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Arm’s Length
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Arm’s length describes a relationship in which the parties are acting independently of each other.
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Business Number (BN)/ Registration Number
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The BN is used by the federal government to identify organizations and the various program accounts they have. A complete BN has two parts: the registration number (first nine digits) and the account identifier (two letters and four digits). The registered charity account identifier always starts with the letters "RR".
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Certificate of Good Standing
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Is a document issued by an incorporating authority (i.e., federal, provincial, or territorial government) stating that the organization is duly incorporated and that it is in good standing with the authority. The name of the document may vary from jurisdiction to jurisdiction.
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Charitable Organization
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A registered charity, whether or not incorporated, is designated as a Charitable Organization if, at the particular time:
1. it devotes all of its resources to charitable activities that it carries on itself;
2. no part of its income is payable to, or is otherwise available for, the personal benefit of any of its proprietors, members, shareholders, trustees, or settlors;
3. more than 50% of its directors, trustees, officers, or like officials deal at arm’s length with each other and with:
i. each of the other directors, trustees, officers, and like officials of the charity,
ii. each person described in (4)(i) or (4)(ii), and
iii. each member of a group of persons, who do not deal with each other at arm’s length if the group, considered as a single person, would be described in (4)(i), and
4. on the assumption that the charity is a corporation, it is not controlled at the particular time directly or indirectly in any manner whatever by:
i. a person that has through one or more contributions contributed more than 50% of the capital of the charity, as determined immediately after the particular time; or
ii. a person or group of persons that do not deal with each other at arm’s length if the person or any member of the group does not deal at arm’s length with the person described in (4)(i).
Note: For purposes of (3)(iii) and (4)(i), a person does not include Her Majesty in right of Canada or of a province, a municipality, another registered charity that is not a private foundation, and any club, society, or association described in paragraph 149(1)(l) of the Act.
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Constitution
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A Constitution is a system of laws, rules and conventions by which a country, state or body governs itself. For the purposes of registering an organization as a charity, a constitution has to include at least the following items:
- the organization’s name;
- the organization’s purposes;
- a provision stating that the organization shall be carried on without purpose of gain for its members, and any profits or other assets of the organization shall be used solely to promote its objectives;
- the organization’s structure (president or chair, secretary, treasurer, etc.);
- a provision that explains how the organization will replace its directors;
- the effective date of the document; and
- the signatures of at least three of the organization’s directors.
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Fair Market Value
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Generally means the highest price, expressed in dollars, that a property would bring in an open and unrestricted market between a willing buyer and a willing seller who are both knowledgeable, informed, and prudent, and who are acting independently of each other.
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Fiscal Period
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Refers to the specific 12 month period that an organization operates within.
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Fundraising Activities
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Refers to those fundraising activities that an organization will conduct on an intermittent basis (e.g., yearly or twice-a-year bingos, an auction, a Christmas craft sale, an annual walk-a-thon, or an annual mail campaign for donations).
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Gifts
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A transfer of money and/or property for which the donor receives nor expects to receive anything in return i.e. it is purely philanthropic. To qualify as a gift, all three of the following conditions must be met:
- some property, either in the form of cash or a gift-in-kind, is transferred by a donor to a registered charity. (A gift-in-kind involves property other than cash, such as equipment, shares, or land);
- the property is given voluntarily. The donor must not be obliged to part with the property (e.g., as the result of a larger contract or a court order); and
- the donor is transferring the property to the charity without expecting anything in return. No benefit of any kind may be provided to the donor or to anyone designated by the donor as a result of a gift.
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Governing Documents
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Are documents such as letters patent, articles of incorporation, trust deeds, or constitutions. These documents identify the purposes for which the organization is established, provide information about the organization’s structure and its internal procedures.
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Human Resources
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Refers to volunteers and staff that your organizations requires to maintain operations.
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Major Contributor
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The term “major contributor” is used to describe a person (i.e., individual, corporation, trust, unincorporated entity), or a group of persons who are not at arm’s length, or any individual member thereof, from which the organization receives more than 50% of its capital (e.g., funds or assets).
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Not at Arm’s Length
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The opposite of arm's length, not at arm’s length covers people acting in concert without separate interests. Not at arm’s length also includes individuals who are related to each other by blood, marriage, adoption, common-law relationships, or close business ties.
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Partisan Political Activity
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A partisan political activity is one that involves direct or indirect support of, or opposition to, any political party or candidate for public office. However, under the Act, a registered charity that is established exclusively for charitable purposes can engage, to a limited extent, in non-partisan political “activities” that directly help accomplish the charity’s purposes.
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Physical Resources
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Includes the physical assets of the organization, such as a car, building, or office equipment.
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Private Foundation
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A registered charity is designated as a Private Foundation if it is a corporation or a trust constituted and operated exclusively for charitable purposes and it does not meet requirements (3) or (4) for a charitable organization.
A Private Foundation may either carry on its own charitable activities and/or it may fund other qualified donees.
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Public Foundation
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A registered charity is designated as a Public Foundation if it is a corporation or a trust constituted and operated exclusively for charitable purposes and it meets requirements (2), (3) and (4) for a charitable organization.
The essential difference between a charitable organization and a public foundation is that public foundations focus on funding qualified donees, while charitable organizations focus on carrying on their own charitable activities.
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Qualified Donees
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If a registered charity prefers to transfer gifts to other organizations rather than use its resources on its own programs, it can only transfer such gifts to qualified donees. Under the Income Tax Act, qualified donees are:
- registered charities;
- registered Canadian amateur athletic associations;
- registered national arts service organizations;
- certain housing corporations resident in Canada that are constituted exclusively to provide low-cost accommodation for the elderly;
- Canadian municipalities;
- the United Nations or its agencies;
- prescribed universities outside Canada; charitable organizations outside Canada to which Her Majesty in right of Canada (the federal government or its agents) has made a gift during the taxpayer’s tax year or the 12 months before it; and
- Her Majesty in right of Canada or in right of a province (i.e., the federal government, a provincial government or their agents).
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Tax Shelter Arrangements
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The Income Tax Act defines tax shelter arrangement to include any property or gifting arrangement for which a promoter represents that an investor can claim deductions or credits which equal or exceed the cost of the property less certain benefits within a four year period.
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Trust Document
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A trust is an arrangement whereby property (including real, tangible and intangible) is managed by one person (or persons, or organizations) for the benefit of another. The trust is governed by the terms of a Trust Document, which is usually written and occasionally set out in deed form. It is also governed by local law.
For the purpose of registering a trust as a charity, a Trust Document has to include at least the following items:
- the name of the trust;
- the names of the original trustees;
- the purpose for which the trust is established;
- the rules governing how the trustees of the trust will administer all money received;
- a provision in which the trustees give assurance that all the money received will be spent only for the purposes outlined in the trust document;
- provisions that explain how trustees will be replaced;
- the effective date of the document; and
- the signatures of the trustees.
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