Glossary of terms - National Arts Service Organization designation
- Arm's Length
The term "at arm's length" describes a relationship where persons act independently of each other or who are not related. The term "not at arm's length" means persons acting in concert without separate interests or who are related.
Related persons are individuals who are related to each other by blood, marriage or common law partnership, or adoption. Examples of blood relatives include grandparents, parents, brothers, sisters, and children. Examples of persons related by spousal relationship include the grandparents of a spouse, the parents of a spouse, the brothers and sisters of a spouse, the spouse of a child, and the spouse of a grandchild. Generally, in determining arm's length relationships, common law partners are treated in the same way as legally married spouses. Adopted children are treated in the same way as blood-related children.
Related persons also include individuals or groups and the corporations in which they have a controlling interest. Persons related to these individuals or groups are also considered related to those corporations.
For more information on arm's length, see Income Tax Folio S1-F5-C1, Related persons and dealing at arm's length.
- By-laws, if adopted by an organization, form part of the governing documents. They set out the rules and regulations for the administration and management of the organization. For example, by-laws often identify the duties of officers, the fiscal year end of the organization, and when meetings must be held.
- The document to be submitted in support of the application for registration must bear the stamp or seal of the government authority which issued the document in case of an incorporated entity. We accept photocopies as long as they are legible, but reserve the right to ask for originals. In the case of a constitution or trust, the documents must be signed by at least three people who are directors, trustees, or like officials.
- Charitable Organization
A registered national arts service organization must satisfy the operational requirements of a charitable organization as defined by the Income Tax Act.
- is established as a corporation, a trust, or under a constitution;
- has exclusively charitable purposes;
- primarily carries on its own charitable activities, but may also gift funds to other qualified donees, (e.g., registered charities);
- more than 50% of its governing officials must be at arm's length with each other;
- generally receives its funding from a variety of arm's length donors; and
- its income cannot be used for the personal benefit of any of its members, shareholders, or governing officials.
- Community of Artists
- Represents the community of artists from one or more of the following sectors of activity in the arts community across Canada in an official language of Canada: theatre, opera, music, dance, painting, sculpture, drawing, crafts, design, photography, the literary arts, film, sound recording and other audio-visual arts, and such other sectors as the Minister of Canadian Heritage may recognize.
- Constitution Document
A document which legally establishes an organization and which is the absolute rule of action and decision for all parts and officers of the organization and which controls the organization until the document is formally amended as provided for therein (see "Governing Documents").
For registration purposes, a constitution must contain at least the following requirements:
- the organization's name;
- the organization's purposes (also referred to as "objects");
- a provision stating that the organization will be operated without purpose of gain for its members, and that any profits or other assets of the organization will be used solely to promote its objectives (non-profit clause);
- the structure of the organization's governing body (the positions of those in authority, often referred to as directors; for example, president, chair, secretary, treasurer, etc.);
- a provision that explains how the organization will replace its directors (for example, annual election by members, appointment by existing directors, etc.);
- the effective date of the constitution; and
- the signatures of at least three of the organization's directors.
- Fiscal Year
- It is generally 12 months. Your organization must keep a record of its income and expenditures, assets and liabilities for this period. Quite often an organization identifies its fiscal year end in its by-laws.
At Law, a gift (donation) is a voluntary transfer of property without consideration (benefit) received in return. Note that there are three elements, all of which must be met in order to qualify as a gift for tax purposes: (1) it must be voluntary; (2) it must be property and (3) there must be no consideration.
For registered organization that are issuing receipts for income tax purposes, in most cases, a gift is still a voluntary transfer of property without valuable consideration to the donor. However, for gifts made after December 20, 2002 a transfer of property for which the donor received an advantage will still be considered a gift for purposes of the Income Tax Act as long as we are satisfied that the transfer of property was made with the intention to make a gift. The existence of an advantage will not necessarily disqualify the transfer from being a gift if the amount of the advantage does not exceed 80% of the fair market value of the transferred property.
For gifts made after December 20, 2002, it is the eligible amount of the gift that is used to calculate the donor's donation tax credit or deduction.
An eligible amount of the gift is the amount by which the fair market value of the gifted property exceeds the amount of any advantage received or receivable as a result of the gift. This is the amount for which a qualified donee can issue a receipt.
