Tax & Law

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New CRA Guidance on Arts Activities and Charitable Registration

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Staff Post
By Jerry Smith

A recent post by Andrew Valentine with the Miller Thomson Law Firm shone some light on a new piece of guidance from the Canada Revenue Agency. If you are currently considering an application for – or already possess – charitable status, the CRA has recently delivered the final version of the Guidance for Arts Activities and Charitable Registration (Reference CG – 018, December 14, 2012).

Building on feedback from the sector, including organizations such as CAPACOA seeking a broader definition of who could qualify, this finalized version attempts to clarify what CRA finds as acceptable examples of appropriate purposes to merit charitable status.

First, there are three broad categories of arts-related activities that could qualify as charitable purposes under one or more of the four heads of charity, including:

  • Advancement of education;
  • Exhibitions, performances and presentations of artistic works;
  • Activities that enhance an art form or style within the arts for the benefit of the public.

In particular, CRA has clarified and expanded details in its arts forms and styles appendix, thus opening the door for more presenter members of CAPACOA to garner or maintain standing as a charity.

If you are interested in exploring these ideas in more detail, these links will be of value:

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L3C and the Arts

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Staff Post
By Katie Chasowy

Back in November, I attended a symposium called L3C and the Arts at Columbia University in New York City. The event was designed to be discussion around how a new form of incorporation (the L3C) in the US can be used for arts organizations. I Live tweeted the event and the Storify of the tweets from the day can be found below.

Low-Profit Limited Liability Company (L3C) is a form of incorporation that is a hybrid between a for-profit business and a not-for-profit business. It was formed by augmenting the existing Limited Liability Company (LLC. We don’t have the equivalent in Canada; essentially it’s a hybrid of a sole proprietorship and a corporation). The L3C differs from the LLC in that the articles of organization (similar to articles of incorporation in a Canadian Not-For-Profit) must state one of the IRS’s charitable purposes. Because of this, an L3C can receive the money that charitable foundations must give each year (called Program Related Investments, or PRIs).

Basically, an L3C allows a company to accept investment and payout investors while still being able to receive funding from foundations. Champions of L3Cs say that it’s a great way to diversify revenue sources and raise capital to start an organization while critics of L3Cs say the form of organization isn’t so attractive because there isn’t the ability to issue tax receipts for donations.

The L3C and the Arts symposium brought together the co-founder of an L3C organization, a lawyer involved in the drafting of the L3C legislation for several states, the executive director of a theatre arts services organization , the executive director of a theatre organization with an L3C subsidiary organization, and the head of Columbia’s theatre program. After being briefed on the technical aspects of the L3C, the discussion then turned to how the L3C can work in the arts world.

Here’s some main points that brought up for how the L3C can work in the arts:

  • The L3C is an interesting new tool to consider when forming new organizations, but will not work for all circumstances.
  • An existing NFP should not change it’s form of organization to an L3C. It should be considered for organizing a new company or a new subsidiary business.
  • The main drawback for arts companies is the inability to issue tax receipts for donations.
  • It may be a good form for independent artist and smaller collectives, such as those who use crowd funding sites like indigogo to raise money.
  • Art forms that have a higher capital potential (like film) may be more suited for the L3C than art forms with a lower capital potential (like visual arts organizations). Performing arts falls between film and visual arts.

I tried to keep a Canadian perspective in mind when listening to the discussion. The L3C form would not work exactly in Canada mainly because Canadian not-for-profits do not rely as heavily on foundation revenue as in the US. But, the discussion on how hybrid forms of organization can work in the arts was quite interesting and applicable for Canadian not-for-profits, especially with the introduction of the hybrid Community Contribution Companies in British Columbia.

Resources:
L3C and the Arts website
L3C and the Arts symposium archived video
L3C Wikipedia Page
Community Interest Company (UK hybrid)

Here’s the Storify of the event:

We were audited by the Canada Revenue Agency but we don’t understand or agree with the outcome. What recourse do we have?

The results of your audit should be contained in a formal letter from the Canada Revenue Agency (CRA). It should advise you on the procedure for filing an appeal: the contact information, the time limit by which you must file, and the required documentation. Or, you can contact the CRA’s Business Window at 1-800-959-5525 for assistance.

If you’re in doubt about the findings of the audit, consider this. If you file an appeal, you can always withdraw it – but if you don’t file by the expiry of the time limit, you will be considered to have accepted the audit results.

This is a great example of a case where you should seek expert professional advice on your particular situation. Many accounting and legal practices have tax experts on staff, or can evaluate whether you would benefit from discussing a tax appeal with a specialist.

We held a fundraising auction. Can I issue charitable donation receipts for the donated auction items?

It depends what the items were.

You can issue tax receipts for gifts of property. Thus, the donors of tangible auction items – artwork, an iPad, a bicycle, anything you can touch – can receive a tax receipt for their gift.

You cannot issue tax receipts for gifts of services (e.g. a tax consultation, a spa treatment) or for promises of services (e.g. a gift certificate, a voucher for hotel accommodation).

One important point of clarification: the company that issues its gift certificate or the hotel that issues the accommodation voucher has given you only a promise; they have not transferred property. However, if someone other than the issuer purchases a gift certificate or voucher (i.e. pays for it with cash) and then donates it to you, they have acquired property and made a gift of that property – and in that circumstance, a tax receipt can be issued.

Here’s the citation from the CRA website.