A recent case, Credit Counselling Services of Atlantic Canada Inc. v. The Queen, 2016 FCA 193, dealt with an annulment of a registered charity.  CRA had annulled the registered charity status of Credit Counselling Services of Atlantic Canada Inc. in this Notice of Annulment of Registration in 2013 that we had previously posted on our website.   Credit Counselling Services of Atlantic Canada Inc had appealed the decision to CRA but CRA confirmed the Notice of Annulment in April of 2015.   Credit Counselling Services of Atlantic Canada appealed to the Federal Court of Appeal and in a decision on June 24, 2016 the Federal Court of Appeal upheld the CRA decision and dismissed the appeal.  There are really two issues in the case.  First, is the 'prevention of poverty' a recognized charitable purpose as opposed to 'relief of poverty' which is one of the four heads of charity.  The Court found that prevention of poverty is not a charitable purpose.  Second, annulments are far more unusual than revocation as a result of audit and therefore the case provides some clarity standards for review of annulment.  Essentially, annulments being contested will be treated by the FCA in a similar way to a revocation.

1. Prevention of Poverty

Credit Counselling Services of Atlantic Canada was registered as a charity in 1993 and had one of the purposes being “The prevention of poverty;“.  All the objects of a registered charity must be charitable.  Therefore, if even one object of the charity is not charitable the organization is not a charity.  The Court noted that “The debt management program is available to consumers who are in serious financial difficulties but who are employed and have assets. The Appellant negotiates a repayment of the debts with the creditors of the consumer.”  The decision notes:

[10]           In the earlier decision dated July 12, 2013, the Minister annulled the registration of the Appellant because, in the Minister’s view, the purposes and activities of the Appellant were not exclusively charitable. The Minister focused on the primary objective of the Appellant – the prevention of poverty – and concluded that this was not a recognized charitable purpose. The Minister noted that credit counselling may, in certain situations,“contribute to the charitable purpose of relieving poverty”. However, since the Appellant’s services were not limited to individuals who were poor, its services were more properly classified as relating to the prevention of poverty rather than the relief of poverty. …

[13]           Only charitable organizations or charitable foundations can be registered charities for the purposes of the Act (definitions of “registered charity” in subsection 248(1), and “private foundation” and “public foundation” in subsection 149.1(1) of the Act). A “charitable organization” is defined in subsection 149.1(1) of the Act, in part, as follows:

charitable organization, at any particular time, means an organization, whether or not incorporated, (a) all the resources of which are devoted to charitable activities carried on by the organization itself, …

[14]           The Appellant will not meet this test unless the activities related to the prevention of poverty are included as charitable activities. Although this provision is expressed in terms of activities and not purposes, the cases addressing what will be a charitable purpose are directly relevant since an activity could not be a charitable activity if it was not being carried out for a charitable purpose.

[16]           The Appellant did not refer to any cases that have held that the relief of poverty will include the prevention of poverty. To satisfy the requirement that a purpose is for the relief of poverty, the person receiving the assistance must be a person who is then in poverty. Poverty is a relative term. Therefore, it is possible that in some situations providing assistance through counselling or by other means to individuals in serious financial trouble may be considered to be relieving poverty, even if the individuals are not then destitute (Vancouver Society of Immigrant and Visible Minority Women v. Minister of National Revenue, [1999] 1 S.C.R. 10, 169 D.L.R. (4th) 34, at paragraph 185) (Vancouver Society).

[17]           However, it is clear that the Appellant is assisting many consumers who are employed and who have assets and therefore would not necessarily, as of the time of receiving the assistance, be considered to be in poverty. In 2010 the Appellant assisted consumers in paying over $10 million to their creditors under the debt management program. There is no indication that the Appellant screened these clients and only offered its services to those individuals who would be considered to be “poor” as determined for the recognized charitable purpose of the relief of poverty. The activities of the Appellant can best be described as related to the prevention of poverty.

The Court noted in the UK, the UK parliament had adopted a definition of charitable activities that included both relief of poverty and prevention of poverty.  However, in Canada we have not legislated such a definition and we rely on the common law. The Courts are not prepared to dramatically expand the definition of charity – that is the role of Parliament as there is tremendous fiscal effect if such a change is made.  The Court noted: 

[18]           In the United Kingdom, Parliament adopted the Charities Act 2011, 2011, c. 25 and in so doing included the prevention of poverty (in addition to the relief of poverty) as a charitable purpose. In effect, the Appellant is asking this Court to do that which required an act of the UK Parliament to do. In my view, just as in the United Kingdom, it will require an act of Parliament to add the prevention of poverty as a charitable purpose.

