Veiko Parming – President Estonian House Ltd.
Re: Sale of 958 Broadview Ave. – Estonian House in Toronto
Without the benefit of a response to my previous enquiries as to whether you intended to proceed as outlined in your Estonian Centre Update #41, I must conclude that you are convinced that the sale of 958 Broadview Ave will be subject to capital gains tax unless you take steps to mitigate the tax consequences.
You have good reason to be apprehensive. Estonian House obtained its not-for-profit status based on letters patent which were submitted on Jan 9, 1952. Its focus was
1. to promote the educational, benevolent , fraternal, charitable, social, cultural, and recreational interests of persons of Estonian Origin living in Toronto and to assist such persons to assimilate the Canadian way of life.
2. To own real estate and to operate thereon an institution similar to a club, the facilities which shall be available to all persons of Estonian origin whether they be shareholders of the company.
Times have changed. Over the years “Estonian House Ltd.” is no longer a “social club” but has become a property manager for 958 Broadview Ave. Of the total revenue reported by EHL of $436,341 only $61,995 or 14% was rentals to Estonians. You are primarily renting to commercial enterprises or the community at large. Your focus over the last five years has been to “unlock the value of your real estate” to the neglect of promoting the social values of the “club” which led to its designation as a not for profit organization.
You have recognized this. Estonian House Ltd will transition to the Estonian International Centre. This is a subsidiary of Estonian House Ltd, but it has been designated as a for profit organization to be administered under the Ontario Business Corporations Act. The organization chart for the Madison Project shows Toomas Koger C.A. as responsible for financial oversight. On April 25/ 2019 he made known his view that Estonian House Ltd is
“not a non-profit. Never was. Taxes were filed for 60 years as being a for profit company”.
As your financial authority he has stated that
“no one can take a chance that the CRA would not try to tax the pending capital gain”.
I understand fully your desire to avoid this situation. But surely you recognize that once you close purchase and sale agreement based on the approach you have outlined in the Estonian Centre Update #41 , you are acknowledging with absolute certainty that you believe that you are not a “not for profit” organization.
This presents you with a problem. If you are not a “not for profit” what are you? The only alternative is that you are a “for profit organization”. You have already defined the organization that will manage the new Estonian International Centre as a “for profit organization”. The business plan for this organization is identical to the current business plan of Estonian House Ltd. The primary function of both is to manage the real estate ... no change ... .
So, both in terms of what you believe and have corroborated by your actions, and in how the organization in fact operates you are a “for profit organization”
There are some benefits to operating as a “for profit organization”. The rules under the Business Corporations Act anticipate the many issues that confront a business enterprise and set out the rules for resolving them. You have one such situation facing you now. It has created a great deal of friction within our community.
It is easily resolved if you refer to the Business Corporations Act Paragraph 184.
(3) A sale lease or exchange of all or a substantially all the property of a corporation other than in the ordinary course of business of the corporation requires the approval of the shareholders in accordance with subsection (4) to (8) RSO 1990.
(4) The notice of the meeting to approve a transaction referred to in subsection (3) shall be sent to all shareholders and shall include or be accompanied by:
i) A copy or summary of the agreement of sale, lease, or exchange and
ii) A statement that a dissenting shareholder is entitled to be paid fair value for the shares in accordance with section 185, but failure to make that statement does not invalidate the Approval of the sale lease or exchange referred to in section (3)
(7) The approval of the sale, lease, or exchange referred to in section (3) is effective when the shareholders have approved the sale, lease, or exchange by special resolution of the holders of shares in each class or series entitled to vote thereon.
When the action approved by the resolution becomes effective, the dissenting shareholder is to be paid by the corporation the fair value of the share held by the shareholder.
The act specifies procedures to be followed by both the dissenting shareholders and the corporation which need to be communicated to the dissenting shareholders.
These procedures are spelled out in detail in the act along with the process to arrive at fair value and how to resolve disputes between the dissenting shareholder and the corporation.
Conclusion:
We have a process to mitigate the tax consequences of capital gain on the sale of 958 Broadview Ave.
We should do no less with respect to mitigating the legal consequences of not dealing with dissenting shareholders.
If Estonian house Ltd. loses it’s not for profit status, then it is subject to the Business Corporations Act. Just like we concluded that “no one can take a chance that CRA will not try to tax the pending gain”.
We cannot take a chance that we are retroactively considered to be a “for profit” organization that should have followed the Business Corporations Act.
When will a special meeting of shareholders be called at which time you can present your rationale for accepting the offer of Purchase and Sale from DK Acquisitions and call for a resolution to approve the agreement?
Vaino Einola , Shareholder …. Representing 34 shares of Estonian House Ltd.
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The Estonian Centre Project Update #41 outlined both the proposed governance structure for The International Estonian Centre as well as "what will happen when the Estonian House sale to Revera
closes”.
"Just prior to the closing of the sale of 958 Broadview to Revera, EH will transfer the beneficial ownership of the property to FIEC so that the proceeds from the Broadview sale will accrue to FIEC.
FIEC will issue a charitable donation tax receipt to EH which in turn mitigates capital gains tax consequences for EH. FIEC will pass those funds to IEC pursuant to the terms of the trust.
FIEC will be the beneficial owner of 9 Madison and the improvements made on it and will also hold beneficial interest in 11 Madison, with IEC holding legal title, in trust for FIEC. ( 9 Madison and 11 Madison will be merged into one parcel of real estate onto which the Centre will be built.)".
