British Columbia's New Societies Act Came into Effect Today

The Societies Act came into effect today, November 28, 2016. The new legislation has made significant changes to the governance of non-profit societies incorporated in British Columbia It replaces the Society Act (the "Old Act"), which is now repealed.

Over the next two years, societies are required to transition to the new Act. This will involve filing a non-profit society's constitution and consolidated bylaws. The constitution will now only include the society's name and purposes. Other provisions that used to be common in constitutions under the Old Act, such as provisions requiring that a society's assets be distributed to a charitable organization if the society is wound up, will be moved to the bylaws.

The Province of British Columbia has published a helpful guide to the transitions available here.

The Sidney and North Saanich Memorial Park Society v. British Columbia (Attorney General)

A good thing about charitable purpose trusts is that they can last forever. A bad thing about charitable purpose trusts is that they can last forever. When creating a charitable purpose trusts, or any long-term trust for that matter, it is difficult to predict what the future holds, and build sufficient flexibility into the trust documents to meet the needs of those who are intended to benefit as circumstances change. Fortunately, as illustrated by a recent decision of the Supreme Court of British Columbia in The Sidney and North Saanich Memorial Park Society v. British Columbia (Attorney General), 2016 BCSC 589, superior courts in common law provinces in Canada do have tools to amend charitable trusts.

The Sidney and North Saanich War Memorial Park Society settled a charitable trust (which I will refer to simply as the “Trust”) in 1965 to hold certain lands (the “Lands”) now in the Town of Sidney. In 1965 the Lands included a park, playing fields and tennis courts, a community hall, called Sanscha Hall, and a Cenotaph. The Sidney and North Saanich War Memorial Park Society transferred the Lands to the trustee of the Trust to hold for the residents of the Electoral District of Saanich (the “Residents”) for “community, cultural, athletic and recreational purposes.”

The Trust deed setting out the powers and duties of the trustee contained certain restrictions including:

1. A portion of the Lands and Premises (the” Cenotaph Area”) had to be used solely for a memorial cairn;
2. The trustee had the power to lease the remaining Lands and Premises,  or a part of them, for  a term of up to 5 years with an option to renew for 5 years, provided that the tenant permits and encourages the Lands and Premises to be used by the Residents for community, cultural, athletic and recreational purposes and maintains the Cenotaph Area in good repair;
3. If any part of the Lands and Premises are expropriated  then the funds received for the expropriation would have to be used to purchase, maintain and improve other lands and premises;
4. The Residents were given a number of powers including the power to require that the trustee terminate any lease on giving the tenant 30 days notice.

There were a number of changes that occurred over the years, including the following:

1. In 1969, the Province of British Columbia expropriated part of the Lands on which the Cenotaph was located, and the Cenotaph was moved;
2. In 1983, the Town of Sidney expropriated a portion of the lands and paid approximately $500,000 in compensation;
3. In 1987, the trustee used some of the proceeds from the expropriation to purchase land and developed a community sports facility known as Blue Heron Park;
4. The trustee developed a new multi-purpose arts facility, now known as the Mary Winspear Centre, which opened in 2001 and replaced Sanscha Hall.

Some of the provisions in the Trust deed create significant difficulties for the trustees in light of the changes that have occurred since 1965. For example, the current trustee, the Sidney and North Saanich Memorial Park Society, holds approximately $380,000 from the expropriation compensation, which under the terms of the Trust deed must be used to maintain and improve the Blue Heron Park, but the Blue Heron Park does not require the funds, which could be better used to maintain the Mary Winspear Centre. The restrictions on the length of leases and the provision allowing the Residents to require the trustee to terminate any lease to a Tenant on giving a Tenant 30 days notice, prevent the trustee from attracting tenants and entering into long-term profitable leases.

The Sidney and North Saanich Memorial Park Society asked the court to interpret certain provisions of the Trust deed (which I won’t deal with in this post), and to amend the Trust deed as follows:

a.               Removal of the restrictions on the lease term;

b.               Removal of the power granted to the Residents by which they can require the trustee to terminate a lease on 30 days’ notice without cause;

c.               The trustee be permitted to use any Expropriation Funds to maintain and improve all Trust Property, thereby removing the restriction that such funds only be used for the land purchased in substitution;

d.               Inclusion of a specific provision empowering the trustee to carry on business activities on the Trust Property and to permit uses of or activities on the Trust Property, including business use and the earning of rental income, subject to the terms and conditions of the Trust, and requiring that all such activities and use conform to the community, cultural, athletic and recreational purposes of the Trust; and

e.               Inclusion of a provision that the trustee preserve and maintain a memorial cenotaph, sculpture or other structure, on a place on the Trust Property that is prominent and accessible to the public.

In her reasons for judgement, Madam Justice Dardi considered the Court’s jurisdiction to amend a charitable trust. The first is the cy-pres jurisdiction (which I have written about before). The second is the courts inherent jurisdiction for administrative scheme-making. As I read this case, the circumstances in which the cy-pres jurisdiction may be invoked are relatively narrow, that the terms of the trust have are impossible or impracticable to carry out, but once invoked the Court has broad powers to amend the trust. In contrast, the threshold for invoking the administrative scheme-making power is lower, but the Courts powers are narrower.

Madam Justice Dardi neatly summarized the cy-pres jurisdiction as follows:

[47]         Cy-près is a significant doctrine in the law of charities. It determines what happens when property that has been dedicated to charitable purposes cannot be applied in the manner intended by the donor: Haley & McMurtry, Equity and Trusts, 3d ed (London: Sweet & Maxwell, 2011) at 261. Where the purposes or objects of a charitable trust have become impossible or impracticable to achieve, the court, relying on its inherent jurisdiction, may intervene and alter the purposes of the trust, and in doing so, depart from the stated intention of the settlor. The courts may implement modernized or modified objects that are “as near as possible” (cy-près) to the original purposes: Toronto Aged Men’s and Women’s Homes v. Loyal True Blue and Orange Home, [2003] O.J. No. 5381, 68 O.R. (3d) 777 at para. 50 (S.C.J.) [Stillman].

[48]         A cy-près order “must depart from the intentions of the [settlor] only to the extent required to remove the problem that has caused the future administration of the Trust to become impracticable.” It is also imperative that the relative efficiency of the proposed amendments be considered: Stillman at para. 28.

[49]         The threshold requirement for invoking the cy-près doctrine is a finding that carrying out the existing trust terms is either impossible or impracticable. In the absence of such a determination, the court must refuse to exercise its cy-près scheme-making jurisdiction. Despite the narrow ambit of the doctrine, courts have, at times, interpreted impossibility and impracticability broadly: Waters [Law of Trusts in Canada, 4th ed. (Toronto: Carswell, 2012)] at 683. “Impracticability” is not to be construed as “absolutely impracticable”: In re Dominion Students’ Hall Trust, [1947] Ch. 183 at 186.

[50]         Earlier lines of authority endorsed the notion that cy-près orders should be restricted to cases where there has been a failure of the purposes or objects of a charitable trust as distinct from the malfunction of the directions from the settlor for implementing those objects.

