On February 18, 2010, the Federal Court of Appeal rejected an argument advanced by a charity that the federal Parliament lacks jurisdiction to provide for the registration and de-registration of charities through the Income Tax Act (the “Act”). Although this case was not difficult based on its own facts, the decision highlights an issue which is perhaps less easy to resolve where other areas of the federal regulation of charities are concerned.
In International Pentecostal Ministry Fellowship of Toronto (IPM) v. M.N.R., the charity received a Notice of Intent to revoke its charitable registration from CRA. The basis for revocation was an alleged failure by the charity to maintain adequate books and records, to issue donations receipts in compliance with the Act, to report all tax-receipted gifts accurately, and to retain documents establishing its activities and expenditures outside Canada. The charity provided a response to CRA’s allegations, which CRA reviewed and ultimately rejected. CRA then confirmed its intent to proceed to revocation.
The charity argued that because the authority to make laws for the regulation of charities is held exclusively by the provinces under the Constitution of Canada, the federal Parliament lacks constitutional authority to register and de-register charities. Accordingly, it argued that CRA’s decision to revoke the charity’s registration was void from the outset.
The Court held that there was no merit to the charity’s argument, as the federal Parliament has authority under the Constitution to make laws for the “raising of Money by any Mode or System of Taxation.” Because the advantages of registration and the drawbacks of revocation relate solely to the tax treatment of charities and their donors, the Court held that the Parliament has jurisdiction to provide for the registration and de-registration of charities. The Court stated that the provisions of the Act relating to charitable registration and revocation do not “impermissibly affect the affairs of charities in any other way, nor do they impede provinces from otherwise regulating charities.”
The Court also rejected an argument by the charity that CRA, in moving straight to revocation, had failed to follow its own guidelines. The charity argued that CRA was obligated first to encourage compliance through education, intermediate sanctions, and a compliance agreement. The Court held that it was open to CRA to find the breaches of the Act sufficiently serious to warrant revocation.
As noted, the Court’s decision with respect to CRA’s jurisdiction was not difficult on the facts of this case, given that the basis for revocation was a failure by the charity to observe the rules in the Act which relate to the issuing and reporting of donation receipts and the maintenance of appropriate records (which have a clear basis under the Act). The case does, however, highlight an issue which may not be resolved as easily in other areas of CRA regulation of charities. Certain of CRA’s policies – and, in particular, its recently released Guidance on Fundraising by Registered Charities – may encroach upon areas which (at least arguably) relate less to the tax-exempt status of registered charities and more to the use by charities of charitable property, which is generally understood to be an area of provincial jurisdiction. While this case suggests that courts may be hesitant to limit CRA’s jurisdiction to regulate charities in any respect, this decision should not construed too broadly. Subsequent cases, with different facts, will be necessary to resolve the more contentious aspects of CRA’s jurisdiction to regulate charities.