Welcome to the spring 2013 edition of the BLG Charity and Not-for-Profit  Law newsletter. There have been several recent events of significance to the sector. For the tens of thousands of corporations currently governed by the Corporations Act (Ontario), the Ontario government has announced that the earliest the Not-for-Profit Corporations Act, 2010 will be proclaimed in force is January, 2014. This provides additional time for Ontario NFPs to consider appropriate changes to their governing documents.

The government has posted a draft default by-law on its website. While  this may serve as a helpful guide, we would recommend that organizations consider their unique governance circumstances when preparing by-laws. Sign up for our blog at http://blog.blg.com/nfp for further updates on the ONCA and other matters of interest to the industry.

For organizations incorporated federally, remember that the deadline for continuance is October 17, 2014. See “Final Word” for some frequently considered issues!

This newsletter also addresses some items raised in the recent federal budget as well as an update on Canada’s anti-spam legislation. We would love to hear your thoughts for future editions.

Budget 2013 for Charities and Not-For-Profit Organizations

The recent budget included a number of items of interest for members of the not-for-profit and charity section.

Taxes in Dispute and Charitable Donation Tax Shelters

Where a taxpayer has invested in a tax shelter that involves a charitable donation and subsequently files an objection of Canada Revenue Agency’s reassessment of the tax credits claimed, the 2013 Budget permits Canada Revenue Agency to collect 50% of the disputed tax, interest or penalties, pending the ultimate determination of the taxpayer’s liability. This measure will apply in respect of amounts assessed for the 2013 and subsequent taxation years. For recently released Q&A from the Canada Revenue Agency on this measure, please go to: http://www.cra-arc.gc.ca/gncy/bdgt/2013/qa13-eng.html.

Supplies of Paid Parking by a Public Sector Body (“PSB”)

Special provisions exempt from GST/HST are all supplies of a property or a service made by a PSB  if all or substantially all (generally 90% or more) of the supplies of the property or service are made for free. A PSB includes a not-for-profit organization, a charity, a municipality, a school authority, a hospital authority, a public college, a university and  a government. Budget 2013 proposes to clarify that this special simplifying exemption provision does  not apply to supplies of paid parking that are made in the course of a business carried on by a PSB. Taxable parking would include paid parking provided on a regular basis by a PSB. Occasional supplies of paid parking by a PSB, such as those made as part of a special fund-raising event, would continue to qualify for the exemption. These measures are deemed to have come into force on December 17, 1990.

Supplies of Paid Parking Through Charities

A special exemption from GST/HST applies to parking provided by charities that are not a municipality, university, public college, school or hospital. Budget 2013 proposes to clarify that the special GST/HST exemption for parking supplied by charities does not apply to supplies of paid parking that are made in the course of a business carried on by a charity set up or used by a municipality, university, public college, school or a hospital to operate a parking facility. This measure will apply to supplies made after March 21, 2013.

First-Time Donor’s Super Credit

The existing Charitable Donations Tax Credit provides individual donors with a tax credit of 15% for the first $200 of an individual’s total annual charitable donations and a further credit of 29% for any amount over $200 donated. Budget 2013 proposes to introduce a new temporary First-Time Donor’s Super Credit for First-Time individual donors providing an additional 25% tax credit on cash donations up to $1000. Combining the Charitable Donations Tax Credit and the First-Time Donor’s Super Credit, a First-Time donor would be entitled to a 40% federal tax credit with respect to donations up to $200 and a 54% federal tax credit on the portion of donations in excess of the $200 threshold. This measure will apply in respect of first-time donations made on or after March 21, 2013 and before 2018. For recently released Q&A from the Canada Revenue Agency that further discusses this measure, please go to: http://www.cra-arc.gc.ca/gncy/bdgt/2013/qa01-eng.html.

