Imagine Canada was recently involved in a legal case that could be of major significance to how numerous Canadian charities operate. The proceeding was heard in Montreal before the Federal Court of Appeal last May. The Court considered the revocation by the Canada Revenue Agency (CRA) of the charitable registration of the Montreal-based organization Public Television Association of Quebec (PTAQ).
The revocation was upheld on the basis that CRA had acted reasonably in finding that PTAQ had not exercised adequate direction and control over activities it undertook in conjunction with a Vermont Public Television Station. Imagine Canada was an Intervener in the case (that is, it was granted status in the proceeding to make legal arguments that had not been raised by either the Crown or PTAQ), and took the position that CRA’s current requirements were not in keeping with the intent of the applicable Income Tax Act provisions nor with a nuanced reading of the past jurisprudence in this area of the law.
Requirements of the Income Tax Act
The Income Tax Act requires that a registered charity take measures to ensure proper use of resources transferred to another entity that it not a qualified donee. (A qualified donee is a term defined in the Income Tax Act, and includes registered charities and specified charity-like and governmental Canadian bodies and certain foreign organizations). The language used in the relevant Income Tax Act provisions with respect to what constitutes appropriate conduct in such circumstances is quite general.
Decision may impact relationships between registered charities and non-charity partners
Imagine Canada argued that the measures CRA expected PTAQ to undertake to comply with the Income Tax Act were too onerous and beyond what was legally necessary. Several lawyers, working pro bono on Imagine Canada’s behalf, prepared and presented the arguments. The intervention was organized and facilitated by The Pemsel Case Foundation. Pemsel is mandated to work on Canadian charity law issues. Unfortunately, our arguments were not taken up by the Court in its decision, which was released in July. By implication the decision validates CRA’s existing guidance on operating through foreign or domestic intermediaries that are not registered charities. The decision will likely stifle attempts by Canadian registered charities to develop more equitable and balanced relationships with non-charity partners.
For further information on the case and its likely consequences read Public Television Association of Quebec v. Minister of National Revenue: A case comment available on the LawNow.org website.