[19]           As a result, in my view, the prevention of poverty is not a charitable purpose and hence the Appellant cannot succeed on this ground.

There was also an argument that the prevention of poverty should be included under the fourth head of charity ie. a purpose that the courts have considered to be charitable:

[22]           In order to qualify under the fourth heading, the purpose must be beneficial to the community in a way the law regards as charitable. The Appellant has not established that its services, aimed at the prevention of poverty, would benefit the community in a way that is considered charitable. It seems clear that those individuals who have been assisted in paying down their debts and better managing their finances have benefited but it is far from clear why this is not a private advantage enjoyed by these individuals or how this would be beneficial to the community in a way that the law regards as charitable.

In the very useful book “Modernising Charity Law: Recent Developments and Future Directions” by the Australian authors Myles McGregor-Lowndes, and Kerry O'Halloran, they note: 

The Summary reported that:

Although the Charities Act now allows charities to focus on the prevention of poverty (tackling its root causes) without also having to relieve it or its consequences, there seems to be a general view that it is difficult in practice to distin­guish between the prevention of poverty and the relief of poverty,

The responses also recognised that there were many ways of preventing and relieving poverty which were not confined to the provision of financial assistance. These could include the provision of education and addressing human rights, environmental or governance issues. In the final Guidance the Commission states: 'we think it would be unhelpful to regard prevent­ing poverty as necessarily separate from relieving poverty; they are just different points along a continuum of financial need*. It goes on to say that 'we have long accepted that charities concerned with the relief of poverty can also prevent poverty. It is not therefore necessary for charities for the relief of poverty to extend their objects to refer specifically to the preven­tion of poverty'.

This very much reflects the position of the Charity Commission over a long period. Charities with relief of poverty purposes have been able to work for the eradication of the causes of poverty through a wide range of activities including campaigning and political activities as far as permitted by the law.3* Charities such as Oxfam and Christian Aid have been effective in the field of overseas development and charities such as the Child Poverty Action Group have campaigned successfully for many years on such issues as the reform of welfare benefits. Another example of a case previously accepted by the Charity Commission as under the relief of poverty was the Fairtrade Foundation, which was set up to promote a fair trade mark'.

Any limitations on the powers of charities established under the relief of poverty head have been imposed by the restrictions on political activities rather than any limitation imposed by the construction of the term 'relief. The Commission's Legal Analysis on its Guidance confirms that this position will be unaltered as a result of the extension to the preven­tion of poverty: The inclusion of prevention of poverty does not mean that Parliament has accepted that a purpose of campaigning for legislative change to tackle poverty or for changes in government policy to tackle these issues is established for public benefit'.

This view is not necessarily shared by all international development charities. The report of the Advisory Group on Campaigning and the Voluntary Sector includes a section by Bond, the umbrella body for inter­national development charities, which argues that 'the fact that under the Charities Act 2006 it is explicitly enshrined that charities can prevent as well as relieve poverty does, it seems to us, require charities to be more political'.

The prevention of poverty is one of several of the new charitable heads where in individual cases there may be issues as to whether there is a politi­cal purpose, as it can be argued that the purpose is inherently political. Others include the promotion of human rights, the promotion of citizen­ship and the advancement of environmental protection. Examples given in the Guidance of ways in which charities might prevent or relieve poverty include:

•         providing debt advice;

•         advising poor farmers in developing countries about more effective farming;

•         working with women's groups who are concerned about a lack of equitable conditions for women workers;

•         establishing a micro credit scheme;

•         providing a grant to a local business to enable them to employ an unemployed person.

It is interesting that, in line with the text, no attempt is made to distinguish between those examples which may prevent and those which may relieve poverty.

Possibly a more difficult issue with relation to the prevention of poverty is one of remoteness. The Guidance states that the beneficiary must be 'either poor or at risk of being poor” and there could be issues of interpretation as to when someone becomes at risk of being poor. This question could arise in the case of the provision of advice on pensions or other financial advice. At what stage does this become charitable? It would seem that it would not be charitable under this head to give advice on pensions to the public at large but what criteria would need to be adopted to define the potential class of beneficiaries'? Throughout the guidance 'the poor” are referred to as a people in poverty and it is confirmed that people in poverty does not just include people who are destitute but also those who cannot satisfy a basic need.

