Registering a Charity for Income Tax Purposes

Reference Number
CES - 001

Date
January 30, 1997

The Registration Process

Why register an organization?

1. A charity registered with Revenue Canada has a significant advantage over other not-for-profit entities. While both registered charities and non-profits are exempt from paying income tax (under Part I of the Income Tax Act), only charities have the capacity to attract gifts by being able to issue official donation receipts. Individual donors use these receipts to reduce the income tax they would otherwise have to pay, while corporate donors use them to reduce their taxable income. A registered charity also enjoys a favourable position under other federal taxes such as the Goods and Services Tax. At the provincial and municipal level as well, many authorities across Canada recognize the existence of registered charities and single them out for privileged status.

2. While registration cannot guarantee an organization is bona fides, it does indicate that the charity's affairs were inspected when it applied for registration and that it is subject to ongoing reporting requirements and monitoring. For this reason, financial and other advisers in the media often warn members of the public to check whether a particular group is registered before handing over any donation.

3. Given the advantages of registration, many groups naturally seek to obtain this status. The Division receives between four and five thousand applications annually. On average, three-quarters of these will be registered,[Footnote 1] 15 per cent will receive formal denials, and the remainder will lose interest at some point in the process and abandon their application.

The Charities Division, Revenue Canada

4. The Income Tax Act provisions for charities are administered centrally at the Department's Head Office in Ottawa, where the Charities Division is a member of the Policy and Legislation Branch. Current Division staffing is at the level of 67 full-time-equivalents. Besides various administrative positions, its officers work in one of four operating sections:

• Client Assistance Section (CAS - 12 officers), which handles written and telephone enquiries;
• Applications Examination Section (AES - 30 examiners), which makes the registration decisions;
• Audit Section (10 officers), which reviews the annual information returns, selects organizations for audit, and checks the audit results for possible non-compliance,[Footnote 2] and
• Technical Interpretations and Communications Section (TICS - 10 officers), which performs a number of tasks - rewriting publications, tracking cases that are on appeal, answering letters received by the Minister, providing policy guidance to the Division, etc.

The Division is working with fewer staff than it once had. In AES, by one estimate, there are now 16 per cent fewer examiners than there were in 1993.

How to get in touch with the Division

5. The postal address is: 400 Cumberland Street, Ottawa, Ontario, K1A 0L5. Its fax number is 1-613-952-6020. If you have a general enquiry, you can reach the Client Assistance Section by dialling 1-800-267-2384 (or in the Ottawa calling area, 954-0410). Examiners have their own phone lines, but cannot accept collect calls.

An application is received

6. Every two weeks, two experienced examiners will look at all the applications that have come in. Their task is to identify the routine applications. About half fall into this category, and the two examiners will handle them on their own. Sometimes they need to phone the applicant to check a detail or obtain a missing document, but they will register most within six weeks.

7. The non-routine applications are "banked." The Division works on a "first-in, first-out" principle; the oldest files in the bank are the ones dealt with first. An application will gradually work its way to the front of the line as organizations that had applied ahead of it are dealt with. The length of the "line" varies depending on the volume and type of applications we receive, but at the moment it is 500 applications long. The applicants now at the head of the queue applied six months ago.[Footnote 3] AES will be working overtime from January to March in an effort to wrestle this backlog down to what we consider an acceptable delay of four months.

8. Another measure we will shortly be taking is simply to refuse to deal with incomplete applications. Instead, everything will be sent back, and the applicant can join the back of the queue once we receive a complete submission. In our view, those taking the trouble to assemble a proper application should be rewarded for their effort and not held up by the less diligent.

What is a complete application?