[51]         However, the modern Canadian jurisprudence, as articulated by Mr. Justice Cullity in Stillman at paras. 31-33 and subsequently applied by the court in Fenton Estate, 2014 BCSC 39, establishes that the doctrine extends beyond remedying the failure of objects. It goes further and empowers the court, without amending the purposes, to introduce or adjust administrative trust machinery to accommodate contemporary conditions, so that the charitable purposes can be sustained. The rationale is found in the judicial recognition that the charitable objects should not be frustrated by the trust’s administrative provisions.

Madam Justice Dardi adopted the modern approach to cy-près as set out in Stillman.

She then summarized the administrative scheme-making jurisdiction,

[56]         The jurisprudence establishes that, even absent a finding of impracticability or impossibility, the court retains the inherent jurisdiction for administrative scheme-making with respect to charitable trusts. An administrative scheme addresses the inadequacy of the administrative terms of a trust to achieve its charitable objects: Waters at 807-08. Pursuant to this jurisdiction, the court has the power to supply administrative terms or to alter the administrative machinery of a charitable trust when necessary for the effective operation of the trust. The court directs a scheme in order to secure a more complete attainment of the charitable purposes. This is in keeping with a long-standing recognition by the courts that the dedication of property to charity through a trust involves special rules. The jurisdiction to regulate the administration of charitable trusts should be exercised sparingly.

[57]         Historically, the courts in England have relied on their inherent jurisdiction to  supply administrative terms when the trust instrument is silent, or to vary administrative terms including trustee powers, such as the investment power, when those terms have become obsolete: In re Royal Society’s Charitable Trusts, [1956] Ch. 87.

Madam Justice Dardi considered conflicting case authorities in other provinces, but found that although there are conflicting judicial opinions on the extent of the court’s powers, the jurisdiction is accepted in Canadian law. (Although I will not deal with the conflicting cases in this post, the discussion is quite interesting, and perhaps fodder for a future blog post.)

She wrote,

[76]         I conclude that I have inherent jurisdiction for administrative scheme-making for charitable trusts. In cases where it cannot be said that the requirements to achieve the purposes of a charitable trust have become sufficiently impracticable or impossible so as to engage the cy-press doctrine, the courts may nonetheless, pursuant to this administrative scheme-making jurisdiction, vary the administrative terms of a trust for the furtherance of charitable purposes. 

She found that she had jurisdiction to grant the amendments requested by the Sidney and North Saanich Memorial Park Society under both the cy-près jurisdiction and the administrative scheme-making jurisdiction, and that it was appropriate to grant the orders amending the Trust deed.

With respect to the cy-près jurisdiction she wrote,

[108]     Counsel for the Trustee submits that without these administrative amendments, the Trust will in all likelihood fail because there are insufficient funds held in trust and/or generated by the Trust Property, and available to the Trustee to adequately maintain and preserve the Trust Property in perpetuity. I agree.

[109]     I am satisfied that, in all the circumstances, the purposes of the Trust have become impracticable as a result of the restrictions upon the Trustee to enter into short-term leases, the Resident Oversight Clause, and the restriction placed on the use of the Expropriation Funds. I am satisfied that the Trustee has established economic impracticability of the continuation of strict adherence to these administrative terms. While these administrative terms may have been practical when the Trust was settled, subsequent events have rendered adherence to the strict terms impracticable, such that the court’s cy-près jurisdiction is engaged

[110]     Accordingly, I approve the amendments to the Trust Deed as sought by the Trustee. The Trustee has proposed removing the provisions limiting leases to five- year terms. As an added protection, the Trustee has proposed the inclusion of a clause which requires the Trustee to take steps at least once every five years to satisfy itself that the tenant is not in breach of the terms and conditions of the Trust, including its objects and purposes. I endorse the inclusion of that safeguard.

Madam Justice Dardi wrote in respect of the administrative scheme-making jurisdiction,

[115]     For completeness and if the cy-près doctrine is not engaged, I approve the proposed amendments pursuant to the court’s jurisdiction to regulate the administration of the Trust.
....

[117]     The amendments that I have approved in this case relate to the Trustee’s power to lease. The directions in the Trust Deed regarding the term of the lease and the Resident Oversight Clause are incidental to the power to lease. These directions are not essential to carry out the paramount intention of the settlor, namely that the Trustee be granted the power to lease. I am satisfied that these particular provisions have become inadequate for contemporary needs and that the proposed amendments will effectively modernize the Trust’s administrative machinery.

[118]     Similarly, the settlor conferred upon the Trustee the power to use the compensation payments it has received for the maintenance and improvements of certain prescribed lands. I conclude that the proposed amendment – to expand the parameters of the use of the Expropriation Funds – updates and enhances the efficacy of that administrative term of the Trust.

[119]     In light of the foregoing, the amendments to the administrative directions of the Trust that I have approved do not subvert the donor’s intentions. Rather, the proposed amendments would allow the settlor’s intentions to be more effectively fulfilled.

[120]     In summary on this issue, I am satisfied that the amendments sought fall within the court’s jurisdiction to regulate the administration of the Trust. I conclude that the amendments to the administrative machinery of the Trust will enhance and facilitate, in light of the altered circumstances, the economic feasibility of carrying out of the settlor’s paramount objective, namely that the Trust Property continue to be used by the Residents for community, cultural, athletic and recreational purposes. The amendments secure the more complete attainment of the charitable objects and ensure that the settlor’s intentions and the charitable purposes of the Trust can be carried out more effectively.

New Societies Act Introduced in British Columbia Legislative Assembly

The Government has introduced a new Societies Act in the Legislative Assembly. Bill 24 incorporates many of the recommendations made by the British Columbia Law Institute's Report on Proposals For a New Society Act, which can read here.

Fraud on the Power: TLC The Land Conservancy of British Columbia v. The University of British Columbia

In her will, dated February 15, 2007, Jessie Binning, expressed the hope that her home, designed by her late husband, architect and artist, Bertram Charles Binning, would be preserved as a historic site.  Specifically, her will provided:

(i)         the lands and buildings at 2968 Mathers Crescent, West Vancouver, British Columbia, … which my late husband, B.C. BINNING and I used as our residence (the “Residence”), have been designated a National Heritage Site and have been listed on the heritage inventory of West Vancouver, British Columbia;

(ii)        it is my hope that the Residence and historic household furnishings will be preserved for historical purposes;

(iii)       if my Trustees decide it is feasible and practical to do so, to establish a foundation or other organization, society, association or corporation (the “Entity”), as my Trustees decide, and to transfer any interest (the “Property”) I have in the Residence, along with those household furnishings selected by my Trustees, to the Entity to hold, maintain and use the Property and those household furnishings for those purposes it decides are desirable;

(iv)       if the Property is transferred to the Entity and, due to unforeseen circumstances, the Entity decides it is no longer feasible or practical to retain the Property and it subsequently sells the Property, it is my hope that it will give the net sale proceeds to the B.C. BINNING MEMORIAL FELLOWSHIP FUND, administered by THE UNIVERSITY OF BRITISH COLUMBIA, for the purpose of creating additional scholarships to be awarded by it each year from the income earned by those proceeds;

(v)        if my Trustees decide not to retain the Property and historic household furnishings, the Trustees will sell the Property, and sell or otherwise dispose of those household furnishings, and give the net sale proceeds to the B.C. BINNING MEMORIAL FELLOWSHIP FUND, for the purpose of creating additional scholarships to be awarded by it each year from the income earned by those proceeds;

She also provided in her will that if the Entity were established, the residue of her estate would be divided equally between the Entity and the B.C.Binning Memorial Fellowship Fund, or if the Entity were not established it would go to the Fellowship Fund.

