Item # 5 – CFC Charitable Status/CRA

[Bob Armstrong]

Item # 5 – CFC Charitable Status/CRA

Shortly after the opening of the meeting at 11:00 AM EDT on Friday, Oct. 1, President Bob Gillanders will post a status update on this topic, and open it up to discussion.

[Bob Gillanders]

To open the discussion, I will repeat my post of Sept 21st:

The executive is leaning towards accepting the annulment proposal from CRA. The deadline for appeal is Sept 26th.

I believe we should go the annulment route. My reasons are here in my email to the Executive and advisors:

Friends,

On thursday I had a phone consultation with Karen Cooper. She is the lawyer that Chris Mallon and Brian Watson consulted back in 2006 after the audit. She confirmed that Brian's email to Chris did indeed accurately reflect her advice at the time. Karen is a well respected authority in the area of charitable law.

Her advice is to accept the annulment. We do not appeal the decision, we just allow CRA to proceed with the annulment. This is actually an excellent outcome for us. It avoids the disastrous scenario of a revocation where all our assets would be at risk. Her comment was that Les's appeals have bought us 3 years and has convinced CRA to seek an annulment, we should grab it and count our blessing.

The court case she cites in 2006 with the soccer team went badly for them. It is highly unlikely we would eventually win in court. The better avenue would be to seek status as a Registered Canadian Amateur Athletic Association (RCAAA). This would allow us to again issue tax receipts. This is not a for sure, but she feels it is a definite possibility. She also recommends waiting a year first. Allow the dust to settle on the charitable status, file one year as a regular not for profit, then apply for RCAAA.

Any comments?
Bob

Since that post, we did receive a 30 day extension. The new deadline is Oct 26th. My position has not changed. Comments?

[Patrick McDonald]

I am sorry, I might not have been following this a closely as I should have been.
What does "annulment" mean to us?
What is the difference from "revocation"?

Thanks,

[Michael von Keitz]

The situation is unfortunate, but I fully support Bob's proposed course of action.

[Christopher Field]

I take it that "annulment" means we lose the charitable status, but save the problem of risk to assets which would come with "revocation".
The advice seems clear.
I support this approach.
As noted, after 1 year, we may apply under the "amateur sport" label.
As we've not had any previous success in getting recognised as a sport, it is unclear whether this will work.

[Fred McKim]

We are being put forward for annulment as CRA is arguing that we were registered as a charity by mistake. No wrongdoing on our part. We could clearly continue as a Not for Profit Organization. Most corporate donors wouldn't care which we were. It would affect people like each of us, who might like to donate $100 every so often and get a tax receipt for it.

We were originally being audited for issuing "fraudulant" taxable receipts. In other words "gifts" to us were not really proper gifts that should have been given tax receipts. If we were found guilty of that we could have had out status revoked and faced possibly severe financial penalties.

[Mark S. Dutton, I.A.]

Her advice is to accept the annulment. We do not appeal the decision, we just allow CRA to proceed with the annulment. This is actually an excellent outcome for us. It avoids the disastrous scenario of a revocation where all our assets would be at risk. Her comment was that Les's appeals have bought us 3 years and has convinced CRA to seek an annulment, we should grab it and count our blessing.
Any comments?
Bob

Since that post, we did receive a 30 day extension. The new deadline is Oct 26th. My position has not changed. Comments?

I agree with Karen Cooper's advice and accept the annulment and move on.

[Hugh Brodie]

Would this "annulment" affect any existing tax receipts which have already been issued (whether wrongly or not)?

[Fred McKim]

We can issue tax receipts until the date of the annulment

[Christopher Mallon]

I support going ahead with the annulment, but with one point to add which I believe came up in the emails: Before giving up on a charity registration, why not see if something like the Pugi Fund could actually be split off and remain as a Charity promoting chess for youth (which CRA does accept as a valid charity)?

It would be a separate entity with its funds administered by the CFC, basically?

Anyway I'm not sure it would work as I am not an expert in charity law, but it's surely worth asking about.

[Rob Clark]

I agree with Karen Cooper's advice and also with what Chris said about the Pugi fund.

[Paul Leblanc]

I do have one bequest lined up that would double the size of the Pugi Fund (currently about $20k). I'm not sure yet whether the donor will cancel his bequest when we lose the tax deductibility.

[Les Bunning]

THe CRA has given us a 30 day extension to file a request for reconsideration. I am still working on this and will discuss this with the CFC executive. For strategic reasons I am not planning to post extensive details on this website.

[Garland Best]

I support going ahead with the annulment, but with one point to add which I believe came up in the emails: Before giving up on a charity registration, why not see if something like the Pugi Fund could actually be split off and remain as a Charity promoting chess for youth (which CRA does accept as a valid charity)?

It would be a separate entity with its funds administered by the CFC, basically?


Is this ruling by the CRA available to any governor to read? Where is the statement from the CRA that the Pugi fund can be accepted as a charity, particularly if it is being operated by the CFC? I'd like to see if if I am going to provide any meaningful contribution to the discussion.

[Valer Eugen Demian]

Agree we should accept the annulement and seek either amateur sport status or not-for-profit.

[Fred McKim]

There is no statement that says the Pugi fund could be a charitable organization. I think we would have to start a new corporation, ie Canadian Youth Chess Association. The CFC could give them the Pugi fund. They could raise money for the Olympiad (presumably we always have 2-3 players under 21 or whatever age is appropriate).

I think the majority of the Executive prefer to seek recognition as a RSAAA, although there is a big hurdle to climb here, in terms of being recognized as a sport.

[Paul Leblanc]

I agree with you Fred. I'd rather not complicate things for the Pugi Fund unless we have no other option but to start a separate "charity".

[Lyle Craver]

As a practical matter, I think the Pugi fund would be best brought into the Chess Foundation of Canada which we should very very carefully ensure maintains charitable status and in that way go forward. There is a cost to maintaining charitable status and we should recognize clearly what it is.

I agree the CFC isn't really exclusively charitable in nature which in 2010 is the standard the Canada Revenue Agency is demanding.

[Bob Gillanders]

Lyle,

The Chess Foundation of Canada is part of the CFC, it is not a separate legal entity. This is a common misconception. The distinction between the CFC and the Chess Foundation is that of our own doing.

Likewise, the Pugi Fund is part of the Foundation. We draw the distinction to honour the wishes of Kalev Pugi.

[Lyle Craver]

OK - can we move to separate the Foundation legally?

Non-profits routinely have charitable foundations for fundraising for the good works they do and quite a few of these are not considered charitable themselves. (I say this as vice-chair of our municipal grants committee - in my committee work I've interviewed at least two dozen such organizations)

I think the Pugi Fund is a clearcut example of something the CRA would consider charitable and if we re-design our organization we should be able to do something along these lines.

I've felt for nearly 10 years that the practice of giving receipts for family members representing their province or country was bound to lead to CRA problems eventually and "blew a gasket" when I heard it was being done.

As I've said on Executive e-mail, churches routinely give receipts for contributions designated to members who are taking part in foreign missions and some mission boards require their people to raise part or all of their own maintenance before going overseas. In these cases though it is much clearer that the primary work they do is charitable in nature - either religious or otherwise. (For instance my parents supported for several years one man who went to India as a Bible translator but ended up running an orphanage)

I've heard the view expressed that it would be best to wait a year before re-applying and I think that's prudent.