9. Applications must be submitted on Form T2050 (see Appendix A). The form itself is simple and comes with flaps (not reproduced in the Appendix) that give guidance on how to complete it. More information can be found in the guide to the form, Registering a Charity for Income Tax Purposes.[Footnote 4]

10. There are four parts to the application form. Part I asks for routine information (name of the applicant, its address, its fiscal period end, etc.). The last Part is simply an area for signatures. Part II asks the applicant to append four items:

• An official copy of its governing documents. These might be the letters patent of an incorporated charity; the trust deed that establishes a charitable trust; or a simple constitution of an unincorporated association.[Footnote 5] If the application is otherwise complete, we will accept governing documents in draft form. An examiner who is satisfied with the application will tell the organization to finalize its documents, on the understanding that registration will proceed as soon as the Division receives a photocopy of the validated documents.
• A statement of activities. It is not sufficient to simply re-state the formal purposes for which the body is established. Rather the statement should be as detailed as possible, and if the organization has a number of separate programs, each should be described. Examiners need to know: What exactly is this organization doing or planning to do? How is it trying to implement its announced purposes? Who are its beneficiaries (if any), and how are they selected? Will it be doing the work itself or will it be contracting with others to deliver the required services? How many employees or volunteers does it have? Where will it be active? What fees, if any, will it be charging its clientele? How does it intend to raise funds?
• This list of questions is potentially endless given the wide diversity of organizations that apply for charitable registration. Suffice it to say that the more detail provided with the application, the less likely an examiner will have to contact the applicant for more information. It is always helpful to an examiner to see examples of the organization in action, for example, samples of its publications (such as newsletters for its members and any informational flyers it puts out to present its work to the public), advertising, newspaper clippings, photographs of projects, etc.
• Financial statements. These would normally comprise a statement of income and expenditures and a statement of assets and liabilities. Again they should be sufficiently detailed that an examiner can see how the organization's resources are being allocated. An expenditure entry labelled "charitable activities" does not tell an examiner what the money is being spent on. References that a person outside the organization might not understand should also be explained. If the organization has not been in existence for a full year, we will accept a budget showing projected revenues and expenditures, and assets and liabilities.
• A list of the directors, trustees, or other similar officials who make up the charity's elected or appointed governing body, giving for each their full name, address, and occupation.

11. Part III of the application form asks three questions which are relevant in determining the designation of the organization if it is registered. I shall come back to this topic in a minute.

What happens if the application is accepted?

12. An official notice of registration in the form of a letter will be sent to the applicant or its representative. The letter will draw attention to relevant parts of the legislation, and will be accompanied by various publications designed to help the newly registered charity meet its obligations under the Act.

Effective date of registration

13. Given that the registration process can be lengthy, the Division's policy is to backdate registrations. However, the effective date of registration cannot go back to an earlier calendar year (i.e., if we receive an application in 1997, the organization will be registered with an effective date somewhere in 1997), and it cannot antedate the formal creation of the organization, for example, the date it received its letters patent. Usually, the date chosen is the first day of the organization's fiscal period.

What happens if the application is rejected?

14. An applicant will not be registered unless an examiner is satisfied that he or she has a complete knowledge of an applicant's purposes and activities and is convinced that these objects and activities meet the pertinent tests. The onus is on the applicant to satisfy the examiner: STV Stop the Violence ... Face the Music Society v. R. (F.C.A., judgment rendered December 6, 1996).

15. Applicants we consider unlikely to qualify receive a letter from the examiner, setting out the reasons why he or she feels it would be possible to conclude that the organization does not qualify. The applicant is then invited to respond. If this response does not change our original impression of the application's merits, the Division will issue a final letter of denial. Appeal from this decision lies to the Federal Court of Appeal (para. 172(3)(a)).[Footnote 6]