The issue of prevention of poverty versus relief of poverty sounds like a very important distinction that will make a big difference.  It is not clear that it makes as big a difference as some would think. Some people might think it is great to have prevention of poverty because is it not better to prevent something before it happens rather than to fix it afterwards?  As noted above by Myles McGregor-Lowndes, and Kerry O'Halloran some of the activities that would fall under prevention of poverty can actually go under education, human rights or another charitable purpose.  The concern with allowing “prevention of poverty” is that it is a slippery slope to potentially allowing charitable resources to help anyone.  At the moment we can all agree that the resources dedicated to relief of poverty are not adequate and therefore an attempt to broaden the potential class that can benefit may in fact result in less resources for those who are poor.  By the way poor does not mean destitute.  

On an extreme one could argue that if you have a business person who is involved with risky businesses like casinos then they can go bankrupt.  Should a charity lets say help a hypothetical business person named Donald because if he has a string of business failures he could one day be poor.   I think Donald would think it is a good idea but most other people would not.  

Some would argue that having prevention of poverty as a charitable purpose will allow charities greater scope in terms of political activities.  What they seem to ignore is that the Courts in Canada, even if they accepted prevention of poverty as a charitable purpose, and in theory you could deal with the “root causes” of poverty these Courts are not going to accept that you can use this as a tool to do more political activities because remember that for a charity to be registered it must not only have charitable purposes but also a public benefit and with much of political activities there is at least a debate about the existence of a public benefit.  

With the introduction this week of the new Canada Child Benefit we can expect that tens of thousands or even hundreds of thousands of Canadians will be lifted up over the poverty line.  There is no question that governmental action can be really important to reducing poverty.  Charities can generally spend up to 10% of resources on non-partisan political activities.   The number of Canadian charities saying they spend any money on political activities is tiny (i.e. about 500 of the 86,000) and the amounts they declare spending is pitifully low i.e. about $25 million.  If one is interested in Canadian charities doing more political activities then under the current rules Canadian charities can do far more political activities then they are currently doing without expanding the definition of charity.  

2. Annulment

For those who are not familiar with the concept of annulment as compared to revocation here is a quick overview.  If a registered charity is annulled or revoked in both cases they lose their charitable status and cannot issue official donation receipts or receive gifts from other registered charities. With a revocation a former registered charity must hand its assets over to another registered charity.  In the case of an annulment the former registered charity gets to keep its assets.   I have been involved with 2 annulments – in one case the organization got to keep about $1 million and in the other case approximately $40 million.   In a revocation as a result of an audit (i.e. revocation for cause) CRA is saying the charity did something wrong.  In an annulment CRA is saying that the CRA itself made a mistake in registering charity in the past.   Although there is a big reputational difference between the 2 methods and the issue of ineligible individuals, in some cases where a registered charity has no assets it may not make a huge difference.  On the other hand if a charity has a large amount of assets it does make a HUGE (pronounced HUGE as per Bernie Sanders) difference. Therefore the Courts noted: “There is no reason why different standards of review would be applicable to a decision of the Minister to annul a registration. Therefore, extricable questions of law will be reviewed on a correctness standard. Whether activities related to the prevention of poverty are charitable activities for the purposes of the Act is a question of law.”

Here are the reasons for the decision:

REASONS FOR JUDGMENT

WEBB J.A.

[1]               The issue in this appeal is whether activities related to the “prevention of poverty”are charitable activities for the purposes of the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.) (the Act).

[2]               Credit Counselling Services of Atlantic Canada Inc. is appealing the decision of the Minister of National Revenue (the Minister) dated April 21, 2015 to confirm the Notice of Annulment of Registration (the Notice) issued on July 12, 2013.

[3]               The Notice was issued because the Minister determined that the purposes and the activities of the Appellant were not exclusively charitable as the prevention of poverty was not a recognized charitable purpose.

[4]               For the reasons that follow, I would dismiss this appeal.

I.                   Facts

[5]               The Appellant was incorporated under the Canada Corporations Act, R.S.C. 1970, c. C-32 in 1993. The objects of the Appellant were stated to be:

(a)        The prevention of poverty;

(b)        To provide professional financial and debt counselling to the community;

(c)        To develop and promote educational programs for the public on family money management, budgeting and use of credit;

(d)       To conduct and fund research on credit-related concerns; and

(e)        To collect and disseminate data and information on consumer credit issues to the public.

[6]               By a letter dated October 21, 1993, the Appellant was informed by Revenue Canada Customs, Excise and Taxation that it qualified as a registered charity for the purposes of the Act.

[7]               Over the next several years the Appellant carried on its activities of providing credit counselling services, an education outreach program and a debt management program.

[8]               The debt management program is available to consumers who are in serious financial difficulties but who are employed and have assets. The Appellant negotiates a repayment of the debts with the creditors of the consumer.

