2010 Ruling 2009-0352111R3 - 149.1(1) Related business - persons employed

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether certain individuals are persons employed by the charity in the carrying on of that business that are not remunerated for that employment for purposes of the definition of related business in 149.1(1)

Position: Yes, in this particular case.

Reasons: Based on the facts provided. However, whether a Charity is carrying on a business that is a related business is a question of fact which must be determined on an ongoing basis.

XXXXXXXXXX 2009-035211

XXXXXXXXXX , 2010

Re: XXXXXXXXXX (the "Charity")

This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above named taxpayer. We also acknowledge the additional information provided during our various communications in connection with your request.

We understand that, to the best of your knowledge and that of the taxpayers involved, none of the issues involved in the ruling request:

(i) is in an earlier return of the taxpayer or a related person;

(ii) is being considered by a tax services office or tax centre in connection with a previously filed tax return of the taxpayer or a related person;

(iii) is under objection by the taxpayer or a related person;

(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; and

(v) is the subject of a ruling previously issued to the taxpayer by the Directorate.

Unless otherwise stated, (i) all references to a statute are to the Income Tax Act, R.S.C. 1985, 5th Supplement, c.1, as amended, (the "Act"), the Income Tax Regulations (the "Regulations"), (ii) all terms used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated, and (iii) all references to monetary amounts are in Canadian dollars.

Our understanding of the relevant definitions, the facts, proposed transaction and its purpose is as follows:

DEFINITIONS

XXXXXXXXXX ;

"Charity" means "XXXXXXXXXX ", incorporated pursuant to letters patent issued under the Canada Corporations Act dated XXXXXXXXXX

An "employee" means a person employed and remunerated for that employment; and

A "volunteer" in respect of the Facility means a person employed by the Charity in the carrying on of a business of the Charity who is not remunerated in any manner whatsoever for that employment.

FACTS

1. The Charity is registered as a charitable organization pursuant to section 149.1 of the Act. Its charitable registration number is XXXXXXXXXX . Its head office is located in the City of XXXXXXXXXX .

2. The Charity is established to deliver XXXXXXXXXX as follows:

1. XXXXXXXXXX

2. Provided that these charitable objects shall include only those which are, at law, exclusively charitable and without limiting the generality of the foregoing, and to accomplish the aforesaid objects:

a) to provide programs, services, products, administration, consultation, facilities and funds for XXXXXXXXXX ;

b) to establish and monitor national policies, standards and practices XXXXXXXXXX ;

c) to conduct and document research concerning the provision of XXXXXXXXXX and to communicate the results thereof to XXXXXXXXXX and the public at large;

d) to educate and inform XXXXXXXXXX and the public at large concerning the provision of XXXXXXXXXX ;

e) to support, facilitate and co-ordinate dialogue between XXXXXXXXXX , groups, organizations and individuals concerning the provision of XXXXXXXXXX ;

f) to develop, co-ordinate and conduct programs, classes, meetings, training seminars, on-site visits, field trips, workshops, symposiums, and conferences for XXXXXXXXXX and the public at large concerning the provision of XXXXXXXXXX ;

g) to establish, own, and operate one or more publishing offices, printing plants, distribution centres, or retail facilities for the publication, printing, distribution and sale of all types of literature and publications directly related to the charitable objects herein;

h) to produce programs and materials directly related to the charitable objects herein for presentation, broadcast and distribution on any means of audio, visual, computer, electronic or other forms of communication as may become available from time to time;

i) to give donations, scholarships and bursaries in accordance with the objects of the Corporation;

j) to acquire, lease and hold, in whole or in part, land for the charitable objects of the Corporation;

k) to receive and maintain a fund or funds for the charitable objects of the Corporation and to apply from time to time all or part of the income and/or capital thereof for the said objects, and for the benefit of charitable organizations that are registered as such under the Income Tax Act (Canada), as amended from time to time, and that have charitable objects similar to the objects of the Corporation;

l) to associate and XXXXXXXXXX with any association or organization, incorporated or unincorporated, with exclusively charitable objects similar or complementary to those of the Corporation herein;

m) to dispose of or transfer any property of the Corporation to charitable organizations that are also "qualified donees" as defined in the Income Tax Act (Canada), as amended from time to time, to further the objects of the Corporation stated herein; and

n) to carry on "related businesses" within the meaning of the Income Tax Act (Canada) as amended from time to time in furtherance of the purposes stated herein.