Statutory Tests

16. The Income Tax Act sets down a number of tests and requirements.

• A registered charity must be resident in Canada, and created or established in this country (ss. 248(1), "registered charity"). Organizations with governing documents from the U.S. or other countries are ineligible. The policy intent is that the tax incentives for charities are to be used to support Canadian organizations.
• The organization must be constituted and operated for charitable purposes only, and it must ensure that no part of its income is payable to or otherwise available for the personal benefit of any proprietor, member, shareholder, trustee, or settlor (ss. 149.1(1), "charitable foundation", "charitable organization").
• A registered charity can only carry on limited political activities. Such activities must remain ancillary and incidental to its charitable purposes and must be absolutely non-partisan. As well, the resources that can be devoted to political work are limited to whatever remains after the charity satisfies the requirement of devoting "substantially all" its resources (normally defined as 90 per cent) to the accomplishment of its purposes by non-political means (ss. 149.1(6.1), (6.2)).
• Charities cannot carry on businesses. However, most[Footnote 7] are permitted to carry on related businesses that directly accomplish or promote their charitable objects (paras. 149.1(2)(a), 149.1(3)(a), 149.1(4)(a)). They are also permitted to carry on other business if most of the staff involved are volunteers (ss. 149.1(1), related business).

17. The Act also lists a number of grounds under which the Department can revoke an organization's registration. Besides non-compliance with any of the requirements for registration, grounds for revocation include:

• Minimum spending requirement. Each year, a registered charity must spend a minimum amount of money either on its own charitable programs (as opposed its fund-raising or other administrative costs) or in grants to certain other organizations (primarily other registered charities) (paras. 149.1(2)(b), 149.1(3)(b), 149.1(4)(b)). For most charities, the minimum amount is equivalent to 80 per cent of their previous year's tax-receipted donations (ss. 149.1(1), disbursement quota).
• Annual filing requirement. The charities' return is the T3010 and is unique among the Department's forms in that it is mostly a public document. Anyone who wants to find out about a charity can receive a copy of the return free-of-charge from the Division. It is very much a condition of continued registration that these returns be filed regularly (para. 168(1)(c)). Over the last four years, we have been revoking registrations for this cause at a rate of over a thousand per year.
• Books and records. The charity must maintain at an address in Canada, recorded with the Department, adequate books and records that enable the Department to determine whether it continues to meet the requirements for registration and whether it is issuing tax-receipts properly (ss. 230(2); paras. 168(1)(b), (d), (e)).

Designation

18. If an applicant is accepted, it will be designated at the time of its registration as a charitable organization, a public foundation, or a private foundation.

19. A charitable organization is a charity that carries on charitable activities itself; it may be characterized as the deliverer of charitable services to the public, rather than a body that merely funds the charitable activities of others. It may, however, spend up to 50 per cent of its income in any year in making grants to other registered charities[Footnote 8] (ss. 149.1(1), "charitable organization"; para. 149.1(1)(b)). Around 90 per cent of registered charities are designated charitable organizations.

20. A public foundation is a registered charity that spends more than half its income in gifts to other charities. It is, in effect, primarily a funder of the charitable activities carried out by other charities. The most familiar example of a public foundation is the United Way.

21. A private foundation can operate primarily as either a deliverer of services or as a funder of other charities. Its distinguishing mark is the extent to which it is privately funded or controlled. If more than 50 per cent of the directors, trustees, officers, or like officials of a charity do not deal with each other and with each of the other directors etc. at arm's length, or 50 per cent or more of the capital of the charity has been contributed by one person or a group of persons not dealing at arm's length, then the charity must be designated a private foundation (ss. 149.1(1), "private foundation", "public foundation").

22. The Department may re-designate a registered charity if its mode of operation shifts or its control and funding-source changes from that obtained when it was registered. A charity can itself apply (using Form T2095) to be re-designated if it meets the criteria for a change (ss. 149.1(6.3)). If a charity disagrees with the Department's decision, it can appeal the matter to the Federal Court of Appeal (para. 172(3)(b)).

23. The Act's requirements vary for each of these three designations. For example, the spending requirement is more onerous for foundations than it is for charitable organizations, since foundations also have to spend on their charitable programs an amount that includes any gifts they received from other charities and 4.5 per cent of the average value of their investment assets (ss. 149.1(1), disbursement quota). In addition, foundations are allowed only short-term debts (paras. 149.1(3)(d) and 149.1(4)(d)), and they cannot acquire control of any corporation except by means of a gift (paras. 149.1(3)(c); 149.1(4)(c); 149.1(12)(a)). They also have to be established as a trust or corporation, while a charitable organization can be set up with a simple constitution (ss. 149.1(1), charitable foundation, charitable organization).

