. HST 2. Quality assurance measures- Third party review of resident finances if requested by person supported 3. Bill 122-broader public sector accountability act 4. Bill 65- revision of Law relating to Not For Profit (NFP) corporations at the provincial level combined with New interpretation by Revenue Canada (CRA) of S 149(1) of Income Tax act (ITA) regarding the revenue earned by NFP at the federal level

7. 7 TODAYS AGENDA For each of the above pieces of legislation we will provide information …… Overview of the legislation, how it impacts you as the agency What can you do to navigate through these pieces of legislation CAUTION!!!!! THIS IS NOT LEGAL ADVICE Take this back to your organizations and do your due diligence We are providing practical suggestions to manage through these pieces of legislation

8. 8 HST Several presentations have been made throughout the year including a couple by CRA Presentations were Targeted to the finance group Copies of the Presentations along with Q and A can be found on the OASIS website under OBRC resources

9. 9 QAM Third party review of resident finances if requested by the individual being supported

10. 10 QAM- Third party review of resident finances What is it- The individual support plan shall identify the level of support the person has requested or requires to manage their day to day finances. The service agency shall ensure books of accounts and financial records prepared and maintained…. Are independently reviewed by a third party annually; the independent review shall include a report to the board of directors. Part of the regulation made under Bill 77 regulation 299-10

11. 11 QAM Third party review of resident finances Impact on the agency Can be Cost prohibitive if external auditor or other external reviewers are used Lack of internal capacity to conduct internal audits of resident finances

12. 12 QAM- Third Party review of resident finances Managing through this regulation Resident finances are maintained in accordance with a policy that follows best practice Ensure Person reviewing the resident finances is not involved in the day to day maintenance of resident finances Ensure Staff member maintains resident finances while the supervisor or manager reviews them regularly Clearly define a third party reviewer According to the QAM training DVD, a third party can be a family member, review committee or an independent accountant It can also be a staff member, finance department or volunteer

13. 13 RESIDENT FINANCES REVIEW OF POLICIES Review of best practices Common features of policies covered

14. 14 BILL 122 PUBLIC SECTOR ACCOUNTABILTY ACT

15. 15 BILL 122- BROADER PUBLIC SECTOR ACCOUNTABILITY ACT What is it every publicly funded organization that received public funds of $10million or more in the previous year of government of Ontario is subject to the broader public sector accountability act Comes into effect January 1 2012

16. 16 BILL 122 IMPACT Cannot hire lobbyists with public funds (excludes in house lobbyists). Members dues are not considered public funds Mandatory to follow provincial procurement rules Public posting of expenses (regulations to be established).- requirement to have a policy on travel meals and hospitality

17. 17 BILL 122 NAVIGATION Have a policy on procurement and comply with it ( see BPS procurement directive handout) Ensure that there is a policy covering travel meals hospitality and accommodation (see BPS Expenses directive Handout)

18. 18 PROCUREMENT Review of the BPS procurement directive OBRC work on procurement- Vendor of Record (VOR) VOR could be a way to comply with procurement directives

19. 19 EXPENSES Review of BPS expense directive and guidelines for setting a policy

20. 20 BILL 65 SOCIAL ENTERPRISES HOUSING CORPORATIONS

21. 21 BILL 65 What is it- changes to existing provincial corporations act – Currently………. NFP corporations are lumped with all corporations NFP corporations earn revenue to carry out their public purpose. Current act is permissive but silent Bill 65 changes both of these

22. 22 BILL 65 CONTINUED New designation- public benefit corporation (PBC) if…. Has a public purpose and mission Operates for public good and not personal gain Reinvests excess revenue in public purpose Retains assets in public domain for public purpose Legislation defines PBC as including charitable corporations, foundations, and all NFP that receive 10k/year in arms length donations or government grants or financial assistance Recognizes ability of NFP to engage in commercial activities as long as revenues used to further public benefit objectives NOTE- Charities are regulated federally (example if your organization is a charity you file a charity return federally) as an example

23. 23 BILL 65 IMPACT Charitable agency has provincially registered NFP to run social enterprises and housing which earn revenue. These are clearly allowable as long as the revenues are used for charitable purposes of the agency- such as to deliver unfunded or under funded programs NOTE- charities are regulated federally and the very same revenue allowable provincially may be problematic federally

24. 24 NEW INTERPRETATION S149(1) of Income tax Act CRA SPEAK S149(1) of the income tax act defines who is exempt from paying income tax The CRAs recent document comments that non-profit organizations can only earn incidental or unanticipated profit. The CRA notes that where a non-profit organization intends to earn a profit at any time, it is not exempt from tax. To be tax exempt, a non-profit organization must be organized and operated exclusively for any purpose except profit. The term exclusively indicates that none of the purposes of the organization may be to earn a profit. The document also notes that a non-profit organization is not restricted in its activities, as long as they are not undertaken for a profit. The CRA qualified its comments by noting that where a non-profit organization earns an unanticipated profit that is incidental to the purpose of the organization, the organization can still be considered a tax-exempt entity.

25. 25 S149(1) CONTINUED The CRA noted that where a non-profit organization earns a profit, even if it uses or expects to use that profit to support a non-profit objective (for example, to finance future capital projects), it is still intending to earn a profit, and is therefore not exempt from tax. However, where an entity earns investment income on members' contributions to finance a planned future capital project, it will not necessarily lose its tax-exempt status. The organization would lose its tax-exempt status only if excess funds were collected for the purpose of earning investment income, which would be a profit purpose

26. 26 S149(1) IMPACT Despite the CRAs comments, NFP can generally earn a profit if….. The profit-making activity is related and incidental to the objectives of the organization Cash reserves are reasonable in relation to the organizations needs.

27. 27 S149(1) NAVIGATION The CRA appears to be increasing its reviews of non- profits and it is likely that the issue of earning business profits and accumulating investment assets will be highly scrutinized. You should ensure that your non-profit organization has the appropriate documentation and management processes in place to meet its objectives CRA has had a policy on related businesses If your NFP falls under this policy the profit that these NFP earn will be non taxable

28. 28 S149(1) NAVIGATION CONTINUED Excerpts from the CRA policy on related businesses Policy Statement There are two kinds of related businesses: businesses that are run substantially by volunteers; and businesses that are linked to a charity's purpose and subordinate to that purpose Implementation 1. This policy applies to applicant organizations and registered charities that carry on a business. 2. The Income Tax Act says that charities can lose their registration if they carry on an unrelated business. By implication, the law allows them to carry on a related business What is a "business"? In general terms, a business involves commercial activityderiving revenues from providing goods or servicesundertaken with the intention to earn profit Handout of CRA Policy and decision tree

29. 29 S149(1) CRA POLICY Review of the policy and decision tree

30. 30 DECISION TREE 1

31. 31 DECISION TREE 2

32. 32 BILL 65 AND S149(1) NAVIGATION You are a registered charity and run social enterprises and housing corporation 1. Ensure you are in compliance with CRA related businesses policy at the federal level 2. Youre a PBC at the provincial level You can earn a profit and not be taxed

33. 33 QUESTIONS For electronic copies of Presentation Handouts Go to OASIS website OBRC resources section OBRC will send out an alert to ED list and Fin list when posted on the website