2.4.0. Overview: Eligible Use Of Proceeds

In addition to using lottery proceeds for the direct delivery of its eligible programs, an organization may also use lottery proceeds to pay some of the administrative expenses of those programs. To be considered an eligible use of lottery proceeds, these expenses must be essential for the direct delivery of the organization’s charitable objects. The licensing authority must give prior approval to requests to use lottery proceeds for administrative expenses on a case-by-case basis.

The licensing official may limit the use of proceeds to only those expenses that relate to the direct delivery of programs.

The licensing authority must monitor the use of lottery proceeds to ensure they are used as approved, for expenses related to the direct delivery of the eligible charitable services, for the benefit of Ontario residents.

2.4.0 (A) Uses in Ontario

All proceeds raised from lottery licences must be used for a charitable object or purpose that directly benefits the residents of Ontario. The funds do not necessarily have to be spent in Ontario, but an Ontario resident or community must benefit. This policy applies regardless of the beneficiary’s status  as a citizen of Canada. For example, refugees living in Ontario may be beneficiaries of programs set up for the relief of poverty in Ontario. However, lottery proceeds cannot be used to bring non-residents to Ontario to then benefit from lottery proceeds. Also, proceeds must be used to generate a charitable,  not an economic, benefit.

The following examples are eligible uses of lottery proceeds spent out-of-province to benefit a project or resident of Ontario:

• paying out-of-province medical expenses for an Ontario resident if the treatment is not available in the province, where the costs are not fully funded by the provincial government;
• buying medical equipment for an Ontario hospital from an out-of-province supplier; and
• paying the cost of an out-of-province educational opportunity for Ontario students enrolled in an accredited educational institution.

The following list provides some examples of projects that do not qualify:

• disaster relief provided to communities outside of Ontario;
• medical supplies for developing countries;
• foster child programs for children outside of Ontario;
• environmental projects outside of Ontario; and
• funding for foreign exchange students.

Although many of these activities are worthwhile projects, they provide a direct benefit to individuals outside Ontario. The Order-in-Council limits the allowable use of lottery proceeds to charitable activities that provide a direct benefit to the residents of Ontario.

2.4.1.POLICIES: ELIGIBLE USE OF PROCEEDS

2.4.1(a)(i) Donating to other eligible organizations

Eligible charitable organizations requesting approval to donate lottery proceeds to other eligible organizations must demonstrate that:

• their own charitable objects or purposes permit them to donate funds;
• the charitable organization has a proven track record of carrying out this activity;
• they have their own Board of Directors;
• they have budgets and banking procedures independent of the recipient organization;
• they are independent and have overall control over decision-making;
• the recipient organization in itself would be eligible for lottery licensing; and,
• the recipient organization will use the proceeds for an eligible use that is consistent with its charitable objects or purposes.

2.4.1 (a) (ii) Donating to other organizations

The same type of eligible charitable organization as described in Section 2.4.1(A)(i) may also in certain circumstances donate lottery proceeds towards goods or services for use by organizations that in themselves may not be considered charitable in nature, including those that are dependent upon municipal governments. In this instance it must be demonstrated that:

• the goods or services are not core goods or services historically provided by the recipient organization;
• there is no obligation for the recipient organization to provide the goods and services; and
• an agreement to protect the lottery proceeds is in place, prior to the transfer of funds.

An example of an eligible charitable organization donating lottery proceeds towards goods or services for use by another organization that in itself may not be considered charitable in nature:

A service club such as a Rotary Club raises funds for the inclusion of a public computer workstation for a public library established by a municipality. Raising funds for the inclusion of a computer may constitute a charitable use of funds by the club provided it can be shown that the proposed use is over and above the basic services that would normally be provided by the library.

An example of an ineligible use of proceeds:

A service club wishes to donate lottery proceeds to purchase jackets for a men’s baseball league.

2.4.1 (a) (iii) Donations for capital expenditures

In some cases, an eligible charitable organization that meets the criteria set out in 2.4.1(a)(i) may purchase or donate funds towards the purchase of a non-core item for another organization. The recipient organization must use the item for a purpose that provides a public, not a private benefit.

Prior to the purchase, the donating and recipient organizations must enter into a trust agreement outlining their respective responsibilities. The agreement must include the following information:

• who will hold title to the item;
• who maintains the item;
• the current value of the item;
• the item’s lifespan and residual value over a period of time;
• who insures the item;
• who decides on disposal of the item;
• what happens to the item’s residual value.

This agreement is necessary to ensure:

• that the lottery proceeds are used only for charitable purposes; and
• that the residual value of an item is used to support only those initiatives that have also been approved as eligible.

An example of an eligible use of proceeds when a charitable organization donates funds towards a capital expenditure:

A service club raises lottery proceeds towards the purchase of a van for a publicly owned long- term care home to transport patients. The purchase of the van may be an eligible use of proceeds provided the service club can demonstrate that the purchase of the van is over and above the services that the long-term care home would normally provide.

2.4.1 (B) Direct expenses vs. indirect expenses

Eligible organizations must provide very detailed information concerning their proposed use of lottery proceeds. Because many organizations do not have wholly charitable objects or purposes, it is sometimes difficult to determine whether a proposed use of proceeds can be considered a charitable purpose. In broad terms, proceeds may be used to offset the expenses that are integral to the charitable functions of the organization. These are known as “direct expenses.” A direct expense includes any expense that directly helps to fulfil the organization’s charitable mandate.

