One of the great unanswered questions in Canadian charity law is just how far the federal government’s jurisdiction extends over “Establishment, Maintenance, and Management of Hospitals, Asylums, Charities, and Eleemosynary Institutions”. That is the language used in s. 92(7) of the 1867 Constitution Act to describe the exclusive provincial jurisdiction that applies where such bodies are “in and for the province”.
When the Canadian Constitution was drafted, however, the voluntary sector was very different than it is today. It was quite common for charities to operate only in one or two locations. Certainly, no charities had a national presence as a result of promoting itself or its cause on the Internet.
Back then, much charitable work was carried out through trusts and there was no special income tax treatment of charitable or not-for-profit work because income tax, as we know it today, had not yet come into being. Indeed, the Income Tax Act registration regime was not initiated until the 1960s. Some tax privileges were afforded to certain groups prior to that, but there was no systematic federal regulation.
Although the framers of the Constitution deemed charity matters largely a matter of provincial jurisdiction, it wasn’t long before a case arose where the extent of a province’s authority in this area was put in issue. In 1882, Dobie v. The Board of Management of the Temporalities Fund of the Presbyterian Church of Canada, led the Privy Council to consider the scope of that authority. The case considered whether a provincial legislature could pass a statute binding on a charitable corporation operating in more than one province. The Privy Council held that an Act of the Legislature of the Province of Quebec that interfered directly with the Constitution and privileges of a corporation that was an interprovincial charity was ultra vires – beyond the powers – of the province.
Matters became even more complicated when, early in the next century, the federal government began to include measures in tax legislation giving special treatment to certain charitable and not-for-profit groups. Moreover, what started out as merely exempting a narrow range of entities from federal tax on their income eventually grew into a full-fledged regulatory regime. This regime entailed, as well as the income tax exemption for a much wider range of groups, deductions or credits on donations made to them, a host of controls and obligations over various types of activities they might undertake, and a comprehensive annual reporting protocol.
Provinces generally acquiesced to this federal oversight and extended corollary provincial tax privileges to charities recognized by the federal government. In some cases they passed legislation enabling them to regulate limited aspects of charities’ operations, such as fundraising. The most comprehensive oversight of charities’ day-to-day work was in Ontario. It passed the Charities Accounting Act and invested the Office of the Public Guardian and Trustee with broad powers to protect the public interest in charitable property. By-and-large, however, most provinces were and remain inactive in policing charities’ activities.
The growth of the federal charities’ regulatory system, which occurred in parallel with expansion of national government oversight in numerous other areas, could conceivably be characterized as falling within the Trade and Commerce powers and/or broad taxing authority provided to the federal government under the Canadian Constitution. However, this has never been fully tested.
Recently, this issue has gained new importance. As benefits associated with status as a federally registered charity have evolved, concern over abuses and improprieties has become more pronounced. This occurred because of the media giving a higher profile to problematic conduct and because a number of large-scale illicit schemes were associated with significant loss of tax revenue over the last decade. In response, the government is now imposing rules in areas where it had not previously regulated.
Most notable in this regard are amendments to the Income Tax Act introduced in 2011 giving the Canada Revenue Agency the discretion to deny registration to, or revoke the registration of, a group where an “ineligible individual” holds a position where he or she directly or indirectly controls or manages the organization. An “ineligible individual” is someone having been found guilty of certain other offences or having taken part in certain other impugned conduct.
The federal regulatory regime has, in the past, always relied heavily on the common law definition of charity, and past rules regarding fundraising, business and political activity have largely been drafted seeking to mirror requirements governing common law charities (that is, charities not registered under the Income Tax Act). This approach allowed Income Tax Act charity regulation – at least in theory – to exist without coming into conflict with provincial oversight of charities. The “Ineligible Individual” rules, however, have no equivalent at common law. Thus, the federal government is asserting novel authority by purporting to disallow particular persons from serving as directors or senior managers of a registered charity.
Because it featured a similar scenario – the federal government regulating an area where the provinces are seemingly constitutionally empowered to act, but where their interest in doing so has not always been manifest – the recent Supreme Court of Canada case of Reference re Securities Act appeared to potentially offer some guidance as to whether the federal government could become the charities’ default regulator. That case, however, turned heavily on the extent of the federal government’s authority under the Trade and Commerce powers. It found that legislation establishing a national regulator able to take over the role of provincial regulators overreached, given the nature of the industry and the interests of the provinces. It proposed a co-operative approach as a possible alternative.
That may be a hint of how the Supreme Court would deal with a charities’ jurisdictional issue. But in the realm of charities regulation, federal taxing authority would likely loom much larger than use of the Trade and Commerce powers. Indeed, in the limited instances where there has been judicial commentary of jurisdictional issues – mostly by the Federal Court of Appeal in cases such as International Pentecostal Ministry Fellowship of Toronto v. Canada (National Revenue) – there are indications that the taxing authority is the operative consideration.
Whether that taxing authority can be used to justify federal regulatory involvement in governance decisions of registered charities, remains to be seen. And it is a question that perhaps ought to be answered sooner rather than later.