Rental Policies and Rites of Passage
Congregations that own their buildings often rent space to other individuals, groups, and organizations, as well as to members, for additional revenue and to build connections with the community. Sometimes they want to offer discounted prices to members. However, the Canada Revenue Agency (CRA) frowns on charities showing preferential treatment to their members, which it sees as giving them undue benefits.
According to the Income Tax Act, registered charities cannot give anyone an undue benefit. This means that they cannot transfer property or other resources (including use of facilities) to anyone who does not deal with the charity at arms’ length or who is the beneficiary of the transfer because of a special relationship with a donor or charity.
This applies to volunteers, donors, and members of our congregations. When people give money, time, energy, or passion to their faith community, they often begin to see it as their spiritual home, and they feel comfortably at home in its space and with its furnishings, supplies, and equipment. This is a good thing! However, it’s important to remember that they must not benefit from it. They cannot freely use its facilities for personal business. For example, a congregation cannot allow a member to use its space at a discount or free of charge for a personal event, or to use its photocopier to make free photocopies for personal use.
However, under very specific conditions, members of a religious organization may receive some accommodations.
The CRA recognizes that legitimate charitable activities may benefit some individuals or groups. These private benefits are acceptable when they occur as part of delivering charitable benefits to their legitimate beneficiaries and they are not greater than is necessary to achieve the charitable purpose. For example, if your congregation holds social activities for its members or youth, that’s not a charitable activity, but the benefits that it provides are acceptable because they’re provided only incidentally to the congregation’s charitable purpose of advancing or furthering Unitarian Universalism. (Check your charitable purposes to be sure that they are appropriately phrased!) Similarly, space and resources can be freely used for congregational committee meetings, fundraisers, and social events, including receptions after weddings, memorials, and child dedications.
Assessing private and public benefit is difficult. Read more in the CRA’s policy statement on public benefit, especially section 3.2.4.
If your congregation does give members reduced rates on rentals or other charges, the difference between what a member is charged and what a nonmember is charged constitutes an advantage to the member. (The Income Tax Act discusses this in paragraph 248(32).) You would need to issue a split donation receipt to reflect that; whatever donation the member had made in that tax year would need to be offset by the amount of the advantage, reducing the member’s donation tax credit. The administrative work involved in complying with this legal requirement is a strong reason not to establish different fees for members and nonmembers.
Rites of Passage
The CRA recognizes that members of a religious organization may receive specific benefits because of their membership. Religious charities maintain places of worship and conduct services and rites in accordance with their faith’s traditions and to advance its teachings. Weddings and memorials fall into this category, and members can be offered these services without fee as part of your congregation’s faith practices.
You might consider offering memorial services free of charge to both members and nonmembers, and recommending a donation. You would need to determine the actual cost of the memorial (the services of the minister or lay chaplain, the use of the space, and so on) and provide a tax receipt for the part of a donation that exceeds that amount. For instance, if the actual cost of the memorial was $500 and the family gave a donation of $600, you would provide a tax receipt for $100.
Rental Agreements and Policies
Renting out your space allows your congregation both to earn income and to connect with community groups and organizations. However, it brings with it legal, liability, and insurance considerations. You should have a written policy that specifies who can rent space, and for what activities or purposes. A clear policy also gives you a basis on which to refuse to rent to groups or organizations that conflict with your values. You do not have to rent to anybody and everybody! Your board can decide how open or closed your doors will be.
Use of facilities by other charities. You can permit another charity to use your facilities for free only if its purposes and objects are compatible with yours. This is because you received those facilities (building, fixtures, and so on, or the money with which they were obtained) for specific purposes, and so you cannot give them or their use away for incompatible purposes.
Use of facilities by for-profit organizations. Rentals to for-profit organizations must be priced at fair market value: what the renter would pay if renting from a for-profit organization. This avoids using your tax-exempt status as a benefit to a nonqualified donee. It also avoids undermining taxable entities in the business of renting out space. For-profit renters should not engage in any activity contrary to your charitable purposes.
Use of facilities by government. A charity can permit the government, in its capacity as a representative of the public, to use its facilities on the basis of outreach to the community. Your board may set rental fees for this at its discretion.
- Set out specific guidelines in keeping with your congregation’s purposes and practices. Ask these questions about potential renters:
- Who is the renter?
- What does the renter intend to do on the property?
- What does the renter actually do on the property?
- Is the activity in line with our purposes?
- Clearly describe your charitable purposes and the application process.
- Make clear that your congregation’s activities take precedence over any rental to outside or third parties.
- Make clear that renters may not do anything in violation of your purposes and practices, or anything unsafe or illegal.
- Make clear that in any areas of disagreement, the final determination rests with a person or persons chosen by your board.
- Clearly state insurance or indemnity requirements.
Insurance is important, but will not mitigate all risks. Two articles by Ken Hall, of Robertson Hall Insurance, provide an overview and examples of the issues: “Outside User Groups: An Insurance Perspective” and “Keeping the Risk Where It Belongs.” Please contact the CUC to request these articles; they are copyrighted by the Canadian Council of Christian Charities.