Mrs. Binning died in May 2007.

Her executors and trustees sought to give effect to Mrs. Binning’s hope that the residence, or the Binning House as it is known, would be preserved for historic purposes. The practical difficulty they faced was that after various bequests were paid out of her estate there was no residue left to pay to a new Entity to maintain the Binning House.

A more practical alternative would be to donate Binning House to an established entity to maintain, such as the TLC The Land Conservancy of British Columbia, which I will refer to as TLC. The problem is that the will did not give the executors and trustees the authority to do so.

After receiving legal advice from their lawyers, the executors and trustees decided to incorporate a non profit society. They then transferred title to the Binning House to the new society, which in turn, immediately transferred the title to the TLC. The new society also executed a deed of gift giving TLC the residence “for the purpose of restoring, developing and preserving the Binning House, formerly the home of B.C. Binning, for historical purposes with a view to educating the public and commemorating the site”.

In this way, the executors and trustees sought to both follow the letter of the will, by setting up a new entity and transferring the Binning House to the new entity, while finding a more practical manner of giving effect to Mrs. Binning’s hope to preserve the historic residence. Clever. Perhaps, too clever?

Unfortunately, TLC has had some significant financial problems in recent years, and has sought protection under the federal Companies’ Creditors Arrangement Act. When TLC received an offer to purchase the Binning House for $1.6 million to a collector of Bertram Binning’s art, it applied to court for approval of the sale, with the proceeds to be used to assist with TLC’s restructuring.

The University of British Columbia did not oppose the sale, but took the position that the proceeds should be paid to UBC for the B.C. Binning Memorial Fellowship Fund. UBC argued that executors and trustees acted outside of the scope of their authority in transferring the Binning House to TLC indirectly through the new society.

UBC was unsuccessful in the Supreme Court of British Columbia, and appealed to the British Columbia Court of Appeal.

In reasons released earlier this week, in TLC The LandConservancy of British Columbia, v. The University of British Columbia, 2014 BCCA 473, the Court of Appeal found that the executors and trustees had committed a fraud on their powers under the will by transferring the Binning House to the TLC through the new society. Despite the strong term “fraud,” this does not mean that they acted dishonestly, but rather that what they did was beyond the scope of their powers under the will. Mr. Justice Tysoe explained what a fraud on the power is at paragraphs 42 and 43:

[42]         In order to succeed in having the transfer of the Binning House declared void, UBC had the onus of proving that the transfer was a fraud on the power contained in the Will authorizing the Trustees to transfer it.  The phrase “fraud on a power” is a term of art, and it does not connote fraud in the usual sense of dishonesty.  This is explained by Geraint Thomas in Thomas on Powers, 2d ed. (Oxford: Oxford University Press, 2012) at para. 9.03:

The doctrine of fraud on a power is not founded upon a state of conscience imputed to the donee in equity.  Dishonesty of some kind is often present, but it is not essential.  Indeed, the donee’s intention or motive may be perfectly honest.  Thus, the doctrine may apply where the donee honestly believes that, by his exercise of the power, he is disposing of the property in a more beneficial manner, or in a way which is consonant with what he believes would have been the real wish of the donor of the power …
[Footnotes omitted.]

[43]         The parties are agreed, as they were before the chambers judge, that the two basic elements of a fraud on a power are as set out in Thomas on Powers at para. 9.02:

 (a)      “a disposition beyond the scope of the power by the donee, whose position is referable to the terms, express or implied, of the instrument creating the power;” and

 (b)      “a deliberate breach of the implied obligation not to exercise that power for an ulterior purpose”.

Mr. Justice Tysoe found that the will required that the executors and trustees would need to determine whether it was practical and feasible not only to establish the Entity and transfer the Binning House to it, but also that it was practical and feasible for the Entity to hold, maintain and use it. But in this case the executors and trustees knew it would not be feasible for the society they incorporated to retain the Binning House in view of the fact that there was no cash available to do so.

Although the executors and trustees transferred the Binning House to a new Entity, the purpose of doing so was so that the Binning House would end up with TLC, which was not an “object of the power,” or in other words, a beneficiary of Mrs. Binning’s will. Although the executors and trustees acted in good faith, they had an ulterior purpose when they incorporated the new society and transferred the Binning House to it. In this sense, they exercised their powers fraudulently.

Mr. Justice Tysoe wrote at paragraph 67:

The Trustees had received legal advice from the Estate Lawyers that the Binning House could not be transferred directly to TLC or, in other words, TLC was not a proper object of the power given to them under the Will.  The Trustees then set out to do indirectly that which they knew could not be done directly.  They transferred the Binning House to the New Society with the intention that the New Society would immediately transfer it to a non-object, TLC.  The Trustees deliberately used the power in the Will for the purpose of benefiting a non-object.  They used it for an ulterior purpose.

 The Court of Appeal ordered TLC to transfer the Binning House back to Mrs. Binning’s estate. The result is that when it is sold, the net proceeds will go to UBC for the B.C. Binning Memorial Fellowship Fund.

Re Mulgave School Foundation

If you make a large gift to a charity, you may have a specific purpose in mind, such as buying equipment for a hospital, building a new church, or funding scholarships in the Faculty of Engineering. Whatever you have in mind, consider whether you wish to make your gift to charity conditional on the funds being used for the specific purpose, or whether you want to give the charity some flexibility.

The advantage of making the gift conditional is that the charity will be required to use the gift for the purpose you have specified. The disadvantage is that the charity will lose flexibility in using the funds in accordance with its needs, which may change over time.

This point is illustrated by a Supreme Court of British Columbia decision, Re Mulgrave School Foundation, 2014 BCSC 1900.

Bjorn and Rochelle Moller, and Donald Kirkwood and Penny Levitt gave substantial gifts to the Mulgave School Foundation. When they made their contributions, the conditions of the gifs as set out in endowment letters were that the funds were to be used to create an endowment, and the income used for scholarships for students. The Foundation was set up to provide scholarships and bursaries as well as operating grants for the Mulgave School.

In 2011, after the gifts were made, the Mulgave School, the Mulgave School began a fundraising campaign to buy land and build a Seniors School. If the Mulgave School could use the funds given to them by the Mollers, Mr. Kirkwood, and Ms. Levitt to fund the new building, the Mulgave School would save an estimated $200,000 in borrowing costs.

The Mulgave School Foundation applied to court for an order permitting the Foundation to apply the donations to the construction of the new school. All four of the donors agreed to the order sought allowing the funds they had donated to be used for the construction.

The application was opposed by the Attorney General of British Columbia.

Mr. Justice Masuhara held that the Foundation could not use the funds for the construction of the Senior School. The Charitable Purposes Preservation Act requires a charity that is given funds for a “discrete purpose” use those funds for that purpose.

He considered section 3(4) of the Charitable Purposes Preservation Act, which provides that if a charity is unwilling or unable to use funds for the discrete purpose, the Court

may make whatever orders, including arrangements, it considers appropriate, including transferring the property to a new charity, so that the property is kept, administered and used to
(a)        advance the discrete purpose, or
(b)        advance another charitable purpose that the court considers is consistent with the discrete purpose.

Mr. Justice Masuhara also considered the common law doctrine of cy-pres, which allows the Court to apply donated funds in a different manner if the purpose for which they were provide is “impossible” or “impractical.”

In this case, there was no evidence that the Foundation was unwilling or unable to use the funds for an endowment to funds scholarships, nor that the original purpose was impossible or impractical.

Although the donors were in agreement with the proposal to use the funds they donated for the construction they had not retained any power to change the purpose of the donations. Once they donated the funds, they had no further control.

In dismissing the application, Mr. Justice Masuhara wrote:

[32]         Unfortunately, as laudable as the Foundation’s initiative and intent is, the petitioner has not met the necessary conditions to obtain the relief sought. 

Changes to Canadian Charitable Donation Tax Credits for Charitable Gifts on Death

In the 2014 Budget, the Federal Government has proposed changes to the treatment of charitable gifts in wills or beneficiary designations. Essentially, if you include a gift to a charity in your will, under the new tax law, the gift will  be considered to have been made from your estate after your death, rather than immediately before your death. Your executor will then be permitted to allocate the tax credits among the year in which the executor pays or transfers the gift to the charity, an earlier taxation year for the estate, and the last two years of your life.

In many cases, the tax credits may be best applied to the terminal return to offset capital gains arising from the deemed disposition of property at death and other taxes, as may be done under the current rules, but in some cases the changes will provide welcome tax relief if there are significant tax liabilities for an estate after death.

The catch is that the funds or other property must be transferred to the charity within 36 months of death for the tax credits to be available in the last two years of the deceased's life.

The new rules will come into effect in 2016.

Here is the relevant excerpt from 2014 Federal Budget:

Estate Donations 

Donations made by an individual to a registered Canadian charity or other qualified donee are eligible for a Charitable Donations Tax Credit (CDTC). Subject to certain limits, a CDTC in respect of the eligible amount of the donation may be applied against the individual’s income tax otherwise payable. The eligible amount is generally the fair market value of the donated property at the time that the donation is made (subject to any reduction required under the income tax rules). The individual may claim a CDTC for the year in which the donation is made or for any of the five following years. 

Where an individual makes a donation by will, the donation is treated for income tax purposes as having been made by the individual immediately before the individual’s death. Similar provisions apply where an individual designates, under a Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF), Tax-Free Savings Account (TFSA) or life insurance policy, a qualified donee as the recipient upon the individual’s death of the proceeds of the plan or policy. Under these circumstances, the CDTC available may be applied against only the individual’s income tax otherwise payable.

On the other hand, a CDTC available in respect of a donation made by an individual’s estate may be applied against only the estate’s income tax otherwise payable. 

Budget 2014 proposes to provide more flexibility in the tax treatment of charitable donations made in the context of a death that occurs after 2015. Donations made by will and designation donations will no longer be deemed to be made by an individual immediately before the individual’s death. Instead, these donations will be deemed to have been made by the estate, at the time at which the property that is the subject of the donation is transferred to a qualified donee. 

In addition, the trustee of the individual’s estate will have the flexibility to allocate the available donation among any of: the taxation year of the estate in which the donation is made; an earlier taxation year of the estate; or the last two taxation years of the individual. The current limits that apply in determining the total donations that are creditable in a year will continue to apply. A qualifying donation will be a donation effected by a transfer, within the first 36 months after the individual’s death, of property to a qualified donee. In the case of a transfer from an RRSP, RRIF, TFSA or insurer, the existing rules for determining eligible property for designation donations will apply. In any other case, the donated property will be required to have been acquired by the estate on and as a consequence of the death (or to have been substituted for such property). 

An estate will continue to be able to claim a CDTC in respect of other donations in the year in which the donation is made or in any of the five following years.  

This measure will apply to the 2016 and subsequent taxation years. 

Tony and Mignon Fenton Trust

Anthony Michael Jewell Fenton wanted to help “the infirm elderly in need of home care in the Municipality of Oak Bay, British Columbia.” In his will, he directed that a substantial part of his wealth be held in a trust, to be known as the Tony and Mignon Fenton Trust. The terms of the trust provided that the capital be held in perpetuity, and he gave his trustee discretion to make payments out of the income to individuals and organizations that would benefit the infirm elderly in need of home care in Oak Bay.

He suggested in his will that the Trustee reinvest some of the income to protect the capital against erosion by inflation, and suggested that the Trustee consider registering the trust as a charitable foundation with Canada Revenue Agency. His will did not allow the trustee to spend any of the capital.

Mr. Fenton died in October 2007. His trustee, the Bank of Nova Scotia Trust Company, made transfers funds of over $2 million from his estate to the Tony and Mignon Fenton Trust, and also registered the trust as a private foundation.

But the trustee encountered a significant problem. As a registered private foundation, the Tony and Mignon Fenton Trust is required to distribute annually at least 3.5% of the average market value of its investments in the preceding 24-month period. If a private foundation fails to meet this disbursement quota, it can be de-registered as a charity, which has devastating tax consequences. The problem is that the trust was not generating enough income to meet its disbursement quota, and given current rates of interest, and dividend returns, it is unlikely that the trust could generate 3.5% income without impairing its long-term capital growth to protect the capital from inflation. The will did not permit the trustees to pay out capital, even though the capital was increasing in value.

The trustee applied to the Supreme Court of British Columbia for an order allowing the trustee to use capital to meet the disbursement quota.

In Fenton Estate, 2014 BCSC 39, Mr. Justice Johnston held that he could grant the order the trustee requested allowing the trustee to use sufficient capital to meet the trust’s disbursement quota in any year where the income was insufficient. The Supreme Court of British Columbia has an inherent jurisdiction to create a scheme for a charitable trust if the purposes of the trust have become impossible or impracticable. The scheme should be as close as possible to the original purposes. This is called cy-pres.

Mr. Justice Johnson found that it was appropriate in this case for the Court to authorize the trustee to use capital to meet the disbursement quota when the income is insufficient. He wrote at paragraphs 46 and 47:

[46]         I find that the objects and purposes of the Tony and Mignon Fenton Trust have become impossible or impracticable to attain as a result of the combination of low returns on investment, the requirement that the trust meet a 3.5% disbursement quota, and the testamentary instruction to distribute income only. That the testator did not foresee the low rate of return on capital can be seen from his instruction to add unspent income to capital.

[47]         This finding is sufficient to permit the court to order that the trustees may encroach on capital gains in any year when it is necessary to add some part of capital gains to income in order to meet the disbursement quota and avoid falling into arrears on that quota.

Norman v. Watch Tower Bible and Tract Society of Canada

In Norman v. Watch TowerBible and Tract Society of Canada, 2013 BCSC 2099, Madam Justice Warren considered whether funds that were given to a charity under an agreement by which the donors could have the funds returned was testamentary in nature, requiring that the agreement by signed and witnessed as a will to be effective.

During their lifetimes, Lloyd and Lily Norman made loans and gifts to support their local congregation of Jehovah Witnesses in Abbotsford, B.C. as well as to the national charity Watch Tower Bible and Tract Society of Canada.

On July 3, 2001, they signed a “Conditional Donation Agreement,” which read as follows:

The Watch Tower Bible and Tract Society of Canada (SOCIETY) acknowledges the receipt of a voluntary conditional donation in the amount of $200,000.00 … (hereinafter called FUNDS) to be held for the use and benefit of SOCIETY for the purpose of advancing the work of Jehovah’s Witnesses of preaching the good news about Jehovah’s Kingdom according to the judgment and sole discretion of the SOCIETY. The initial voluntary conditional donation is accepted from the following DONOR(S):  Lloyd E. and Lily Norman …

Any future funds advanced will be accepted by the SOCIETY and held according to this agreement if the DONOR(S) so indicates in a letter sent with any future funds.

DONOR(S) may personally request in writing the refund of all or any part of the FUNDS from the SOCIETY and such request shall be honoured. No request for a refund may be made by a power of attorney, an estate, or legal representative. The SOCIETY shall, however, in its sole discretion, consider refund requests from such parties, particularly if any financial need is being experienced by any who are DONORS and keeping in mind the best interests of all concerned. The total sums refunded shall not exceed the total of FUNDS.

After the death of all DONORS, the remainder interest that may exist in the balance of FUNDS held by the SOCIETY according to this agreement shall be in SOCIETY.

Pursuant to the agreement, they contributed $310,000, some of which, $60,000 was made into outright gifts for which they received tax receipts.

Following Lloyd Norman’s death, his wife having predeceased him, his administrator, Dana Norman brought a claim on behalf of Lloyd Norman’s estate seeking payment of the $250,000 (being the difference between the $310,000 contributed and the $60,000 that had been converted to outright gifts) from the charity to the estate. The basis of his claim was that because Lloyd and Lily Norman could compel the charity to return the funds during their lifetimes, the agreement was testamentary in nature, dependant on their deaths for its vigour and effect. If so, then as a testamentary gift, the agreement must meet the formal signing and witnessing requirement in the Wills Act to be effective. In this case, it was not witnessed and was not valid in British Columbia as a will.

Madam Justice Warren summarized the factors the courts consider in deciding whether a gift is testamentary as follows:

[23]         The BC Court of Appeal in Wonnacott [ v. Loewen (1990), 44 B.C.L.R. (2d) 23] went on to cite with approval several Canadian decisions. From that analysis, the following principles emerge:

·       The question of whether a disposition is or is not testamentary depends upon the intention of the maker (para. 19).

·       The intention of the maker is a question of fact. In determining the intention, the court is not restricted to the wording of the document alone, but can and should consider extrinsic evidence relevant to the transaction (para. 20).

·       If the document is not intended to have any operation until the maker’s death, it is testamentary (para. 19).

·       If the document is intended to have and does have the effect of transferring some interest in the property or of setting up a trust thereof in praesenti, it is not testamentary (para. 19).

·       The reservation of a right to revoke the transfer or bring a trust to a close does not necessarily have the effect of making the document testamentary (para. 19).

·       Cases where documents are held to be testamentary often include the following factual elements: 1) no consideration passes; 2) the document has no immediate effect; 3) the document is revocable; and 4) the position of the donor and donee does not immediately change (para. 21).

 [24]         Other relevant principles drawn from the authorities relied upon by the parties include the following:

·       Even where an intended disposition is revocable by the maker or where enjoyment of it is postponed until the death of the maker, if, at the time of its execution, the document is legally effective to pass some immediate interest in the property, no matter how slight, the transaction will not be classified as testamentary:  James MacKenzie, Feeney’s Canadian Law of Wills, 4th ed. (Markham, ON: LexisNexis Canada Inc., 2000), para. 1.20.

·       The level of control the donor exercises over the property during his or her lifetime is a factor to be considered in determining whether a disposition is inter vivos or testamentary and the more control the donor exercises, the more likely the disposition will be considered testamentary:  MacKenzie, paras. 1.25 to 1.27.

·       However, the central question is whether the maker of the document intended the document to pass some immediate interest or whether the maker intended the document to have no effect until his death. The degree of control the donor retains over the property during his or her lifetime is relevant to ascertaining that intention. However, if it is clear that the document is intended to have immediate effect it is not testamentary even if the donor retains control, such as the ability to call for the return of the property during his or her lifetime:  Mordo [v. Nitting, 2006 BCSC 1761], para. 335.

Madam Justice Warren found that the gift was not testamentary but took effect during the Normans’ lifetimes, and was not dependant on their death for its vigour and effect. The charity had the right to use the funds. The fact that Lloyd and Lily Norman could call for the return of funds made the gift subject to a condition, but that did not alter the fact that the funds became the property of the charity immediately.

She wrote at paragraphs 37, 38 and 39:

[37]         The next question is whether the Conditional Donation Agreement took immediate effect. In my view, it is clear from the Conditional Donation Agreement itself that it had vigour and effect upon execution. The Conditional Donation Agreement, once executed, governed the relationship between the parties with respect to the Conditional Donations. The positions of the parties immediately changed.

[38]         On the signing of the Conditional Donation Agreement, the defendant obtained both an immediate and future interest in the funds. The defendant already had physical possession of, and at least legal title to, the initial $200,000, but the terms upon which the defendant held those funds and any future contributions were settled with the signing of the Conditional Donation Agreement. The defendant acquired the immediate right to use the funds:  the Conditional Donation Agreement expressly states that the funds are “to be held for the use and benefit of [the defendant] for the purpose of advancing the work of Jehovah’s Witnesses of preaching the good news about Jehovah’s Kingdom according to the judgment and sole discretion of the [defendant]”. Further, as would be the case if the money was in a joint account, the defendant received an unrestricted future interest when the condition was cleared upon Mr. Norman’s death. The Supreme Court of Canada in Pecore v. Pecore, 2007 SCC 17, at paras. 48 and 50, held that the gift of the right of survivorship is inter vivos in nature and not testamentary.

[39]         The Conditional Donation Agreement changed the position of the Normans in that upon its execution they were bound by its terms. They gave up the funds and, unless they requested a refund of them in accordance with the terms of that agreement, nothing would change on their deaths. The ultimate disposition did not depend on the Normans’ deaths but rather on their decision not to request a full refund during their lifetime.

The result is that the Watch Tower Bible and Tract Society of Canada are entitled to retain the full amount of the donations Lloyd and Lily Norman made to it.

[This decision has been upheld by the Court of Appeal. You can read the decision at 2014 BCCA 277.]

When is a Gift Not a Gift?

Law can be subtle. The same word can mean different things in different contexts.

The National Foundation for Christian Leadership (“NFCL”) is a registered as a charity in Canada that provides bursaries and scholarships to students in Christian universities. Those who made donations received charitable tax receipts, which they could use—or as it turned out, in some cases, thought they could use—to obtain charitable tax credits.

Parents or other family members or friends of students attending Christian universities provided donations. Donors could not direct that their donations be used to fund a bursary or scholarship for a specific student, but as found set out by the Federal Court of Appeal in Coleman v. HerMajesty the Queen,

[3]               Under the program administered by NFCL, nearly all students who solicited “donations” received bursaries for the expenses related to their education at TWU or at other Christian post-secondary institutions in an amount equal to approximately 80% of the lesser of students’ eligible expenses and the funds that they had solicited. Some students were awarded scholarships equal to 100% of the lesser of their eligible expenses and the “donations” to NFCL that they had solicited. The value of a student’s bursary or scholarship could not exceed the amount of the solicited “donations”. 

 [4]               Although a “donation” could not be earmarked by a “donor” for a particular student, the Judge found on the basis of NFCL’s pamphlets that the Appellants either knew or ought to have known that, if they made a “donation” to NFCL, their children and grandchild would receive a bursary or scholarship that would defray the expenses of their education at TWU.

The Federal Court of Appeal, upheld the Tax Court of Canada’s decision that a number of these donations charitable tax credits for which the Minister of National Revenue had disallowed were not “gifts.” For the purpose of qualifying for a charitable tax credit, a “gift” is “is a gratuitous transfer of property owned by the donor in return for which no benefit flows to the donor.”

Justice Campbell Miller, in the Tax Court of Canada, found that the donations were not truly gratuitous transfers with no benefits flowing to the donors. Although the donors could not directly control how their funds were used, there was a strong correlation between the donations and receipt by those students who solicited the donations. Parents donating funds knew that their children would receive bursaries or scholarships because of the donations. Justice Miller found that if the children had not received financial support from NFCL, the parents would have otherwise paid those amounts.

Ken and Monica Neville had donated $6250 to NFCL. They received a tax receipt. Their daughter, who attended Trinity Western University, received $6408 in scholarships from NFCL.

After they were denied charitable tax credits for their donations, they sued NFCL, seeking a return of the funds they donated.

In Neville v. National Foundation for Christian Leadership, 2013 BCSC 183, Associate Chief Justice Cullen considered whether the donations were “gifts” at common law. In finding that they were, he cited a Supreme Court of Canada case setting out the characteristics of a gift:

[25]         In Read v. Rayner, [1943] 2 D.L.R. 225 at 231 (P.E.I.S.C.), aff’d [1943] 4 D.L.R. 803 (S.C.C.), Arsenault J. held as follows:

What is a gift?
 Britton, in his treatise of gifts (Lib. 11. C3) gives the following definition:

“A gift is an act whereby anything is voluntarily transferred from the true possessor to another person, with the full intention that the thing shall not return to the donor, and with full intention on the part of the receiver to retain the thing entirely as his own without restoring it to the giver. For the gift cannot be properly made if the thing given does not so belong to the receiver, that the two rights, of property and of possession, are united in his person, so that the gift cannot be revoked by the donor, or made void by another, in whom the lawful property is vested.”

 Blackstone [Book II, c. 30, p. 441] says: “A true and proper gift or grant is always accompanied with the delivery of possession and takes effect immediately.” 

In the leading case of Cochrane v. Moore (1890), 25 Q.B.D. 57, at p. 76, Lord Esher M.R., gives the definition of a gift as follows:

“It is a transaction consisting of two contemporaneous acts, which at once complete the transaction, so that there is nothing more to be done by either party. The act done by one is that he gives; the act done by the other is that he accepts. These contemporaneous acts being done, neither party has anything more to do.”

The essential elements of a gift then, according to these definitions, are that one gives, that there is delivery of the gift and that the person to whom the gift has been made accepts.

 [26]         There is really no doubt based on the evidence adduced before me that the donations were gifts in the sense that “there is a delivery of the gift and ... the person to whom the gift has been made accepts”.  I do not understand either party to contest that proposition.

Mr. and Mrs. Neville argued that because they did not get tax credits, the purpose of their donations was not fulfilled, thereby vitiating their gifts. Associate Chief Justice Cullen did not agree. The purpose of the gifts was to fund scholarships and bursaries, and NFCL carried this out. The charity did what the donors contemplated. The donors may have been motivated by their desire for tax credits, but that was not the purpose of the donations. The tax authority’s treatment of the donations does not vitiate the gifts.

Nor did Chief Justice Cullen accept Mr. and Mrs. Neville’s submission that the donations were conditional upon their receipt of tax credits. There was no evidence that at the time they made the donations that they attached any conditions. Once they made an absolute gift, they cannot then attach trust conditions to it.

In the result, NFCL is entitled to keep the donations they received from Mr. and Mrs. Neville. Although the donations made by Mr. and Mrs. Neville were not “gifts” in the sense that they did not receive any benefit in returned, as required to qualify for charitable tax credits, they were “gifts” at common law in the sense that they were transfers of property that the recipient is entitled to keep.  

Proposals for a New Society Act

The British Columbia Law Institute has published its Supplementary Report on Proposals for a New Society Act. The Supplementary Report is in response to the Ministry of Finance's Society Act Review Discussion Paper, December 2011, which contains proposals for significant reforms to British Columbia's Society Act which governs not-for-profit organizations incorporated under B.C. legislation.

Can an Attorney Under an Enduring Power of Attorney Make Gifts?

In British Columbia, when you are acting under an enduring power of attorney for a person who is no longer capable of managing his or her affairs, you must act in the best interest for the now incapacitated person who appointed you as his or her attorney. (I will refer to the person who makes the power of attorney and appoints someone as the "donor" and the person appointed as the "attorney.") Generally, this means that you may only use the donor’s money for his or her benefit. But can you make gifts to the donor’s family on behalf of the donor? How about loans? What if the donor had regularly given money to his or her church or some other charity? Can you continue to do so?

Although I have had my opinions on these questions, until recent changes in our legislation that will come into effect on September 1, 2011, I have not been able to point to any legislation in British Columbia.

But as of September 1, 2011, the Power of Attorney Act and the Power of Attorney Regulation will address the question of whether an attorney (the person named in the power of attorney) acting under a Power of Attorney may make gifts including charitable gifts or loans from the donor’s assets.

Section 20 of the Power of Attorney Act, when it comes into effect, will allow the attorney to make gifts or loans in two circumstances. First, if the power of attorney document expressly allows the attorney to make gifts or loans, then the attorney may do so as authorized in the documents.

Secondly, even if there is no express authorization in the power of attorney document, the attorney may make gifts including gifts to charities or loans from the donor’s property if:

(a) the adult will have sufficient property remaining to meet the personal care and health care needs of the adult and the adult's dependants, and to satisfy the adult's other legal obligations, if any,
(b) the adult, when capable, made gifts or loans, or charitable gifts, of that nature, and
(c) the total value of all gifts, loans and charitable gifts in a year is equal to or less than a prescribed value.

The prescribed value is set out in section 3 of the Regulation as “the total value of any gifts, loans and charitable gifts made by an attorney in a year must not be more than the lesser of
(a) 10% of the adult’s taxable income for the previous year, and
(b) $5000."

But the attorney may only receive a gift or loan if the power of attorney authorizes it.

If you are making an enduring power of attorney, and you would like your attorney to be able to make more substantial gifts, loans or charitable gifts than the lesser of $5000 or 10% of your income per year, or if you would like the attorney to be able to receive gifts or loans, you may have your lawyer put in an express provision setting out what gifts or loans you would like your attorney to be able to make in the power of attorney document.

Consultations for Reform of the British Columbia Society Act

The Deputy Minister of Finance is seeking comments on reform of the Society Act. In a message issued in December 2009, a couple of structural issues are identified as follows:

Two fundamental structural issues regarding the Act have already been raised. The first concerns the nature of the corporate model most appropriate for societies and whether a more sophisticated business law framework should be adopted.

The lack of up-to-date corporate governance rules has been identified as a barrier to the efficient functioning of societies. For example, societies are currently required to have three directors (one of whom must be resident in the province), and directors can only be indemnified with the approval of the court. While these extra controls may be appropriate for certain types of societies (e.g. charities), societies that are not recipients of public money perhaps need not be so constrained. Other corporate statutes have moved toward greater streamlining and flexibility in these areas. For example, the BCA requires only one director (with no residency requirement) and indemnification of BCA directors no longer requires a court order. As well, the BCA’s modern framework for corporate reorganizations and other fundamental changes is not available to societies.

***


The second fundamental issue concerns the extent to which the Act should contain regulatory provisions or other rules that constrain the operation of societies. Most corporate statutes are non-regulatory in nature -- that is, they merely provide a framework for incorporation, governance and dissolution, and contain few, if any, provisions that purport to regulate or control the composition or activities of the corporations created. The Society Act, however, contains a number of regulatory provisions, including the following:

tighter accountability controls -- for example, a society must have three directors (as opposed to one director for private companies under the BCA) and must make its financial statements available to the public. There is no ability to waive financial statements (as there is for private companies under the BCA);

provisions allowing the registrar to order a particular society (or class of society) to become a "reporting society", which then triggers greater accountability requirements -- for example, a reporting society must provide audited financial statements to its members;

special rules regulating societies that exist for educational, religious, poverty-relief, community or other "charitable purposes" -- a society with such purposes cannot abandon those purposes or convert to a company, and may not, on dissolution, distribute its assets to its members; and

ministerial investigations of societies that do not act in the public interest.

You may provide any comments by April 1, 2010, by email to fcsp@gov.bc.ca or to the following address:

Financial and Corporate Sector Policy Branch
Ministry of Finance
PO Box 9418 Stn Prov Govt
Victoria BC V8W 9V1
(Phone 250-387-1269)

British Columbia Association of Community Response Networks Online Auction

The B.C. Association of Community Response Networks is holding its third annual online auction now. You can check out this link with the online auction items until June 30, 2009.

Ecological Gifts and Conservation Covenants

In my last post on ecological gifts in Canada, I described how you can donate ecologically sensitive land to a qualifying organization, receive some Canadian income tax benefits now, while continuing to use and enjoy the land during your lifetime.

If you do this, you will not be able to leave the land in your will to your heirs, nor will you be able to sell the land (except for your limited interest which may not be marketable).

An alternative way of preserving the natural features of your ecologically sensitive land for the future, while enjoying some tax benefits now, is to register a conservation covenant.

A conservation covenant is an agreement registered against your land that affects what you and future owners may do with your land. The purpose of a conservation covenant is to preserve natural features of the land including wildlife.

Because a conservation covenant will restrict or prevent future development of your land, it will reduce the value of your land. The reduction may be small in some areas, but substantial in others, such as land that could otherwise be developed in Vancouver, or another large city.

The conservation covenant is held by a government or private organization, which may enforce the covenant, if you or a future owner fails to comply with the terms of the covenant.

If you grant a covenant on ecologically sensitive land to a qualifying organization, then you will receive a tax receipt for the value of the covenant. The amount of the receipt will be significantly lower than the amount you would receive if you donated the land, or even donated the land subject to a life interest.

Each province has its own legislation concerning conservation covenants.

In British Columbia, section 219 of the Land Title Act governs conservation covenants. A covenant may include provisions “that land or a specified amenity in relation to it be protected, preserved, conserved, maintained, enhanced, restored or kept in its natural or existing state in accordance with the covenant and to the extent provided in the covenant.” The covenant must be in favour of the provincial government, a municipality or regional district, or certain organizations (usually land trusts) approved by the provincial government.

For more information you may wish to read a short article by the Land Trust Alliance of British Columbia here.

Ecological Gifts and Life Estates

As I wrote in my post on the tax benefits of ecological gifts in Canada, it is possible to continue to own and use your real estate, while receiving tax benefits now.

One way you can do this is to give ecologically sensitive land to a qualifying organization, while retaining a life estate (or life interest) in the land.

You can slice ownership of land in different ways. One way is to create successive interests in time. One person may have the right to the benefits and obligations of ownership during his or her life (called a “life tenant”), while another will receive possession of the land on the death of the life tenant (called the “remainderman”).

If you would like to give your ecologically sensitive land to a qualifying organization now in order to receive a tax benefit now, you can make the gift now while retaining a life estate on the title. You will be able to continue to use the land as your own during your lifetime, but you will also have to continue to have the obligations of an owner, such as paying property taxes.

What’s the catch?

Because you are retaining a life estate, which is something of value, the amount of the charitable tax receipt you will receive will be less than if you donated the land without retaining a life estate.

To receive the tax receipt, the land will have to be appraised. Appraising land is more complex if there is a life estate. First the appraiser will need to appraise the value of the land if you sold it now. Then, the appraiser will have to appraise the value of your life estate, and deduct that amount to arrive at the value of the remainder interest that you are donating. The extent of the reduction for your life estate will be related to your age. If you are young, the recipient of the gift will probably have to wait a long time before obtaining possession of the land, which reduces the value of the gift now. The older you are, the smaller the reduction in the appraised value of the land.

Although you may retain the right to enjoy the land during your lifetime, you are giving up something of value. Because your interest in the land ends at your death, you cannot leave it to your heirs in your will. If you later need money to live on, you will no longer be able to sell the land for its full value. Although in theory you could sell your life estate, no one is likely to be interested in buying an interest in your land, knowing that on your death he will have to give up possession.

Although you may continue to use the land after making a gift if you retain a life estate, you may not change the use (without permission from the Minister of the Environment) or use the land in a manner inconsistent with its status as ecologically sensitive land.

What if you want to keep the land during your lifetime, and you also want your spouse and a child to have it for their lifetimes? You could keep a life estate for yourself, and give life estates to your spouse and a child, while giving the remainder interest (after the deaths of all three of you) to a qualifying organization. The amount of your charitable tax receipts will reflect the fact that the qualifying organization will not receive possession until the last of the three of you to die.

I recommend reading Environment Canada’s publication “Retaining the Right to Use Land Donated as an Ecological Gift.”

In my next post on ecological gifts, I will write about conservation covenants.

Qualifying Organizations for Ecological Gifts in Canada

On Sunday, I wrote about the tax advantages of making gifts of ecologically sensitive land to certain organizations. I followed this post with one discussing how to find out if your land may qualify as ecologically sensitive land in order to take advantage of the tax advantages.

The next question is what organizations qualify under the ecological gifts program?

You may give your land to the Government of Canada, to the government of any province or territory, or to any municipal government under the Ecological Gifts Program. You may also give the property to a number of other organizations that have been approved by the federal government. Most of the approved organizations are land trusts, incorporated for the purpose of conservation.

If you are interested in donating land to a land trust or other approved organization, you can check the listing of approved organizations here.

You will notice that some of the organizations are national or provincial in scope, while others are local. For example the Central Okanagan Land Trust holds ecologically sensitive land here in Kelowna and the Central Okanagan Regional District.

What is “ecologically sensitive land?”

I wrote yesterday about the Canadian income tax credits for gifts of ecologically sensitive land. But how do you know if your land is ecologically sensitive land?

Environment Canada uses the following criteria, which are posted on its website:

areas identified, designated or protected by a local, provincial, territorial, national or international system or body as ecologically significant or ecologically important;

natural spaces of significance to the environment in which they are located;
sites that have significant current ecological value, or potential for enhanced ecological

value, as a result of their proximity to other significant properties;

municipal or rural lands that are zoned or designated for biodiversity objectives;

natural buffers around environmentally sensitive areas such as water bodies, streams or wetlands; and

areas or sites that contribute to the maintenance of biodiversity or Canada's environmental heritage.

In addition to these criteria, some provincial governments also have their own criteria. The criteria for Ontario, Quebec, New Brunswick and Prince Edward Island are also listed on Environment Canada’s website here.

As of the date of this post, I am not aware of any additional criteria for British Columbia.

You will need to get your land certified as ecologically sensitive to qualify. You may contact to the regional Ecological Gifts Program coordinator or a designated certification authority for your region (see this link for contact information), and provide his or her office with some information about the lands. You can see an illustration of the information required here.

You can ask for a Certificate for Donation of Ecologically Sensitive Land before you commit to completing the gift. Then, if the land does not qualify, you can decide whether you still wish to make the gift.

Tax Benefits of Ecological Gifts in Canada

Do you own ecologically sensitive land in Canada? Do you want to preserve the lands natural features and habitat indefinitely?

If so, there are a number of ways that you can do that, a few of which I will be writing about in a series of posts on ecological gifts.

The Canadian Government has made gifts of ecologically sensitive land to certain organizations in order to protect the land attractive by providing generous tax benefits. As I will discuss in a future post, it is even possible to continue to own and enjoy the land (subject to some restrictions on use), while receiving some tax benefits now.

In this post, I am going to discuss the tax advantages of gift of ecologically sensitive lands to qualifying organizations. (I will save a discussion on what qualifies as ecologically sensitive land, and what organizations qualify for later posts.)

There are two significant tax advantages to making gifts of ecologically sensitive land to qualifying organizations. First, you will receive a charitable tax credit for the value of the gift. The federal tax credit, as of 2008, was 15% on the first $200 and 29% for all amounts over $200. In addition to the federal tax credits, each province provides further tax credits, which vary from province to province.

In contrast to most other charitable tax credits, there is no limit to the amount you can claim in any one year for a gift of ecologically sensitive land, except that the credits are non-refundable. This means that you can use the credits to reduce your income tax to zero, but the government won’t pay you anything after you have used your credits to offset all of the income tax you would otherwise have to pay.

What if you are not able to use the full amount of your charitable tax credit in the year you make the gift? You can carry the unused tax credits forward to apply it to income in future years. You can carry the credits forward for up to five years.

The second significant advantage to ecological gifts is that you can avoid capital gains tax on the gift.

In many cases, if you sell land at a profit the profit will be taxed as capital gains. For example, if you bought land for $200,000, in 1995 and now sell it for $400,000; you will have capital gains of $200,000. Half of the $200,000 is then brought into your income, and you will have to pay income taxes on $100,000 of income. (I have simplified this somewhat).

But, using this example, if the land is ecologically sensitive, and you give the land to a qualifying organization, you will not have to pay any tax on the $200,000 capital gain, but will still get a tax credit for a $400,000 gift. This is more attractive than if you sold the land for $400,000, paid capital gains tax, and then gave the sale proceeds to charity.

You should note that not all land will be taxed as capital gains. For example, if the land you own is inventory rather than capital property, then this benefit will not be available to you. Or, on the other hand, if the land qualifies for your principal residence exemption, it will be exempt from capital gains anyway.

Environment Canada provides some examples with calculations of the tax benefits for gifts under its ecological gift program here. You may also wish to read The Canadian Ecological Gifts Program Handbook 2005.

Accurately Naming Charities

I am coming across too many wills in which charities are not properly described. Sometimes the will sets out a gift to a specific program rather than the legal name of a charity. In other cases, the name is simply wrong.

This creates difficulties for executors. The executor has a responsibility for distributing gifts in accordance with the will. But if a charity is not properly described, the executor may not be assured that he is giving the gift to the right recipient.

For example, suppose that the will leaves a gift to a specific program for people with disabilities, rather than to a charitable organization. What if responsibility of the program is shared by two or three distinct organizations, each of whom has specific responsibilities. Perhaps one provides the building, and another offers courses. Which organization is entitled to the gift?

I wrote a previous post about a gift to "First Presbyterian Church in the City of White Rock," which unfortunately did not exist. The executor applied to the court, and the court had to decide which of three churches the testator intended to benefit.

When a court application is necessary, distribution is delayed, and less money is left for the beneficiaries.

These problems can be avoided by either the testator or his lawyer (or ideally both) taking the time to make sure that the charity is correctly identified. The best way is to telephone the charity and confirm the charity's correct legal description. If the testator is willing to provide information about the gift, perhaps on an anonymous basis, this helps the charity project its future revenue from gifts.

Other ways of identifying a charity include obtaining a brochure, checking the charities website, and, in Canada, checking Canada Revenue Agency's list of charities.

If the testator wishes the funds to go to a specific program, the will can set out both the name of the charity, and the specific program.

Canada Revenue Agency Revokes Banyan Tree Foundation's Charitable Status

The Globe and Mail has reported here that the Canada Revenue Agency has revoked the Banyan Tree Foundation's charitable status. Canada Revenue Agency is also, according to the report, disallowing the donors' tax credits.

My understanding from reading this and other media reports is that Canada Revenue Agency has alleged that this organization engaged in sham transactions in which donors were given tax receipts for amounts in excess of what they actually contributed. The donors would give cash and would agree to contribute borrowed money, but the loans were not genuine loans. The donors were not required to repay the loans, for which they received tax receipts. The cash contributions went to finance the Foundation's operations.

The Hamilton, Ontario, law firm of Scarfone Hawkins LLP is acting on behalf of donors in a class action suit against the promoters of the Banyan Foundation and against others alleged to have been involved with the Foundation. Information on the class action suit is available here.

The notice of revocation in the Canada Gazette is here. But I checked the Canada Revenue Agency online listing of registered charities, and as of today's date, the Banyan Tree Foundation is still listed as a registered charity. Surely, Canada Revenue Agency ought to be ensuring that any charity whose charitable status is revoked is shown as having been revoked immediately.

I don't think anyone reading about the Banyan Tree Foundation should fear giving money to legitimate charities. I think this falls under "if it sounds to good to be true...." There are many tax advantages to making a charitable gift, and there are some good tax planning opportunities. But if someone presents you with a proposal under which you are going to end up with more money in your pocket after you make the contribution than before, something is wrong.

Give to charity because you want to give. The tax credits are a bonus. I don't think it makes sense to give just for the tax credits.