Operating outside Canada

24. There are no provisions in the Act specifically referring to Canadian charities operating in other countries. However, the legislation does require a Canadian charity to carry on its own activities.[Footnote 9] It cannot operate as a mechanism for soliciting funds in Canada on behalf of a foreign organization, even if that organization happens to be charitable in nature. To satisfy the "own activities" test, any funds or other resources leaving the country must remain under the full control and direction of the Canadian charity. The Canadian body may of course hire foreign agents or contractors to carry on its work for it, or it may enter into joint venture agreements with charities from other countries, providing that it is clear from these arrangements that the Canadian organization is not simply flowing funds out of the country.

Common Law Tests

25. The Act does not define charity, charitable, or gift. For working definitions of these terms, we rely on the common law.

26. Charitable purposes were categorized into four general heads by Lord MacNaghten over a hundred years ago: Commissioners for Special Purposes of the Income Tax v. Pemsel, [1891] A.C. 531, at p. 583. These heads are the relief of poverty, the advancement of education, the advancement of religion, and certain other purposes that benefit the community in a way the courts have recognized as charitable. It is well established that, in order to be charitable, a purpose must come within one of Lord MacNaghten's four heads of charity: Guaranty Trust Company of Canada v. Minister of National Revenue, [1967] S.C.R. 133, at p. 141. I will briefly discuss each of the four heads to indicate some issues that can derail an application for registration.

Relieving poverty

27. This category raises the fewest problems. The "poor" are not simply the destitute, but anyone lacking essential amenities available to the general population. The organization must, however, be established and operated to bring relief to poor people. While various synonyms ("needy," "underprivileged," etc.) are permissible, the Charities Division cannot accept organizations set up to help broader groups, embracing people who are not necessarily poor - such as the "unemployed," "native people," or "artists" - or those which serve too large a sector of the population to be considered to have a focus on poverty.

28. An organization must also be established actually to relieve poverty. An example of the questions that can arise here is an applicant that wanted to provide lessons in a sport for children in a downtown area. Whatever else the organization might achieve, the Division was sceptical that promoting the practise of this particular sport would do anything to actually relieve the poverty of inner-city youth.

29. Questions can also arise when the organization does more than is necessary to achieve its end - when it seems to be making some people relatively wealthy as opposed to relieving their poverty. This came up, for example, with an organization that helps poor people own their own home. In this case, the applicant gained registration because it could produce evidence showing that its methods were specifically chosen to help break the poverty cycle and were effective in doing so.

30. Applicants often propose to relieve poverty by providing employment to those who need a job. Training people to render them employable is charitable, and even arranging to give them some temporary work experience. However, the Division does not recognize the provision of employment on its own - irrespective of the beneficiaries - as a charitable purpose. There is an inherent danger of such programs turning into a subsidy for commercial businesses.

Advancing education

31. There are three sub-categories here: providing children and adults with schooling and training, conducting research, and giving the public access to the arts.

32. Schooling and training. The courts define "education" as the formal training of the mind by means of systematic instruction in a given subject area. There must be a structured delivery of course material - not just a simple presentation of selected items of information. The instruction must be unbiased and not intended to persuade the learner to adopt a predetermined point of view. The subject matter must not be frivolous or improper, but rather one that prepares a person for life, comparable to what might be found on the syllabus of a school, college, or university.

33. Some years ago, the Charity Commissioners in the United Kingdom commented on the tendency for groups to overwork the word "education."[Footnote 10] Our experience has also been that special-interest or advocacy groups almost invariably claim to be "educating" the public. Such groups point out that they are holding conferences and seminars, issuing pamphlets and newsletters, and maintaining a resource library open to all.