3. There are approximately XXXXXXXXXX across Canada. Each XXXXXXXXXX is separately incorporated, is a corporate member of the Charity, is a charitable organization as defined in section 149.1 and a registered charity as defined in subsection 248(1).

4. The Charity's income is primarily derived from fees from XXXXXXXXXX and donations from the public. According to the Financial Overview for the fiscal year ending XXXXXXXXXX , it received almost $XXXXXXXXXX in revenue, of which more than $XXXXXXXXXX was cash and in-kind donations and close to $XXXXXXXXXX was membership fees. During the XXXXXXXXXX fiscal year, the Charity had on average XXXXXXXXXX permanent, full-time and XXXXXXXXXX part-time or part-year compensated employees. The Charity does not own any land or buildings and leases the premises from which it operates.

5. As part of its ongoing charitable and fundraising activities, the Charity receives a substantial number of in-kind donations ("In-kind Gifts") from donors and corporate sponsors. In-kind Gifts generally include items that are related to XXXXXXXXXX

6. When the Charity receives In-kind Gifts from donors, donation tax receipts are regularly issued by the Charity in accordance with the applicable provisions of the Act.

PROPOSED TRANSACTIONS

7. As part of its operations, the Charity is proposing to establish a retail facility (the "Facility") operated substantially by volunteers to sell In-Kind Gifts it receives from donors and corporate sponsors through the Charity's fundraising activities. The Facility will not have separate legal status.

8. When the Charity receives In-kind Gifts from donors, donation tax receipts will continue to be issued by the Charity in accordance with the applicable provisions of the Act. If not initially dropped off at the Facility, In-Kind Gifts will be transferred to the Facility to be sold.

9. The Facility may be operated from premises rented from third parties or be operated from adjacent space leased by the Charity. All items for sale by the Facility will be derived from the In-kind Gifts. The Facility will not purchase items for sale or engage in consignment sales with third parties. In-kind Gifts may be refurbished in appropriate circumstances before sale in situations where safety or usability is a concern. The Facility will not manufacture goods from the In-kind Gifts prior to sale.

10. The Charity will continue to conduct charitable activities, to at least the same degree as at present, that further its charitable purpose, and the solicitation, receipting, and sale of In-kind Gifts through the Facility will only constitute a subordinate and ancillary activity of the Charity. The Charity estimates that the operation of the Facility will generally neither use more than 50% of its resources XXXXXXXXXX . For the purposes of this calculation, resources include the Charity's financial assets, as well as staff, all its volunteers, premises, and equipment. Resources will be determined on a fair market value basis or other appropriate measure with respect to financial assets, and on a person by person analysis with respect to staff and volunteers which, for greater certainty, will include all individuals employed (staff and volunteers) by the Charity for a number of total hours greater than 40 hours during a fiscal year.

11. The Facility will be operated to a small extent by full and part-time employees and substantially by volunteers.

12. To be accepted as a volunteer of the Facility, an individual will be screened by an informal interview or by review of an application form completed by the individual to determine whether, based on the person's skills, knowledge and/or attitude to do so, the individual is able to perform duties that are of use to the Facility, or is able to obtain these within a reasonable time frame. The individual will be required to sign an agreement committing to abide by the policies and procedures of the Charity with respect to the operation of the Facility, to track the number of hours worked at the Facility, the duties they engaged in, and to forego any possible claim to any remuneration whatsoever from the Charity for the services provided.

13. The minimum number of total hours worked by a volunteer during a fiscal year will be 40 hours.

14. There will not be any minimum age requirements in order to qualify as a volunteer, as long as the person is of such an age that the volunteered work provided is of use to the Facility. For example, it is anticipated that while a teenage volunteer would likely be acceptable, a young child who simply accompanied his/her parent who volunteers at the Facility would not.