Camille Kam

 

Photos: Retweeting vs. Other Use

BLG’s Advertising, Marketing and Sponsorship Group recently held a Continuing Legal Education session titled “Marketing Law News Flashes: Recent Updates and Reminders”. During the CLE, one of our intellectual property partners, Hafeez Rupani, mentioned the recent Agence France Presse/Daniel Morel case. The case all began when a photojournalist took photos of the aftermath of the 2010 earthquake in Haiti and posted them on Twitter. The case illustrates the distinction between retweeting a Twitter posting, which would be permissible, versus using a tweeted photo on a website when there is no licence permitting such use. It also reinforces that just because you found something on the Internet, does not mean that you can use it freely. Hafeez noted that “unless you are the owner of copyright, you likely need authorization or a licence to use a copyright-protected work.”

During the CLE Hafeez also reminded us that, with the recent amendments to Canada’s Copyright Act, the default rule is now that the photographer is the author and owner of copyright in the photo s/he has taken; however, absent an agreement to the contrary, an employer would be the owner of copyright in the photo if it were taken by a photographer who they employed and who took that photograph during the course of his/ her employment. Previously, Canada’s Copyright Act provided that a person who commissioned a photograph was the owner of copyright in the photo.

When talking about copyright in Canada, one cannot forget about moral rights. Moral rights give the author of a work (e.g. photograph), the right to the integrity of the work and, where reasonable in the circumstances, to be acknowledged by name (or pseudonym) as the author of the work. Moral rights cannot be assigned, but may be waived by an author, including in favour of another party. Accordingly, if a photographer assigns copyright in a photo, s/he may still retain moral rights unless they are specifically waived.

Before companies and organizations start using photos off the Internet, they need to determine whether they have a licence or authorization to use the photos. If there is no licence or authorization granted for the desired purpose, a licence or authorization will likely need to be obtained. It would also be prudent to obtain a waiver of moral rights. Hafeez recommended that agreements get executed to address copyright ownership and waiver of moral rights from all photographers, whether they are employees or independent contractors.

Eva Chan

 

Update on the New Anti-Spam Legislation: How it Will Affect Not-For-Profit Organizations

Canada’s new anti-spam legislation (“CASL”) is expected to come into force later in 2013 and will have a significant impact on how not-for-profit organizations send email or other electronic  communications.

On January 5, 2013, revised draft regulations (the “Regulations”) were published in the Canada Gazette, bringing the legislation one step closer to coming into force. Regulations were first published in 2011 and these current revisions represent the government’s response to the feedback it received from various stakeholders. The Regulations offer definitions for some key terms and concepts, and provide exemptions for certain business activities that were not meant to be subject to CASL. We are currently waiting for the Regulations to be finalized.

The key changes in the Regulations are:

  • Club, Association and Voluntary Organization: CASL requires organizations that send any kind of commercial electronic message (a “CEM”) to obtain consent from the recipients. Consent can be implied when a club, association or voluntary organization sends a CEM to its members. The Regulations define “club, association or voluntary organization” as  a not-for-profit organization operated exclusively for social welfare, civic improvement, pleasure or recreation or for any purpose other than  profit. No part of the organization’s income can be paid to any member or proprietor (unless the member or proprietor is an organization promoting amateur athletics in Canada). The Regulations clarify that “members” means those persons who have been accepted into the organization according to its membership rules. These kinds of organizations can send CEMs to its members without obtaining their express consent. CASL already had additional exemptions for charities registered under the Income Tax Act (Canada) and the Regulations do not change those. Consent can be implied when a registered charity sends CEMs to persons who made a donation to the charity within the last two years. Implied consent also applies to persons who performed volunteer work for the registered charity within the last two years. It is important to note that these exemptions are time limited. Under CASL, a charity cannot imply consent from a person who made a donation over two years ago. In that case, the charity likely needs to obtain express consent before sending a CEM to that person.
  • Family and Personal Relationships: CEMs that are sent between persons with a personal or family relationship are exempt from CASL. The definition of “family relationship” is consistent with that in the Income Tax Act, and includes blood relatives and relatives by marriage. A “personal relationship” is defined as direct, voluntary, two-way communications between two persons where it is reasonable to conclude the relationship is personal. The assessment of whether a relationship is personal is based on a non-exhaustive list of factors. In the initial draft of the regulations, personal relationships were defined as relationships where there has been communication in the past two years and the parties have met in person, which definition was criticized as being too restrictive. In the Regulations, a recipient can always “opt out” of receiving CEMs from someone with whom they have a personal relationship (although, interestingly, this does not apply to family relationships).
  • New exemptions: New exemptions have been added to address situations that were not intended to fall under the scope of CASL:
    • CEMs sent by employees, representatives and contractors within an organization or to another organization if the organizations have a business relationship, where the message concerns the business or that person’s role, function or duties in the organization.
    • CEMS sent in response to a request or complaint or that is otherwise solicited by the recipient.
    • CEMs sent by a person or computer located outside Canada, about products or services provided outside Canada, to someone that the sender did not know and could not reasonably have known, would be received in Canada. This exemption is meant to apply to foreign business activities where the recipient happens to be visiting Canada at the time he or she receives the CEM.
    • CEMs that are required by law or that are sent to enforce a legal right, such as product recall messages or electronic bank statements, or notices of a court order or judgment.

