By: Arthur Drache
For myriad reasons circumstances may arise where a community may be threatened by a loss of services and may have to turn to outside sources to help.
A few decades ago, for example, the Province of Manitoba had a programme which helped provide dental services to small towns which had no accessible dentists. A good friend of ours accepted a deal where the province paid for his entire dental education in exchange for an arrangement where he would open a practice in such a town in the North of the province. He had to agree to stay for five years. The province and the town set up a fully equipped office for him. He in turn kept his earnings and at the end of the agreed period, he returned to Winnipeg with enough funds to open a new practice.
Because the province and the town were funding the arrangement, there was no issue about the benefits he received.
More recently we read a story which showed a different aspect of the issue where the funder was a key business in a small Ontario town.
Ontario ice cream maker Chapman’s says it wants to buy a small town elementary school to prevent the province’s government from shutting it down. Chapman’s Ice Cream is the primary employer in Markdale, a small town of about 1,200 people about a half hour’s drive southeast of Owen Sound.
The town’s only elementary school, Beavercrest Community School, is among the estimated 600 “underutilized” schools that the province says it can no longer afford. The province estimates it spends about $1 billion on schools that can potentially close, as it grapples with paring down a nearly $11 billion deficit.
This fall, the Bluewater District School Board announced that Beavercrest, which currently has about 200 students, could close because of cuts in provincial subsidies.
“It’s going to have such a detriment to my business I can’t even tell you,” Ashley Chapman said of the planned closing. Beavercrest’s students would have to travel by bus to the next community to attend classes.
The vice-president of Chapman’s Ice Cream believes that if Beavercrest were to close, it would not only be a blow to the community, it would also hamstring the future growth of his business.
Renovations are currently underway to add 100,000 square feet of production space to Chapman’s manufacturing facility in Markdale with plans to expand his current workforce from 300 to 1,000 over the next five years.
“It’s absolutely devastating,” he said. “I’m having trouble today getting unskilled workers in my factory. How am I going to attract 400 workers in the area if [kids] don’t even have an elementary school to go to?”
The ice cream maker is offering trustees $1 million to purchase the building, which the company plans to lease back to the school board over the long term.
Chapman said he has already made his pitch to local trustees, and they’re open to the idea.
But if the potential benefactor is a registered charity, there is a major problem. As a general rule, a charity cannot undertake a project which might produce a substantial personal benefit to an individual or a business.
After years of lobbying, the CRA issued a Guidance, CG-014, on the subject.
“Community economic development (CED) activities can be charitable when they further a charitable purpose.
Organizations that carry out CED activities may be eligible for charitable registration under the Income Tax Act if all their activities further charitable purposes.
Generally, CED activities involve improving economic opportunities and social conditions of an identified community.
CED activities may further charitable purposes that:
- relieve poverty
- advance education
- benefit the community in other ways the law regards as charitable
CED activities generally fall into five areas:
- activities that relieve unemployment
- grants and loans
- program-related investments
- social businesses for individuals with disabilities
- community land trusts
To be charitable, CED activities must be undertaken in a way that ensures that any resulting private benefit is incidental, meaning that it is necessary, reasonable, and proportionate to the public benefit that is delivered. If a private benefit is more than incidental, an organization can face sanctions or have its charitable registration revoked.”
The guidance is very detailed as to what circumstances will lead the CRA to conclude that the private benefits is “incidental”. Clearly a charity must be very careful in determining whether a particular proposal meets the tests which makes the private benefit acceptable.
There has been a major and welcome addition to this guidance which obviously has been prompted by some high profile natural disasters in Canada.
“90. Examples of cases where private benefit may be acceptable:
(b) In a disaster area, there may be limited ways to promote social and economic development because resources have been destroyed or damaged. In these conditions, a program that gives funds to restore local small businesses so they can provide goods, services and employment to residents of the affected area might be a charitable activity. This activity could further the charitable purpose of improving socio-economic conditions and preventing community deterioration.
To show that the private benefit the small businesses receive (such as money or interest-free loans) is incidental, this type of funding program would generally have to meet all the following requirements:
- the funds must be available to all small businesses within the disaster area that were adversely affected by the disaster (subject to justifiable restrictions)
- the small businesses cannot have the skills or resources from their own assets, conventional financing or insurance to recover, or must be unable to pay insurance deductibles
- the funds must be needed to make it possible for the small businesses to resume operating in the affected area
- the funds must be used for expenses directly related to the businesses resuming operations within, and providing goods, services and employment to residents of, the affected area (such as uninsured losses, deductibles, repairs to business locations/worksites/work equipment, and related occupational training expenses). As a general rule, most of the goods and services should be provided to, and used within, the affected area
- there must be a reasonable prospect of the businesses being restored by the funds provided, either alone or when combined with funds from other sources.”
There is a detailed Appendix A defining the various terms used.
This is a welcome addition to the policies of the Charity Directorate and organizations which want to help out in areas where disaster has hit should familiarize themselves with the parameters of the administrative policies.