II.                Decisions of the Minister

[9]               The notice of confirmation dated April 21, 2015 confirmed the earlier decision of the Minister to annul the registration of the Appellant as a registered charity.

[10]           In the earlier decision dated July 12, 2013, the Minister annulled the registration of the Appellant because, in the Minister’s view, the purposes and activities of the Appellant were not exclusively charitable. The Minister focused on the primary objective of the Appellant – the prevention of poverty – and concluded that this was not a recognized charitable purpose. The Minister noted that credit counselling may, in certain situations,“contribute to the charitable purpose of relieving poverty”. However, since the Appellant’s services were not limited to individuals who were poor, its services were more properly classified as relating to the prevention of poverty rather than the relief of poverty.

III.             Standard of Review

[11]           In Prescient Foundation v. Minister of National Revenue, 2013 FCA 120, 2013 D.T.C. 5101, this Court confirmed that:

12.       In an appeal from a decision of the Minister confirming a proposal to revoke a registration of a charity brought pursuant to paragraph 172(3)of the Act, extricable questions of law, including the interpretation of the Act, are to be determined on a standard of correctness. On the other hand, questions of fact or of mixed fact and law, including the exercise of the Minister's discretion based on those facts and the law as correctly interpreted, are to be determined on a standard of reasonableness…

[12]           There is no reason why different standards of review would be applicable to a decision of the Minister to annul a registration. Therefore, extricable questions of law will be reviewed on a correctness standard. Whether activities related to the prevention of poverty are charitable activities for the purposes of the Act is a question of law.

IV.             Analysis

[13]           Only charitable organizations or charitable foundations can be registered charities for the purposes of the Act (definitions of “registered charity” in subsection 248(1), and “private foundation” and “public foundation” in subsection 149.1(1) of the Act). A “charitable organization” is defined in subsection 149.1(1) of the Act, in part, as follows:

charitable organization, at any particular time, means an organization, whether or not incorporated,

oeuvre de bienfaisance Est une oeuvre de bienfaisance à un moment donné l’oeuvre, constituée ou non en société :

(a) all the resources of which are devoted to charitable activities carried on by the organization itself,

a) dont la totalité des ressources est consacrée à des activités de bienfaisance qu’elle mène elle-même;

[…]

[14]           The Appellant will not meet this test unless the activities related to the prevention of poverty are included as charitable activities. Although this provision is expressed in terms of activities and not purposes, the cases addressing what will be a charitable purpose are directly relevant since an activity could not be a charitable activity if it was not being carried out for a charitable purpose.

[15]           It is well recognized that charitable purposes include the following:

–          the relief of poverty;

–          the advancement of education;

–          the advancement of religion; and

–          certain other purposes beneficial to the community, not falling under any of the preceding heads.

(A.Y.S.A. Amateur Youth Soccer Association v. Canada Revenue Agency, 2007 SCC 42, [2007] 3 S.C.R. 217, at paragraph 26) (A.Y.S.A.)

[16]           The Appellant did not refer to any cases that have held that the relief of poverty will include the prevention of poverty. To satisfy the requirement that a purpose is for the relief of poverty, the person receiving the assistance must be a person who is then in poverty. Poverty is a relative term. Therefore, it is possible that in some situations providing assistance through counselling or by other means to individuals in serious financial trouble may be considered to be relieving poverty, even if the individuals are not then destitute (Vancouver Society of Immigrant and Visible Minority Women v. Minister of National Revenue, [1999] 1 S.C.R. 10, 169 D.L.R. (4th) 34, at paragraph 185) (Vancouver Society).

[17]           However, it is clear that the Appellant is assisting many consumers who are employed and who have assets and therefore would not necessarily, as of the time of receiving the assistance, be considered to be in poverty. In 2010 the Appellant assisted consumers in paying over $10 million to their creditors under the debt management program. There is no indication that the Appellant screened these clients and only offered its services to those individuals who would be considered to be “poor” as determined for the recognized charitable purpose of the relief of poverty. The activities of the Appellant can best be described as related to the prevention of poverty.

[18]           In the United Kingdom, Parliament adopted the Charities Act 2011, 2011, c. 25 and in so doing included the prevention of poverty (in addition to the relief of poverty) as a charitable purpose. In effect, the Appellant is asking this Court to do that which required an act of the UK Parliament to do. In my view, just as in the United Kingdom, it will require an act of Parliament to add the prevention of poverty as a charitable purpose.

[19]           As a result, in my view, the prevention of poverty is not a charitable purpose and hence the Appellant cannot succeed on this ground.

