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Thread: 5A. Discussion Items - 3. Chess Foundation of Canada

  1. #1
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    Default 5A. Discussion Items - 3. Chess Foundation of Canada

    We've been requested to open a thread concerning the Foundation

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    Lloyd Lombard sent me the following email. Unfortunately it came too late to be incorporated as a motion in the current meeting. According to the NFP Act member motions require a ridiculously long lead time. We have been getting around that by making all motions, director motions. This shortens the required notice period to three weeks (actually 3 to 5 weeks). Unfortunately this came beyond the possiblity to provide 3 weeks notice. We can use it as a discussion item for this meeting.

    Hi Vlad,

    Please accept this as Notice of Motion for the next meeting which such a meeting can be voted on where I will be making the motion to amend article 1006 e) and to add articles 1006 f), 1006 g) and 1006 g.1) to the Chess Foundation of Canada articles:


    1006 e) The Chess Foundation Board of Trustees [Trustees] shall maintain a minimum balance of the total donations plus deposits [capital/principal] made to the Foundation since its inception, including monies held in trust from the Kalev Pugi Fund; the Saskatchewan Chess Federation, the Canadian Chess Federation and any other chess related donations and deposits which the Trustees deem appropriate. The monetary funds held in trust from the Kalev Pugi Fund are governed by articles 762 c); 763; 1008; and 1401.

    1006 f) The Trustees shall payout any of the Foundation’s funds held in trust for the respective organizations, within 30 days of receiving a written request from either the Saskatchewan Chess Federation or the Canadian Chess Federation, or any other organization for which the Foundation is holding funds.

    1006 g) The Trustees shall pay all or part of any income generated from the donations and deposits [capital/principal] held in trust in the Foundation: 1) for the Kalev Pugi Fund, as per articles 762 c); 763; 1008; and 1401.; 2) For the Saskatchewan Chess Federation, as per article 1006; 3) For the Canadian Chess Federation, as per articles 1001 to 1007.
    i) However the Trustees shall at all times maintain a minimum of the outstanding donations and deposits [capital/principal] made since the Foundation’s inception and no payouts shall be made which brings the balance of the Foundation’s funds below the total of the donations and deposits [capital/principal] made since the Foundation’s inception.
    ii) The except to article 1006 g)i) is that the requesting organization, pursuant to article 1006 f), can also request to have all or part of their donations and deposits [capital/principal] repaid to the organization thus reducing the principal amount remaining of that organization’s funds in the Foundation by the amount paid out.
    iii) Once written requests have been made to the Trustees for payment from original donations and deposits [capital/principal], these payments are to be made to the respective requesting organization first and prior to paying out any income generated from investments.

    1006 g.1) As an example, if the Foundation’s total donations and deposits [capital/principal] since inception totals $100,000.00 plus $12,000.00 in annual investment income and the Foundation incurs expenses in the amount of $10,000.00 for a total remaining asset base of $102,000.00, the maximum payout which the Trustees can make is $2,000.00 (except that the Trustees can also payout all or part of the organization’s capital/principal at the organization’s written request) . The purpose is to ensure that the Foundation’s original donations plus deposits [capital/principal] in the Foundation are forever protected and maintained within the Foundation asset base unless the owning organization requests for their capital/principal to be paid out to that organization pursuant to article 1006 g).

    Thanks,

    Lloyd Lombard

  3. #3
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    I don't have any objections to Lloyd's proposal.
    Executive Summary: the Foundation will eliminate or cut the annual dividend to the CFC if our investments do so poorly that the total assets drop below the original value of the donations. Kinda like what the oil and gas companies are doing to their shareholders now in order to stay solvent.

    This is unlikely to happen since we currently have accumulated capital gains well in excess of $100,000 and our portfolio is pretty conservative.
    Paul Leblanc
    Treasurer, Chess Foundation of Canada
    CFC Rating Auditor
    CFC Governor

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    Objections that I would have to this is that it could lead to some questions about the need for the CFC maintaining the foundation balances if they are not being used to generate income for the CFC. Currently all income goes to the CFC if I am not mistaken. My brother is on a local board for his dental society and they have the enviable problem of accumulating funds faster than they spend it. In short, there is no shortage of sponsors willing to pay money to schmooze with dentists. They have been cautioned by their accountants and/or lawyers not to allow cash to accumulate above a certain balance because Revenue Canada may come in and take the excess away. At least that is what was suggested at a recent family dinner. I have read other reports of such happenings at other non-profits.

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    Yes, currently all income goes to the CFC. Any suspension of the income would only be temporary and unlikely to be considered "not being used to generate income for the CFC". Since the Foundation is part of the CFC, retaining the income in the Foundation is still generating income for the CFC.
    If Revenue Canada were to ask why we don't spend that income in a certain year we would have a pretty good case to say that we are using it to replace capital losses.
    Lloyd is suggesting that we need to have a policy in place to deal with a doomsday scenario where the Foundation sustains a tremendous loss.
    An extremely unlikely scenario but I suppose it doesn't hurt to think this out ahead of time.
    Paul Leblanc
    Treasurer, Chess Foundation of Canada
    CFC Rating Auditor
    CFC Governor

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    I completely agree with Paul on the details though my main concern is with process. As I understand the NFP notice requirements giving notice of motion now with the intent to discuss and vote on this at the next quarterly meeting should comply.

    I am assuming this is Lloyd's whole purpose in starting with a notice of motion.

    To me the idea of sweeping the path ahead for potential landmines in the road shows prudence. As for the NFP requirements, it has roughly the same effect on us in governance that re-learning to play our game on a 10x10 board might have.

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    We could also argue to Revenue Canada that some of the funds in the foundation are required in order to make sure that we can maintain services for life members who joined in the expectation that the Federation would be around to service them. It would probably be a good idea to figure out how many of our life members are still around and what the capital requirements would be to service them.

    We can pass all the new rules we like but if we get to the point where such a policy would kick in, we would be in quite a bit of trouble and the handbook rule would not really matter at that point as Revenue Canada or creditors would determine our course of action.

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    Paul, to clarify the definition of income: Assuming that we purchased a stock/fund for $x, and then later sell it for $x+$n. At that point that is $n in capital gains. The capital gains realized are then income that goes to the CFC?

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    Quote Originally Posted by Garland Best View Post
    Paul, to clarify the definition of income: Assuming that we purchased a stock/fund for $x, and then later sell it for $x+$n. At that point that is $n in capital gains. The capital gains realized are then income that goes to the CFC?
    No. Income would be interest and possibly dividends. What you are talking about is capital gains.

  10. #10
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    Yes, I understand that these are capital gains. I actually noted it in my email.

    I bring it up because capital gains are normally taxable once they are cashed in or exchanged for a different asset. I'm trying to understand the tax situation here.
    Last edited by Garland Best; 12-17-2015 at 06:37 PM. Reason: added details regarding when taxable

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