The Regulations did not change the provisions dealing with third party consents. These are CEMs sent by someone on behalf of a third party whose identity is unknown. The person who obtains consent on behalf of the third party is responsible for ensuring that the recipient can unsubscribe from messages and will be able to contact the sender to carry out that request. Industry Canada recognizes that this may require businesses to track consents as they are shared amongst different parties, but they regard this as a reasonable burden for businesses to bear.

This last point is important for the not-for-profit sector. It is common for organizations to outsource their email marketing to a third party provider.  CASL requires the sender to obtain consent from the recipient and to track unsubscribe requests. Not-for-profit organizations should ensure that their service providers are aware of, and comply with the requirements of CASL.

Adrian Liu
416.367.6585
aliu@blg.com

 

Licensing a Trademark

Under Canadian law charities and not-for-profit organizations can own trademarks which may or may not be registered with the Canadian Trademarks Office and can license use of those marks to others.

Under licensed use, the owner of the trademark is known as the “licensor”. The person or party licensed to use a trademark is known as a “licensee” or “permitted user”.

While a trademark license can, in Canada, be oral, this is not recommended.

Written licenses allow clarity as to which mark is under license, for what goods or services, the duration of the license, and the quality control provisions that govern the use of the trademark by the licensee. These are the minimum requirements of a trademark license and must be present even if the licensor and the licensee have some type of shared governance structure. For example, a national charity may wish to license its provincial organizations to use a mark. If the provincial organizations have legal identities separate from the national organization, a license must be put in place.

While a trademark owner may engage in as many licensing relationships as it wishes, it may also wish to exclusively license one party for one product or service. For example, a Foundation may own a trademark for fund-raising services and hats and t-shirts. It may wish to exclusively license one party for the fund-raising services and exclusively license another party for the hats and t-shirts. Typically, such relationships mean that the licensee is guaranteed that it is the sole or exclusive licensee allowed to offer the specific goods or services, that is, no other parties will be licensed to use the trademark for the same goods or services.

A license may also be defined territorially. As an example, a national charity may wish to license its provincial counterparts on a province-by-province basis, that is, the British Columbia organization can only make use of the licensed mark in that province.

A non-exclusive license means that the trademark owner can license multiple parties to use a trademark for the same goods or services.

Regardless of whether a license is exclusive, it must contain “quality control provisions” which allow the owner to control how the mark is used by the licensee. For example, if a trademark is licensed for t-shirts, the quality control provisions should set out the basic quality of the t-shirts to be offered to the public and how the trademark will be used on the t-shirts or their packaging. Also, the quality control provisions should specifically state that the licensor can inspect the quality of the t-shirts, perhaps annually. The licensor should follow through and inspect the t-shirts and how the mark is being used as required under the license and a record of that inspection and redress of any problems should be kept as proof that the licensor is exercising the quality control provisions.

  • A charity or not-for-profit organization should not permit use of its trademarks by any other entity, even if that entity is related, without a license. Failure to have in place an adequate license governing use by another party can lead to loss of rights in a trademark and/or the inability to enforce rights in a trademark.

Tracey L. Mosley
613.787.3548
tmosley@blg.com

 

Competition Law: Remember the Rules

Trade associations should be mindful of the remarks made recently by John Pecman, the Interim Commissioner of Competition. All companies in Canada that act in an anti-competitive fashion risk violating the provisions of the Competition Act. Speaking in Toronto in October, 2012, Mr. Pecman said the following specifically about trade associations and the Competition Act.

“Trade associations, by their very nature, face unique compliance issues. They are naturally exposed to greater risks of anti-competitive behaviour because they provide a forum that may encourage competitors to collaborate. For this reason, compliance programs are of the utmost importance to trade associations.

While the Bureau does not believe that trade associations are inherently bad, it is also clear to us that there are practices they engage in which raise significant risks. Indeed, meetings and relationships formed between competitors through trade associations provide the forum and the temptation to engage in anti-competitive activity.

On the criminal side, there is the potential for price-fixing and bid rigging and on the civil side there is also the potential to violate the Act in the establishment of rules, policies, by-laws and other initiatives enacted and enforced by an association.

These may be considered to be agreements among competitors for the purposes of both the criminal conspiracy and civil agreements provisions.

What this means is that any rule that restricts, in some manner, competition, could raise issues under the Act.

The Bureau is likely to show an interest in  trade associations if they engage in three types of conduct:

  1. Restricting the types of professional service practice offerings – setting limits on things like office location, size.
    • These sorts of restrictions can deter or limit expansion by competitors and could, depending on the circumstances, raise issues under the conspiracy, civil agreement and abuse of dominance or price maintenance provisions of the Act.
  2. Secondly, limiting the number or range of  members or the ability of members to compete for example, through mandatory or suggested fee schedules or standards for product quality that advantage some members over others.
    • Rules like these prevent entry and alternative service models and decrease choice for consumers. The CREA case is an example of this.
  3. Finally, we are concerned with conduct that reduces incentives to compete vigorously.
    • Information sharing agreements are an example of this. Competitively sensitive information exchanged among competitors who can have serious negative effects on competition, especially if these are in highly concentrated markets with relatively homogeneous product offerings.”

Clearly, Trade and Industry Associations must be extra vigilant in their efforts to manage and alleviate risk with respect to their activities. Watch for a future bulletin on ways to enhance compliance with the Act.

Victoria Prince
416.367.6648
vprince@blg.com

Renai Williams

 

Final Word

For those organizations governed by the Canada Corporations Act (“CCA”), keep in mind that you have only until October 17, 2014 to continue under the Canada Not-for-Profit Corporations Act (“CNCA”). Organizations that do not continue will be dissolved. In that regard, here are some items to keep in mind:

  • Remember ex-officio directors are not contemplated by the CNCA.
  • While the directors can reserve the right to appoint up to one-third of the board:
    1. that right has to be specified in the Articles;
    2. it is one-third of the number of directors elected at the most recent annual meeting;
    3. the term for directors so appointed is until the next annual meeting only.
  • Even though non-voting members do not have a right to vote under the CCA, the CNCA provides for class voting if the continuance process itself will impact on existing class rights. This means you will need to think about how to best develop the process for continuance.
  • The standard of care for directors now is enshrined in the CNCA.

We would be happy to work with you to continue under the new legislation. We post materials that may be of interest to you on an ongoing basis.

Author

Victoria Prince 
VPrince@blg.com
416.367.6648

Other Author

Tracey L. Mosley

Expertise

Charities and Not-For-Profits
Information Technology
Licensing
Trademarks
Competition and Foreign Investment Review
Canada’s Anti-Spam Legislation (CASL)