A. INTRODUCTION
On February 18, 2010, the Federal Court
of Appeal delivered its decision in International Pentecostal
Minsitry Fellowship of Toronto v. M.N.R., 2010 FCA 51.
The appeal was a challenge to the federal government’s constitutional
jurisdiction over the regulation of charities and its process
when revoking charitable registration. The Court dismissed
the appeal, finding that the Canada Revenue Agency (“CRA”)
acted within its jurisdiction when it revoked the Appellant’s
charitable status. The decision is very short but considers
two issues of general importance for charities and their
advisors.
B.
BACKGROUND
The International Pentecostal Ministry
Fellowship of Toronto (the “Appellant”) was a registered
charity under the Income Tax Act (“ITA”).
In November 2005, the CRA undertook an audit of the Appellant
for the 2002 and 2003 fiscal periods. The audit revealed
a number of violations of the Income Tax Act, including
a failure to maintain adequate books and records, improper
receipting, and a failure to accurately report all tax receipted
gifts and retain documents establishing its activities and
expenditures outside Canada. As a result of the audit, CRA
sent the Appellant a notice of its intent to revoke the
Appellant’s charitable status.
The Appellant subsequently filed a Notice of Objection.
On February 8, 2008, CRA informed the Appellant of its intent
to confirm the notice of intent to revoke, and allowed the
Appellant until March 10, 2008 to make any further submissions.
After reviewing the Appellant’s submissions, CRA confirmed
the proposal to revoke the Appellant’s charitable registration
on April 9, 2008. The Appellant appealed CRA’s decision
to revoke its charitable status to the Federal Court of
Appeal.
C.
ISSUES
The Appellant made two arguments in support
of their appeal. Firstly, the decision to revoke the Appellant’s
charitable registration exceeded CRA’s constitutional jurisdiction
and was void from the outset because exclusive legislative
authority with respect to the regulation of charities lies
with the provinces. Secondly, CRA failed to observe its
own guidelines by deciding to revoke the Appellant’s charitable
status without first attempting to address the non-compliance
through education, a compliance agreement, and a sanction.
D.
DECISION
1.
Constitutional jurisdiction
over charities
The Appellant attempted to argue that
CRA’s decision to revoke its charitable registration was
void from the outset because the regulation of charities
is outside the federal government’s constitutional jurisdiction.
Sections 91 and 92 of the Constitution Act, 1867
enumerate the exclusive legislative powers of the federal
and provincial governments respectively. Subsection 92(7)
gives the provinces the exclusive authority over “The Establishment,
Maintenance, and Management of Hospitals, Asylums, Charities,
and Eleemosynary Institutions in and for the Province…”
However, under subsection 91(3) of the Constitution Act,
1867, the Parliament of Canada has the authority to
make laws for “the raising of Money by any Mode or System
or Taxation.”
The decision turned on whether the registration
and deregistration of charities under the ITA relates
to the regulation of charities under subsection 92(7) or
to taxation under subsection 91(3).
The Court found that the provisions of the ITA dealing
with the registration and deregistration of charities are
not an unconstitutional infringement of provincial legislative
authority. In the Court’s view, “these provisions relate,
in their pith and substance, to federal taxation, and accordingly
they are intra vires the Parliament of Canada under
subsection 91(3) of the Constitution Act, 1867. Both
the advantages of registration and the drawbacks of revocation
relate solely to the tax treatment of charities and their
donors. They do not impermissibly affect the affairs of
charities in any other way, nor do they impede provinces
from otherwise regulating charities.”
Therefore, it was within CRA’s constitutional jurisdiction
to revoke the Appellant’s charitable status.
2.
CRA’s guidelines
The Court concluded that it was reasonably
open to the Minister of National Revenue to find that the
Appellant’s breaches of the Income Tax Act were sufficiently
serious to warrant revocation. CRA provided specific reasons
as to why the Appellant’s practices failed to comply with
the ITA and ample time was given to the Appellant
to bring its practices into compliance. The Court stated
that the Appellant had failed to adequately respond to CRA’s
concerns.
E.
CONCLUSION
In International Pentecostal Ministry
Fellowship of Toronto, the Federal Court of Appeal
confirmed that the federal government has jurisdiction over
the registration of charities for taxation purposes. However,
the decision is brief and does not address the broader question
of constitutional jurisdiction over the regulation of charities,
particularly with respect to some of the restrictions currently
being imposed by CRA under various policies and “guidance.”
While it is likely that in the future the CRA will argue
that the decision supports its jurisdiction to regulate
all aspects of a charity’s operations, including fundraising
practices, these issues do not appear to have been fully
argued before the Court and the decision should be confined
to its facts.
The
full text of the decision is available at: http://www.canlii.org/en/ca/fca/doc/2010/2010fca51/2010fca51.html.