34. However, a typical advocacy group cannot be registered as an educational charity because it is not trying to enable people to come to an intelligent decision for themselves on a subject, but rather to lead them - through its choice of materials and the manner of presenting them - to a conclusion proposed by the organization. For example, "teaching" people about the environment may on closer inspection be more about convincing people to take political action. Other groups that claim to be "educational" are those espousing views you may or may not be in sympathy with, depending on your personal opinions: those that are against pornography, against racism, against using animals for testing, and against the destruction of old-growth forests - or for chastity and family values, for gay rights, for the preservation of the family farm, and for national unity.

35. While some may think these purposes should fall within the scope of charity, the courts have disagreed, reasoning that a purpose such as promoting national unity is too broadly stated to keep any organization adopting it from straying into non-charitable waters. The words of Rowlatt J., in commenting on a trust to promote "a closer and more sympathetic understanding between the English and Swedish peoples," are classic:

36. Research. To be acceptable as a charity, an organization pursuing research must aim to increase the store of available knowledge on a subject of value and benefit to the public. The research must be objective, and the useful results must be published.

37. Usually there are two issues associated with research organizations. The first arises when we ask: Who is going to benefit from this work? Who is going to hold any copyrights, patents, or licenses? Is this work such that only a few people or companies would be interested in it? How accessible are the results going to be to the public at large?

38. The second and more serious issue with research groups is: Is the research conducted according to scientific standards, or is it biased? Gathering information to support a predetermined view does not constitute charitable research. The problem is particularly acute in the social sciences. On the one hand, it is agreed that a social scientist can never be absolutely impartial but, on the other hand, it is well known that a poor research design and methodology can predetermine the results. In deciding whether to register, we would have to look at whether the organization was conducting its work according to accepted academic standards and how it was presenting conflicting evidence.

39. The arts. It is charitable to educate the public's aesthetic tastes and to promote the development of the arts in a given community. This is usually done by presenting exhibitions and performances of artistic works. An immediate difficulty is to determine what is an "artistic" work. The existing caselaw favours a fairly high standard; the performance or exhibition must do more than amuse or entertain the audience. Thus the Division has, for example, turned down ballroom dancing while accepting ballet. Other groups the Division has turned down include those seeking to promote juggling, vaudeville, and a "theatre" on ice.

40. Another problem we see with some arts groups is that their main emphasis seems to be advancing the careers of particular artists rather than educating the public at large. The key question in these cases is the dominant focus of the organization since some incidental benefit to artists is perhaps inevitable in all groups promoting the arts.

Advancing religion

41. The advancement of a religion would include building and repairing places of worship, supporting ministers and other religious leaders, holding services, and missionary work.

42. The difficulty, however, lies in determining what is a religion. According to existing caselaw,[Footnote 11] to be charitable, a religion must:

• be founded on a belief in and reverence for a god or gods; and
• promote the spiritual teaching and the maintenance of its doctrines; and
• promote the observances which give the religion expression and substance.

43. Applicants for registration under the advancement of religion include groups subscribing to doctrines from around the world. Some groups seem to include references to a deity in their "scriptures" as merely window-dressing. Particularly problematic are some New Age groups that foster "spiritual development," "personal growth," and "getting in touch with one's inner self." Another problem area is the promotion of one aspect or practice of a larger religious tradition. Thus, while meditation may be one form of Buddhist observance, we do not consider meditation groups on their own to be charitable.

Providing certain other benefits to the community

44. The fourth heading covers a miscellaneous group of purposes that the courts have at one time or another recognized to be charitable. It is essential to remember that not all purposes which benefit the community are charitable - only those that have been recognized by the courts. Before accepting a purpose as charitable, the courts will enquire whether the evidence before them supports the argument that the purpose is "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": Native Communications Society of B.C. v. Minister of National Revenue (1986), 86 D.T.C. 6353, at p. 6537.

