Unrelated business and decision tree - Segment 4

Transcript

Welcome to segment 4 called "Unrelated business and decision tree", part of the "What is a related business? (Policy Statement CPS-019)" recorded webinar.

Unrelated business

If an organization applying for registration is operating a business which is not a related business, its application will be denied.

If a charity already registered is operating an unrelated business, it is in breach of the law and could have its registration revoked.

Further, the following penalties could be applied:

  • 5% of gross unrelated business revenue earned in the year for first infractions; and
  • 100% of gross unrelated business revenue earned in the year, along with suspension of tax-receipting privileges for a repeat infraction.

Decision tree, Step 1 – How to identify a business activity

So we will now take you through a decision tree on ‘How to identify a business activity':

Question 1

Is the activity commercial in nature—that is, does the charity derive revenue in consideration for the provision of goods or services?

AND does the charity intend to profit from the activity?

If no to either question: STOP. The activity is not a business.

If yes to both questions: Go to question 2.

Question 2

Is the income-earning activity simply the sale of donated goods?

If yes: the income-earning activity is not a business.

If no: Go to question 3.

Question 3

Is the income-earning activity carried out on a systematic, regular basis?

If no: the income-earning activity is not the carrying on of a business.

If yes: the income-earning activity is the carrying on of a business.

Decision tree, Step 2 – How to identify a related business:

Now we will look at another decision tree for identifying whether the business activity identified in the last slide is a related business.

Question 1

Are substantially all of the people running the business volunteers?

If yes, the charity is carrying on a related business.

If no: Proceed with the second question.

Question 2

Are the business activities linked to the charity's purpose?

If no, the charity is carrying on an unrelated business.

If the answer is yes, you will need to respond to a third question.

Question 3

Are the business activities subordinate to a dominant charitable purpose?

If no, then the charity is carrying on an unrelated business.

If yes, the charity is carrying on a related business.

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