[20]           The Appellant also argues that it should succeed under the fourth category of purposes beneficial to the community.

[21]           In Vancouver Society the Supreme Court outlined the requirements for this fourth category of charitable purposes:

175      In Native Communications Society, supra, at pp. 479-80, the Federal Court of Appeal set out certain “necessary preliminaries” for the determination of a charitable purpose under the fourth category of Lord Macnaghten's formulation. As Stone J.A. put it, the purpose must be beneficial to the community “in a way which the law regards as charitable” by coming within the “spirit and intendment” of the preamble to the Statute of Elizabeth if not within its letter, and whether a purpose would or may operate for the public benefit is to be answered by the court on the basis of the record before it and in exercise of its equitable jurisdiction in matters of charity.

176      In other words, more is required than simple “public benefit”, in the ordinary sense of that term, to bring a purpose within the fourth head of Pemsel. In Positive Action Against Pornography, supra, at p. 352, Stone J.A. stressed that the task of the court under this heading is relatively narrow; it is not called upon “to decide what is beneficial to the community in a loose sense, but only what is beneficial in a way the law regards as charitable” (emphasis added). Thus, it is not sufficient to assert, as the Society has, that, by helping immigrant and visible minority women to obtain employment, it creates a “level playing field”, which is in the public benefit because it is “in the public interest of immigrants and in fact of all Canadians that immigrants obtain employment as quickly as possible”. Rather than laying claim to public benefit only in a loose or popular sense, it is incumbent upon the Society to explain just how its purposes are beneficial in a way the law regards as charitable.

177      In D'Aguiar, supra, it was recognized that the guidance provided by the common law in this area is not particularly clear. I agree. The requirement that the purposes benefit the community “in a way the law regards as charitable” is obviously circular, and the various examples enumerated in the preamble to the Statute of Elizabeth seem to lack a common character or thread on which to base any coherent argument from analogy. That notwithstanding, however, the Privy Council in that case set out what is in my view a useful approach to the assessment of an organization's purposes under the fourth head (at p. 33):

[The Court] must first consider the trend of those decisions which have established certain objects as charitable under this heading, and ask whether, by reasonable extension or analogy, the instant case may be considered to be in line with these. Secondly, it must examine certain accepted anomalies to see whether they fairly cover the objects under consideration. Thirdly — and this is really a cross-check upon the others — it must ask whether, consistently with the objects declared, the income and property in question can be applied for purposes clearly falling outside the scope of charity; if so, the argument for charity must fail.

To this I would add the general requirement, outlined in Verge v. Somerville, supra, at p. 499, that the purpose must also be “for the benefit of the community or of an appreciably important class of the community” rather than for private advantage.

[22]           In order to qualify under the fourth heading, the purpose must be beneficial to the community in a way the law regards as charitable. The Appellant has not established that its services, aimed at the prevention of poverty, would benefit the community in a way that is considered charitable. It seems clear that those individuals who have been assisted in paying down their debts and better managing their finances have benefited but it is far from clear why this is not a private advantage enjoyed by these individuals or how this would be beneficial to the community in a way that the law regards as charitable.

[23]           As a result, in my view, the Appellant has failed to establish that the Minister made any error in annulling the registration of the Appellant as a registered charity and I would dismiss this appeal, with costs.

“Wyman W. Webb”

J.A.

“I agree.

A.F. Scott J.A.”

“I agree.

Yves de Montigny J.A.”

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:

A-244-15

(APPEAL FROM A DECISION OF THE MINISTER OF NATIONAL REVENUE DATED APRIL 21, 2015 CONFIRMING THE NOTICE OF ANNULLMENT OFREGISTRATION ISSUED ON JULY 12, 2013, FILE NO. 0969964)

STYLE OF CAUSE:

CREDIT COUNSELLING SERVICES OF ATLANTIC CANADA INC. v. MINISTER OF NATIONAL REVENUE

PLACE OF HEARING:  FREDERICTON

DATE OF HEARING: APRIL 28, 2016

REASONS FOR JUDGMENT BY:  WEBB J.A.

CONCURRED IN BY:  (SCOTT AND DE MONTIGNY JJ.A.)

DATED: JUNE 24, 2016

APPEARANCES: Paul Harquail

FOR THE APPELLANT

Joanna Hill

FOR THE RESPONDENT

SOLICITORS OF RECORD:

Stewart McKelvey

Saint John, New Brunswick

FOR THE APPELLANT

William F. Pentney

Deputy Attorney General of Canada

FOR THE RESPONDENT