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    ESTATE PLANNING/CHARITIES


   NON-PROFIT ORGANIZATIONS(NPO)

In a September 22, 2005 External Technical Interpretation, CRA notes that for a club, society or association to receive nontaxable treatment the NPO must be operated exclusively for social welfare, civic improvement, pleasure or recreation or for any other purposes except profit.

However, if an association happens to realize incidental profits from their nonprofit activities, it may still qualify as a NPO unless the primary purpose is “for profit”.
    DIRECTOR LIABILITY
Directors of non-profit organizations may be sued because of actual, or alleged, errors such as wrongful employee termination, discrimination, unpaid salaries, environmental damage, unpaid GST and employee source deductions, etc.

Lawsuits could come from many sources such as government, creditors, members of the public, employees, and even fellow directors.

Therefore, it may be important to have director and officer liability insurance that covers directors, officers, volunteers, staff and employees.

    DISCRETIONARY FAMILY TRUST
It may be advantageous to have a Discretionary Family Trust (DFT) own a class of shares of a family corporation so that dividends may be paid on the class for income splitting purposes. (Caution - dividends allocated to minor children may be subject to the Kiddy Tax.)

Also, upon a sale of the shares, the capital gain can be allocated to a number of beneficiaries of the DFT thereby multiplying the capital gain exemption.

It may also be advisable to have another class of shares of the family corporation owned by another corporation so that dividends may be paid tax free on that class for creditor proofing and to maintain the qualified small business corporation status of the operating company.

    Caution
Specialized legal and tax advice is needed in dealing with a DFT.
    CHARITABLE DONATIONS
A number of charitable donation tax shelters were again offered by promoters in 2005.

For example, a donation of $10,000 may provide two donation receipts, one for $10,000 and, another for, say, $30,000.

The $30,000 typically relates to an asset received from a Trust which is in return donated to a charity for the $30,000 receipt.

CRA warned taxpayers of the pitfalls and risks in these plans in a November 22, 2005 Release.

    ART FLIPS - A LOSER
In a September 24, 2004 Tax Court of Canada case, the Court allowed the taxpayer’s appeal where $8,571 of art prints were purchased and donated. A receipt for $29,400 was claimed as a donation tax credit based on individual retail values for each of the prints.

    Taxpayer Loses - in the Federal Court of Appeal (FCA)
In this November 21, 2005 FCA case, the taxpayer made purchases and donations through CVI Art Management Inc.

The Federal Court noted that the evidence provided by the taxpayer on the individual retail values for each print was not acceptable because there was a normal market for the “group” of prints. The evidence was that CVI only sold groups of prints. Therefore, the highest price paid for the “group” of prints is the correct value for donation purposes. This is approximately equal to the $8,571 paid by the taxpayer for the prints.

    Editor’s Comment
CRA will likely proceed against thousands of taxpayers involved in art flip donations as these cases were put on hold pending this FCA decision.
    OFFICIAL DONATION RECEIPTS
In a December 2, 2005 Registered Charity CRA Release it was noted that registered charities have to include the name and website address of CRA on official donation receipts as of January 1, 2006.
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