Organizations have costs that may be classified as direct or indirect expenses. A curling club that runs a youth program as a charitable function, in addition to its adult program, has costs that may be considered as direct or indirect depending on the program for which they are incurred. The cost of ice time necessary to deliver the youth program is eligible as a direct expense if it can be isolated from the cost for the adult program. If the cost of the ice time required for the youth program cannot be determined and isolated, it is not an eligible use of lottery proceeds.

Indirect expenses include the group’s general operating costs such as salaries, administration, rent, or utility expenses such as heat and hydro. Indirect expenses are not generally considered essential for the delivery of the charitable purpose and therefore may not be eligible uses of proceeds.

The licensing authority may approve these expenses if the applicant meets all of the following requirements:

• The need for the expense is justified as an integral part of the eligible charitable objects or purposes and activities.
• Salaries and wages may only be approved if the expertise level and time required cannot reasonably be provided by a volunteer.
• Salaries and wages must be reasonable and geared to the expertise and hours needed to do the work.

2.4.1 (C) Volunteer/staff training

Volunteer and/or staff training may be an eligible use of lottery proceeds. Generally, lottery proceeds may not be used to pay expenses associated with attending, organizing or running conferences or workshops. However, in certain circumstances conferences or workshops may constitute a charitable purpose.

In order to use lottery funds to attend, organize or run a training session, the organization must demonstrate that the training provides a significant charitable and community benefit related to an educational program. The following types of training may qualify:

• programs or workshops that directly provide education for youth, such as summer French programs or youth leadership courses;
• conferences or workshops that train volunteers to fulfil an organization’s charitable mandate, for example:
  • training volunteers for Big Brothers, halfway houses and to be counselors at rape crisis centres; or
  • training volunteers for community safety programs.

The following types of conferences and training are examples that do not qualify as a charitable use of lottery proceeds:

• professional development or upgrading for nurses, teachers, lawyers, doctors and other professionals;
• the payment of tuition fees for a volunteer or staff member of the organization to attend a college, university or any other educational institution;
• membership conferences for service clubs, the Royal Canadian Legion and other veterans’ organizations, and arts and cultural groups; and
• membership fees for the organization, its volunteers or staff in professional or recreational associations.

The licensing authority must determine whether or not the conference or training constitutes a charitable purpose. The following questions will assist in that determination.

• Is the conference/workshop/training directly related to the charitable mandate of the organization?
• Is the conference/workshop/training on the list of uses that do not qualify as outlined in Section 2.5.0, “Ineligible Uses of Proceeds”?
• Will the conference/workshop/training result in a personal or a public benefit?
• What is the charitable benefit the community would gain through the conference/workshop/ training?

Unless the answers to the above questions clearly indicate that a public charitable benefit will result, the licensing authority must not grant the organization permission to use lottery licensing proceeds for the conference, workshop or training expenses.

2.4.1 (D) Research

An eligible charitable organization that conducts research as an integral part of its charitable mandate may apply for a lottery licence to fund the direct costs of that research. Research may be funded through lottery proceeds if it advances human knowledge and if the resulting advances provide a public benefit either through instruction (“the advancement of education”) or by improving the health and well-being of the residents of Ontario (“other charitable purposes beneficial to the community: health and welfare”).

The licensing authority may grant approval on a case-by-case basis, under the following conditions:

• the applicant is an eligible charitable organization conducting the research as part of its charitable mandate; or
• the applicant is an eligible charitable organization that will donate the lottery proceeds to an eligible charitable organization conducting the research as part of its charitable mandate.

2.4.1 (E) Travel costs

The cost of travel for staff, volunteers and individuals benefiting from the charitable activities of the organization may be an eligible use of proceeds. These costs must directly benefit residents of Ontario and must be considered integral to the organization’s eligible charitable objects or purposes and activities.

The following examples are eligible uses of lottery proceeds for travel costs:

• renting a bus to transport an amateur youth sports team to a sanctioned tournament;
• paying for hotel accommodation for a group of students on a school trip which supplements and relates to the academic program.

In some cases, organizations may request approval to pay out-of-province travel costs. The organization must demonstrate that a direct benefit will be provided to the public of Ontario. If the travel provides only a private benefit, the travel costs are not eligible. A licensing official must determine the type of benefit provided on the basis of the organization’s charitable object or purpose and activity.

A licensing official must consider requests for approval to pay out-of-province travel costs with lottery proceeds on a case-by-case basis. For example, out-of-province travel to advance education, particularly for youth, is eligible.

On the other hand, out-of-province travel is not an eligible use of lottery proceeds for an arts or cultural organization. Arts and cultural organizations must provide a benefit directed towards the broader public of Ontario, not the individual members of the performing organization. When the performance is outside Ontario, the audience is not made up of Ontario residents. Therefore, the benefit of the travel is considered a private benefit directed to the individual performers. This also applies to school bands travelling out-of-province for the sole purpose of performing while travelling.

2.4.1 (F) Senior citizen centres and programs for senior citizens

The courts have recognized that support to “the aged” (senior citizens) through programs that improve physical and mental health may be considered charitable in nature.

These types of programs may fall under the eligible charitable category of “relief of poverty” or “other purposes beneficial to the community” depending upon the activity. For example, programs that provide relief from loneliness and isolation of the aged, and improve their mobility and fitness may be eligible under “Other purposes beneficial to the community: Health and welfare.” A non-profit organization that is established to operate and maintain a senior citizens’ centre or seniors’ social club to provide recreation, cultural activities and other programs for senior citizens may also be eligible for licensing.

The licensing authority may grant approval on a case-by-case basis, under the following conditions: