Subsection 188.1(1) - Penalty — carrying on business
Articles
Joyce A. Young, H. Michael Dolson, "Income Tax Consequences of Carrying on an Unrelated Business", Business Vehicles, Volume XV, No. 1, 2012, p. 782, at 783, 784-785
The Minister's stated administrative position is that the nature and extent of services provided for, or made available to, tenants are important determinants of whether a particular rental activity is a leasing business. [fn. 8: Technical Interpretation 2005-0095001E5, dated February 22, 2005.] Services that are indicative of the existence of a business of earning rental income include services such as the cleaning of the rented premises, provision of parking attendants or security guards, the provision of meals and drinks to tenants, and the provision of a mail distribution service. If the services provided are limited to the basic maintenance of rental property and the provision of services necessary to allow occupation of the building (i.e., heating and air conditioning), the activity is likely passive and not a business. [fn. 9: Technical Interpretation 2011-0403841E5, dated July 18, 2011.]
In some circumstances, it appears that the Minister will look to the level of services provided by the charitable landlord to determine whether the rental activity is a leasing business, even where the existence of a business could be determined by reference to human activity. For example, the Minister has opined that the services test would be used where a church is undertaking the development of rental properties in order to generate an income stream, [fn. 10: Supra note 8.] or where a hospital foundation acquires and leases up to 10 residential properties adjacent to a hospital, with management provided by an arm's length property management company. [fn. 11: CRA Document October 1991-289, dated October 1991 involving 10 residential properties.] …
There appears to be some consensus between the Minister and the academic commentators that the carrying on of a business by a trust established for the benefit of a charity does not constitute a business of the charity.…
The better view of the law is that the business carried on by a trust is a business of the trustees and not a business of the trust beneficiaries. This is consistent with the wording of subsection 104(1), which provides that a reference to a trust is a reference to the trustee of the trust, and with the recent decision in Garron v. R., [fn. 17: Garron v. R., [2012] 1 S.C.R. 520 (S.C.C.) at paragraph 10, affirming 2010 DTC 5189 (F.C.A.), affirming 2009 DTC 1287 (T.C.C.).] where the Supreme Court of Canada implied that a trust had a separate existence as an individual for the purposes of the Act by virtue of subsection 104(2).…
At the very least, the use of a subsidiary trust has the tacit approval of the Minister. The Minister has opined that, having regard for paragraph 104(5)(a), the income earned by a trust from a rental activity and allocated to a beneficiary that is a private foundation will be income from property, and that the business of the trust will not be the business of the beneficiary if the beneficiary is not active in the business. [fn. 22: Technical Interpretation 9703865, dated March 5, 1998.]
Subsection 188.1(7) - Incorrect information
Administrative Policy
Cathy Hawara, Director General, Charities Directorate, "The CRA Charities Directorate's Approach to Compliance", 2014 Conference Report, Canadian Tax Foundation, 37
1-10
Penalty for incorrect information (overview) (p. 37:6)
Every registered charity that issues, in a taxation year, a receipt for a gift otherwise than in accordance with the Act and its regulations is liable to a penalty equal to 5 percent of the eligible amount of the gift. This penalty can be imposed for missing information, incorrectly recorded values, incorrect dating of the gift, or an incorrect donor name. For subsequent infractions, the penalty increases to 10 percent.
Subsection 188.1(9) - False information
Administrative Policy
Cathy Hawara, Director General, Charities Directorate, "The CRA Charities Directorate's Approach to Compliance", 2014 Conference Report, Canadian Tax Foundation, 37
1-10
Penalty for false information – fraudulent receipting also often results in revocation or criminal charges (pp. 37:6-7)
A person who makes or participates in the making of a false statement on a receipt is liable to a penalty equal to 125 percent of the eligible amount. This penalty can be imposed for fraudulent receipts—that is, receipts that the person knew, or would reasonably be expected to know, recorded incorrect information. If the total penalty exceeds $25,000, the result is mandatory suspension of the tax-receipting privileges of the charity.
Since 2004, the Charities Directorate has screened more than 200 files for audit where there was a suspicion of fraudulent receipting. To date, 188 audits have been completed, and 97 registrations have been revoked for cause. Numerous cases have been referred to CRA Enforcement for the potential laying of criminal charges.