It is trite law that guidance about registered charities issued by the Canada Revenue Agency (CRA), through its Charities Directorate, does not have the force of legislation or regulations. Courts can reject or ignore it when determining the permissibility or impermissibility of an organization’s conduct and the consequences flowing from that conduct.
The Income Tax Act (ITA) relies heavily on the common law to establish the scope and parameters of what qualifies an entity as eligible for registration as a charity. As well, very few Regulations with respect to ITA provisions governing registered charities have been issued. That, in practice, leaves material released by the CRA as a primary source of information after the legislation itself.
Even so, court decisions are frequently rendered without any discussion whatsoever of the CRA’s published position. Canadian judges, when they do consider the guidance, are apt to comment on it only in passing. They rarely directly address the particulars asserted in a specific document and their accuracy or legal validity. This means that one is often left to assume or infer whether the CRA’s statement of the law is correct or complete.
The Charity Commission for England and Wales, as a statutory regulatory body operating in a jurisdiction where authority over charities is not split between two levels of government, as it is in Canada and Australia, starts with much greater rule-making powers than the CRA. In addition, the British Parliament saw fit to create a mechanism in its charity legislation for regulatory interpretations issued by the Commission to be judicially tested.
Under the legislation, a court (in the English system called a Tribunal in this context) can consider issues relating to the legal treatment of charities, as reflected in the Commission guidance, by way of a reference from the Attorney-General. Although there are procedures in some Canadian courts for consideration of reference or stated cases, including matters with respect to the federal Income Tax Act, there is no special provision for the consideration of charity matters as there is in England.
Even so, court decisions are frequently rendered without any discussion whatsoever of the CRA’s published position. Canadian judges, when they do consider the guidance, are apt to comment on it only in passing.
In part, the English system was put in place to address the legal impact of legislative measures contained in the 2006 Charities Act. These potentially affected the meaning of charity – including the statutory recognition of certain non-traditional purposes and provisions with respect to the public benefit requirement associated with status as a charity. While, at the federal level, Canada has never moved to set out the meaning of charity in statute, among the key issues arising here are how current or new ITA provisions governing registered charity should – or can – be reconciled with the meaning of charity as developed through the common law.
There are two prominent recent examples of questions about the Charity Commission’s interpretation of the law put to the Upper Tribunal in the U.K., resulting in the Commission amending its guidance to conform with the court’s findings.
In Independent Schools Council v Charity Commission for England and Wales and others [2011] UKUT 421 (TCC) a reference was put concerning the impact of fee-paying on whether an entity established for an education purpose satisfied the public benefit requirement essential to qualifying as a charity, and related questions. The Tribunal found that charity trustees had a duty to make provision for the poor benefiting from a charity’s work in a way that is more than minimal or token. It rejected use of an objective ‘reasonableness’ test, the apparent benchmark in the Commission guidance, in relation to the adequacy of provisions made for the poor by such a charity. It ruled that it was for the charity trustees, acting reasonably, to determine the appropriate provisions to ensure access by those not able to meet fees.
Although the case concerned educational charities specifically, the ruling was seen as having wider implications for charities that charged fees for their programs or services. The ruling stated that parts of the Charity Commission guidance were in error or “obscure” and confused the public benefit requirement associated with being a charity with the duty of a charity’s trustees to operate their charity for public benefit. The Tribunal ordered some of the guidance to be withdrawn.
In Charity Commission for England and Wales and Others v Her Majesty’s Attorney General (FTC/84/2011) the key issue was the impact of the 2006 Charities Act on the public benefit requirement applicable to organizations whose purpose was the relief and/or prevention of poverty. This issue arose because, prior to enactment of the legislation, a significant exception existed for organizations mandated to relieve poverty. This was commonly known as the ‘poor relations cases’ an exception to the general rules of a charity having to benefit a broad section of the community and that beneficiaries not have blood or contractual ties to the settlor of the charity.
Although the Tribunal affirmed that the legislation had not significantly changed the law, the detailed analysis in its judgment served to assuage the Commission and public’s doubts about the state of the law, which had prompted the Attorney General to bring the reference case. It also clarified a number of minor legal points.
The lack of an adequate mechanism to address charity law questions here, in a way similar to the reference questions put in England, has resulted in gaps and uncertainty about the law of charities in Canada.
The lack of an adequate mechanism to address charity law questions here, in a way similar to the reference questions put in England, has resulted in gaps and uncertainty about the law of charities in Canada. This has undoubtedly meant that opportunities for organizations to gain charitable status to help them in doing their work or to engage to the fullest extent possible in initiatives or activities permitted to charities have not been realized.
Short of major charity law reform in Canada, facilitating – on the English model – more extensive consideration by the courts of the state of the law and the CRA’s representations of what the law is could be highly beneficial to both voluntary sector organizations and the regulator itself. And the resulting clarity would surely benefit Canadian society.
About Peter Broder
