It could happen…
Adam Aptowitzer, July 20, 2007
Most charities are aware that their year end date is critical for determining their filing deadline and disbursement quota obligations. For charitable trusts the taxation year end is the end of the calendar year while for charitable corporations it is usually set in the by-laws of the corporation. However, by operation of the Income Tax Act a year can be deemed to end months before it would otherwise be required. Given that the filing requirements and disbursement quota calculation is based on knowledge of the year end, miscalculating the year end could lead to dire consequences for the charity.
The most common example is when a charity is deregistered. In these cases, the corporation’s taxation year is deemed to have ended at the date of deregistration and a new year is deemed to have begun. Given that the year end is artificially determined, the whole ‘year’ may be as short as two weeks. The organization then has six months from this year end, in which to file its year end information return.
A year end can also be triggered by a change of control at the membership level of the corporation. Normally, this provision is of concern when there is a change of control in a for profit corporation. However, it can also be triggered in the case of a non share capital corporation. This could happen for example in cases where the sole member of a corporation dies and a new member is admitted by the corporation, or where all the members of a corporation resign and new members of the corporation are admitted. In either of these circumstances it is likely that there has been a change of control and a year end has been triggered.
More complicated questions arise in situations where there has been no turnover in the membership. In these cases, provisions of the Income Tax Act which effectively convert the membership structure of a non-share capital corporation into a share corporation (for purposes of determining control only) may also invite the application of cases dealing with control of a share corporation to a non-share corporation. These cases deal with situations such as where control of a corporation was held by a group of shareholders agreeing to act in concert, or where control was held by one corporation, which was controlled by another. Some of these cases have resulted in additional legislation which may affect non-share corporations in different ways, thus, charities need to be wary when instituting or altering their membership structure.
Of course, while non share capital corporations do change control most of this discussion is theoretical as not only has the CRA never acted to recalculate the year end of a non share corporation (to our knowledge), but the CRA would never even realize there was a change of control unless the corporate minute books of the corporation were audited. We trust that the CRA has more important things to do than question the change of control of a non share capital corporation. Nevertheless, one does not want to give the CRA any more ammunition than it already has.
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