- Governing Documents
- These are the documents that formally establish an organization and govern its operations. They set out, limit and circumscribe the purposes and powers, and set down the fundamental characteristics and general structure of an organization. Some examples of governing documents are letters patent, certificate of incorporation, memorandum or articles of association, a constitution, trust documents, and bylaws.
- Incorporating Documents
A form of governing document, they are documents which establish an organization as a corporate entity under a statute. Many organizations choose to incorporate because it provides limited liability to its members. When incorporated, an organization becomes a separate legal entity (a corporation) and the corporation (not the members) is generally liable for the organization's debts and obligations.
Some other advantages to incorporating an organization include:
- the ability to borrow money;
- the ability to own property in its name; and
- continuity of the organization is assured while the membership changes.
In Canada, an organization can be incorporated under federal, provincial, or territorial statutes.
- Judicial Review
- Judicial review is the exercise of a law court's inherent power to determine whether action is lawful or not and to award suitable relief. Instead of substituting its own decision for that of some other body, as happens when an appeal is allowed, the court of review is concerned only with the question of whether the act or order under attack should be allowed to stand or not. If, for example, the Department of Canadian Heritage refuses to designate a particular group as a national arts service organization, the applicant is restricted to judicial review. But in some instances of revocation of an organization's designation and registration under the Income Tax Act, the applicant has appeal rights under that Act.
- The organization's activities must be carried on across Canada by means of eligibility criteria or other standards established for the entire artistic sector across the country or other indicators such as geographic boundaries of activities, competitions or geographic representation of artists from all parts of the country.
- National Arts Service Organization
Section 149.1(6.4) of the Income Tax Act states the following:
Where an organization that applies in prescribed form to the Minister of National Revenue for registration, that Minister may register the organization for the purposes of this Act.
- has, on written application to the Minister of Canadian Heritage describing all of its objects and activities, been designated by that Minister on approval of those objects and activities to be a national arts services organization
- has, as its exclusive purpose and its exclusive function, the promotion of the arts in Canada on a nation-wide basis,
- is resident in Canada and was formed or created in Canada,
- complies with prescribe conditions.
Where the organization so applies or is so registered, this section, paragraph 38(a.1), sections 110.1, 118.1, 168, 172, 180 and 230 and Part V apply, with such modifications as the circumstances require, to the organization as if it were an applicant for registration as a charitable organization or as if it were a registered charity that is designated as a charitable organization, as the case may be.
- Non-profit organizations
Section 149(1)(1) of the Income Tax Act defines a "non-profit organization" as follows:
A club, society or association that, in the opinion of the Minister, was not a charity within the meaning assigned by subsection 149.1(1) and that was organized and operated exclusively for social welfare, civic improvement, pleasure or recreation or for any other purpose except profit, no part of the income of which was payable to, or otherwise available for the personal benefit or, any proprietor, member or shareholder thereof unless the proprietor, member or shareholder was a club, society or association the primary purpose and function of which was the promotion of amateur athletics in Canada.
- Qualified Donees
- A term exclusive to the Income Tax Act. Qualified donees are a specific type of entities to which a registered national arts service organization may gift its funds and resources. For a full listing, see CRA’s web page.
- Registered National Arts Service Organization
- An organization that has been registered by the Minister of National Revenue under new section 149.1(6.4), and which registration has not been revoked.
- An act of federal or provincial legislation which declares the law pertaining to a certain subject (e.g. the Income Tax Act, The Canada Corporations Act, the British Columbia Society Act, The New Brunswick Companies Act). Statutory law is legislatively created law.
- Trust Document
A document which establishes a trust to hold property to be administered by Trustees for the benefit of others (see "Governing Documents").
Common features of a trust document include:
- the name of the trust;
- the name of the settlor(s) or the name of the person(s) making the declaration of trust;
- the names of the original trustees;
- the purposes of the trust;
- the rules governing how the trustees will administer all property (including money) received;
- an acknowledgement that the initial trust property (including money) has been transferred to and received by the trustee;
- a provision in which the trustees give assurance that all property (including money) received will be applied only for the purposes outlined in the trust document;
- a provision detailing how the trustees will be replaced;
- the effective date of the document; and
- the signatures of the trustees.
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