15. The volunteers would include the following categories of persons:

a) Members of the general public who are interested in supporting the charitable work of the Charity.

b) Persons involved in company volunteer programs, i.e. persons who take paid time off from their work as part of a company volunteer program to engage in volunteer work at charities of their choice and the persons choose to volunteer at the Facility. In circumstances where there may be a number of persons on the company's volunteer program that choose to volunteer at the Facility, the volunteer agreement referred to in paragraph 12 may be executed by the company on behalf of such volunteers and the collective time of these occasional volunteers will be credited towards the calculation of a 40 hour a year volunteer equivalent. Similarly, where a number of persons from a charitable organization or non-profit organization choose to volunteer at the Facility, the volunteer agreement may be executed by the organization on behalf of such volunteers and the collective time will be credited towards the calculation of a 40 hour a year volunteer equivalent.

c) Persons involved in government assistance programs such that the person would not qualify for assistance unless they provide volunteer work with certain local charities. These programs include WSIB, Ontario Works. For example, WSIB has determined that a person who has been injured at work is able to perform a certain level of work. The person is required by WSIB to work an agreed number of hours in order to qualify for WSIB assistance and the person is often given a few work alternatives from which they can choose (and one of which is to work at the Facility). A further example would be a person is required to perform some sort of work in order to qualify for provincial social assistance (e.g. from Ontario Works) or top up to what they receive from WSIB depending on the person's family circumstances. The person is provided with a short list of approved placements (including volunteer work at the Facility) from which the person may select where he/she wishes to work. The person's circumstances often dictate how much time the person can work and the person is free to leave at any time, however, the person's social assistance can and likely would be affected.

d) Employees of the Charity engaged in activities not related to the Facility, but the persons choose to volunteer unpaid time over and above their employment requirements at the Facility. In these circumstances the amount of the employee's remuneration is not conditional or affected in any manner by the decision to volunteer or not volunteer his or her time.

e) High-school and university students volunteering at a charity of their choice (and they choose to volunteer at the Facility) for school credits.

f) Persons ordered by a court to engage in volunteer community services at a charity of their choice (and they choose to volunteer at the Facility).

g) Disabled persons involved in a special work program for the disabled (but not the paid aides who accompany these persons).

16. All volunteers will be required to perform duties specific to the operations of the Facility, rather than other activities and programs of the Charity, including the following activities of the Facility:

a) Volunteer committee members will engage in hands on management of the Facility (but not regular oversee functions of the Facility as a board might), with the size of the committee remaining relatively small and appropriate to the task;

b) Various duties in soliciting and retrieving In-kind Gifts, including contacting potential donors or sponsors to solicit In-kind Gifts, attending at donors' premise to retrieve In-kind Gifts, drivers, etc.;

c) Various duties at the Facility's premises, e.g. sales, stocking shelves, sorting and cleaning In-Kind Gifts for sale, etc.; and

d) Various office duties for the Facility, including data entry, accounting, etc.

17. The Facility will maintain documentation to track information on the volunteers involved in the Facility, including information such as the identity of the volunteers (e.g. names, contact particulars, etc.), hours volunteered (e.g. dates and time volunteered), primary duties (e.g. sales clerks, drivers, custodians, callers, bookkeeper, etc.).

18. The volunteers involved in the Facility will habitually constitute no less than 90% of all persons involved in operating the Facility engaging in various capacities. For example, if there was ordinarily 1 full-time and 2 part-time remunerated employees involved in the operations of the Facility in a given year, the number of volunteers that would need to be involved in operating the Facility meeting the criteria in paragraphs 12 through 16 would habitually need to be at least XXXXXXXXXX .

PURPOSE OF THE PROPOSED TRANSACTION

19. The purpose of the transaction is to develop an organized means for the Charity to receive, receipt and sell donated goods it receives as part of the operation of its charitable programs.

RULING

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, the proposed transaction and purpose of the proposed transaction, and provided further that the proposed transaction is carried out as described above, we confirm that:

The persons described in paragraph 15 ((a) to (g)) engaged to provide services to the Facility will be considered persons employed by the Charity in the carrying on of that business that are not remunerated for that employment for purposes of the definition of "related business" in subsection 149.1(1) of the Act.

COMMENTS

We note that the question of whether a charity does, in fact, carry on a related business where substantially all persons employed by the charity in the carrying on of that business are not remunerated for that employment, is a question of fact which must be determined on an ongoing basis.

This Ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R5 and is binding on the CRA provided that the proposed transactions are completed before XXXXXXXXXX .

Yours truly,

XXXXXXXXXX
Manager
Charitable and Financial Institution Sectors
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs