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MANAGING THROUGH DIFFICULT FINANCIAL TIMES

PRESENTATION BY OASIS BUSINESS RESOURCES COMMITTEE (OBRC)

MAY 2011

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OBRC

Who are we What’s our purpose Who are on the committee Our Terms Of Reference (TOR) What have we done in 2010-11 Presenters today

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SCENARIO

LIGHTS…… CAMERA….. ACTION…….

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INTRODUCTION

VISUALIZE THIS………. You are a charitable organization You don’t have a lot of resources especially

admin resources You can barely keep up with your funders

admin and reporting requirements You are still trying to come to grips with the

realities of transformation Your admin staff play jack of all trades….

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INTRODUCTION CONTINUED

To supplement your funders revenue you have….

Some fundraising activities Some NFP social enterprises which earn

revenue to supplement your programs A housing corporation to protect your core

assets

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SETTING THE STAGE

Key pieces of new legislation in 20101. HST2. Quality assurance measures- Third party review of resident

finances if requested by person supported3. Bill 122-broader public sector accountability act 4. Bill 65- revision of Law relating to Not For Profit (NFP)

corporations at the provincial level combined with New interpretation by Revenue Canada (CRA) of S 149(1) of Income Tax act (ITA) regarding the revenue earned by NFP at the federal level

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TODAYS AGENDA

For each of the above pieces of legislation we will provide information ……

Overview of the legislation, how it impacts you as the agency What can you do to navigate through these pieces of legislation

CAUTION!!!!!THIS IS NOT LEGAL ADVICE Take this back to your organizations and do your due diligenceWe are providing practical suggestions to manage through these

pieces of legislation

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HST

Several presentations have been made throughout the year including a couple by CRA

Presentations were Targeted to the finance group

Copies of the Presentations along with Q and A can be found on the OASIS website under OBRC resources

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QAM

Third party review of resident finances if requested by the individual being supported

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QAM- Third party review of resident financesWhat is it- The individual support plan shall identify the level of support the

person has requested or requires to manage their day to day finances.

The service agency shall ensure books of accounts and financial records prepared and maintained…. Are independently reviewed by a third party annually;

the independent review shall include a report to the board of directors.

Part of the regulation made under Bill 77 regulation 299-10

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QAM Third party review of resident finances

Impact on the agency Can be Cost prohibitive if external auditor or

other external reviewers are used Lack of internal capacity to conduct internal

audits of resident finances

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QAM- Third Party review of resident financesManaging through this regulation Resident finances are maintained in accordance with a policy that

follows best practice Ensure Person reviewing the resident finances is not involved in the

day to day maintenance of resident finances Ensure Staff member maintains resident finances while the supervisor

or manager reviews them regularly Clearly define a third party reviewer According to the QAM training DVD, a third party can be a family

member, review committee or an independent accountant It can also be a staff member, finance department or volunteer

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RESIDENT FINANCESREVIEW OF POLICIES Review of best practices Common features of policies covered

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BILL 122

PUBLIC SECTOR ACCOUNTABILTY ACT

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BILL 122- BROADER PUBLIC SECTOR ACCOUNTABILITY ACT

What is it

every publicly funded organization that received public funds of $10million or more in the previous year of government of Ontario is subject to the broader public sector accountability act

Comes into effect January 1 2012

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BILL 122 IMPACT

Cannot hire lobbyists with public funds (excludes in house lobbyists). Members dues are not considered public funds

Mandatory to follow provincial procurement rules

Public posting of expenses (regulations to be established).- requirement to have a policy on travel meals and hospitality

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BILL 122 NAVIGATION

Have a policy on procurement and comply with it ( see BPS procurement directive handout)

Ensure that there is a policy covering travel meals hospitality and accommodation (see BPS Expenses directive Handout)

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PROCUREMENT

Review of the BPS procurement directive OBRC work on procurement- Vendor of

Record (VOR) VOR could be a way to comply with

procurement directives

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EXPENSES

Review of BPS expense directive and guidelines for setting a policy

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BILL 65

SOCIAL ENTERPRISES HOUSING CORPORATIONS

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BILL 65

What is it- changes to existing provincial corporations act –

Currently………. NFP corporations are lumped with all

corporations NFP corporations earn revenue to carry out

their public purpose. Current act is permissive but silent

Bill 65 changes both of these

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BILL 65 CONTINUED

New designation- public benefit corporation (PBC) if…. Has a public purpose and mission Operates for public good and not personal gain Reinvests excess revenue in public purpose Retains assets in public domain for public purposeLegislation defines PBC as including charitable corporations,

foundations, and all NFP that receive 10k/year in arms length donations or government grants or financial assistance

Recognizes ability of NFP to engage in commercial activities as long as revenues used to further public benefit objectives

NOTE- Charities are regulated federally (example if your organization is a charity you file a charity return federally) as an example

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BILL 65 IMPACT

Charitable agency has provincially registered NFP to run social enterprises and housing which earn revenue. These are clearly allowable as long as the revenues are used for charitable purposes of the agency- such as to deliver unfunded or under funded programs

NOTE- charities are regulated federally and the very same revenue allowable provincially may be problematic federally

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NEW INTERPRETATIONS149(1) of Income tax ActCRA SPEAK S149(1) of the income tax act defines who is exempt from paying income tax The CRA’s recent document comments that non-profit organizations can only

earn incidental or unanticipated profit.

The CRA notes that where a non-profit organization intends to earn a profit at any time, it is not exempt from tax. To be tax exempt, a non-profit organization must be organized and operated exclusively for any purpose except profit. The term “exclusively” indicates that none of the purposes of the organization may be to earn a profit. The document also notes that a non-profit organization is not restricted in its activities, as long as they are not undertaken for a profit.

The CRA qualified its comments by noting that where a non-profit organization earns an unanticipated profit that is incidental to the purpose of the organization, the organization can still be considered a tax-exempt entity.

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S149(1) CONTINUED

The CRA noted that where a non-profit organization earns a profit, even if it uses or expects to use that profit to support a non-profit objective (for example, to finance future capital projects), it is still intending to earn a profit, and is therefore not exempt from tax.

However, where an entity earns investment income on members' contributions to finance a planned future capital project, it will not necessarily lose its tax-exempt status. The organization would lose its tax-exempt status only if excess funds were collected for the purpose of earning investment income, which would be a profit purpose

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S149(1) IMPACT

Despite the CRA’s comments, NFP can generally earn a “profit” if…..

 The profit-making activity is related and incidental to the objectives of the organization

Cash reserves are reasonable in relation to the organization’s needs.

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S149(1) NAVIGATION

The CRA appears to be increasing its reviews of non-profits and it is likely that the issue of earning business profits and accumulating investment assets will be highly scrutinized.

You should ensure that your non-profit organization has the appropriate documentation and management processes in place to meet its objectives

CRA has had a policy on “related businesses” If your NFP falls under this policy the “profit” that these NFP earn will be non taxable

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S149(1) NAVIGATIONCONTINUEDExcerpts from the CRA policy on related businessesPolicy Statement

There are two kinds of related businesses: businesses that are run substantially by volunteers; and businesses that are linked to a charity's purpose and subordinate to that

purpose Implementation 1. This policy applies to applicant organizations and registered charities that

carry on a business. 2. The Income Tax Act says that charities can lose their registration if they carry

on an unrelated business. By implication, the law allows them to carry on a related business

What is a "business"? In general terms, a business involves commercial activity—deriving revenues

from providing goods or services—undertaken with the intention to earn profit Handout of CRA Policy and decision tree

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S149(1) CRA POLICY

Review of the policy and decision tree

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DECISION TREE 1

Is the particular activity a business carried on by charity?

Is the activity commerical?

No

Profit intention on activity?

No

YesIs the income activity

sale of donated goods?

Ye

s

YesIs the income activity

systematic and regular basis?

Not a business

No

NoThe income activity is

the carrying of a business

Yes

What is a business?In general terms, a business involves commercial activity – deriving revenues from providing goods or services – undertaken with the intention to earn profit.

Not a businessNot a businessNot a business

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DECISION TREE 2

Is the business of a charity an unrelated (unacceptable) business?

Substantially (per ITA 90%) Volunteer Run

Business?

Related Business

Ye

s

Are activities linked to the charity purpose?

Unrelated Business

No

NoAre the activities

subordinated to a dominant charitable purpose?

Unrelated Business

NoYes Yes

Related Business

What is a business?In general terms, a business involves commercial activity – deriving revenues from providing goods or services – undertaken with the intention to earn profit.

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BILL 65 AND S149(1)NAVIGATION

You are a registered charity and run social enterprises and housing corporation

1. Ensure you are in compliance with CRA related businesses policy at the federal level

2. You’re a PBC at the provincial level

You can earn a profit and not be taxed

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QUESTIONS

For electronic copies of Presentation Handouts

Go to OASIS website

OBRC resources section

OBRC will send out an alert to ED list and Fin list when posted on the website