The late movie maker, Sam Goldwyn, was famously quoted as saying that "an oral contract is not worth the paper it's written on." A very recent decision of the Federal Court of Appeal (FCA) seems to be saying that an agreement in writing is also not worth the paper it is written on, even if it is a compliance agreement between the Canada Revenue Agency (CRA) and a charity.
Compliance agreements are a comparatively new approach adopted by the CRA as a step to allow a charity to correct, prospectively, what are considered to be unacceptable practices! The agreements formalize the CRA requirements going forward and the charity in signing the agreement undertakes to comply. If on a subsequent audit the charity is found not to be compliant, revocation almost always follows.
Not surprisingly, when a charity signs such an agreement, it expects that it will be allowed to carry on its activities while abiding by the agreed upon changes. It now appears that not only is the CRA not bound to honour the agreement, but FCA says that there is no need to do so.
The court came to this decision in May in a case involving Christ Apostolic Church of God Mission International. The court gave a very brief (four short paragraphs) judgment, delivered orally from the bench. In so doing, it gave precious little detail about the factual background and once again dealt with a serious appeal in a perfunctory fashion; an approach that has become all too common.
The following two paragraphs comprise the greater part of the court’s reasons:
"The appellant’s principal argument is that the “compliance agreement” it signed during the course of the audit at the request of the auditor could not be unilaterally withdrawn by the Minister. We see no merit in this argument. The compliance agreement was subject to review by the Minister after considering the results of the audit. It was open to the Minister, after reviewing the audit report, to conclude that the appellant’s non-compliance was so substantial that it could not be remedied by the promises made by the appellant in the compliance agreement.
The appellant also argues that the Minister failed to observe the requirements of natural justice and procedural fairness in deciding to revoke the appellant’s registration as a charity without first giving it the chance to argue that the compliance agreement should have been a sufficient sanction. However, the record discloses that during the objection process, the appellant could have made submissions to that effect but failed to do so. That failure cannot be attributed to any procedural failure on the part of the Minister.
For these reasons, the appeal will be dismissed with costs."
It seems that compliance agreements work only one way; binding the charity but not the CRA. What this decision means is that advisers and charities must, realize that a compliance agreement, which is a very serious matter to be undertaken, can be meaningless if the CRA chooses to ignore it. This occurs even though CRA’s own employee, presumably with authorization, signs it.
Without belabouring the point, it seems that appeals to the FCA are doomed to failure. Charities suffered two other losses in late May before this court. This in turn means that the CRA can engage in what most observers would see as bad faith behavior and not be called to task by the court which has jurisdiction. Knowing that the FCA will condone just about any position taken by the Charity Directorate gives the bureaucrats much more power than they should have and allows them to act with impunity.
For the rest of us laboring in the field, it is necessary to be aware that the signing of a compliance agreement may not be the end of a charity's difficulties after an audit.