45. In addition, to considering whether the purpose falls within the "spirit and intendment" of the Statute of Elizabeth,

46. That the law of charity is a "moving subject" has been demonstrated by the Federal Court of Appeal not only in the Native Communications case, but most recently when the Court was called upon to consider the status of FreeNets. The Court recognized these bodies as charitable by comparing their service as a conduit or medium for information to physical structures such as roads and bridges that facilitate the movement of people and objects. Reasoning from the fact that it was charitable to provide a bridge for general public use, the Court was able to accept the FreeNets as electronic "bridges": Vancouver Regional FreeNet Association v. Minister of National Revenue (F.C.A., judgment rendered July 8, 1996).[Footnote 12]

47. This heading includes major sub-categories like health, the relief of the aged, and the protection of the environment, as well as more obscure ones such as the rehabilitation of offenders and the preservation of heritage properties. I do not propose to deal with them individually, but would add one caution.

48. Under the fourth head, simply providing services to people is not charitable; the people being helped must face a special difficulty or need which the service is intended to ease.[Footnote 13] Quite clearly, it is not a precondition that the recipient of the service be poor; one can provide fourth-head charitable services even to the moderately well-off. However, offering a service such as specially adapted housing for seniors to those who have ready access to such housing through the commercial market raises the question whether the organization is bringing relief to its beneficiaries. "Relieving" in our opinion implies providing relief otherwise unobtainable by the prospective beneficiary.

49. To sum up to this point, the first requirement to be accepted as "charitable" in the legal sense is for an organization to establish that its purposes fall under one or more of these four major headings. In some cases, the courts have explicitly held that a purpose is not charitable. Thus a sports group, for example, cannot be registered because the courts have told us that the promotion of a sport is not a charitable purpose.[Footnote 14] The same goes for a group wanting to preserve the cultural heritage of a particular immigrant group: Williams' Trustees v. IRC, [1947] A.C. 447. In other cases, the courts have yet to rule. While the Charities Division is not obliged to accept applicants with purposes the courts have not passed judgment on, in practice it admits purposes that it believes a court would readily embrace.

Further Common Law Tests

50. The public benefit requirement. An ostensibly charitable purpose can still fail if it does not meet the public benefit test. There are two sides to this - how many people can benefit from the service offered by the charity, and whether the charity's services offer any tangible benefit to the community at large.

51. The number of beneficiaries. The potential beneficiaries of the charity have to be drawn from the public at large or from a sufficiently large segment of the population. This means at a minimum that organizations established for "private benevolence" are ineligible. Private benevolence in this context involves providing assistance to individuals with close ties to the organization's directors, or setting up an organization to help a particular individual or family.

52. We often hear about a person or family beset by calamity, and the public is usually quick to come forward with offers of support. However, the Division cannot register an organization to accept donations on this person's or family's behalf. Another example of private benevolence would be the attempt by parents of a handicapped child to establish a "group home" for their own child.

53. Determining what is a "sufficiently large segment of the population" depends on the charity's purpose. In general, restrictions on beneficiaries based on sex, ethnicity, religion, language, occupation, employment, etc. are not allowable, except in the case of relief-of-poverty charities. An occasional exception can also be made when making the restriction makes sense because it improves the charity's ability to carry out its mandate or it enables some special need in the community to be met. An argument could be made, for instance, to permit the restriction of a service as heavily dependent on oral interaction as psychiatric counselling to Italian-speakers in Toronto, given the size of the latter population and evidence being provided that unilingual Italian-Canadians were finding it impossible to obtain the counselling they needed.

54. A tangible benefit to the community at large. The charity must also demonstrate that by providing its services it is offering a tangible benefit, not simply to its immediate beneficiaries, but to all Canadians. Just as we support schools with our municipal or provincial taxes because we think that Canada as a whole benefits from a publicly funded school system and irrespective of whether we have school-age children attending these schools, so too organizations claiming to be charities have to establish that they are providing a service which is in the broader interest of the country.

55. It is usually taken for granted that charities relieving poverty, advancing education, or promoting religion can satisfy this aspect of the public benefit test, but it is a key requirement for fourth-head charities, especially newer ones seeking recognition. Yet even with the first three groups, the courts have occasionally demanded proof of benefit.

56. Usually problems arise here when the tangible benefit claimed is too remotely or nebulously linked to what the organization is actually doing. In one famous case, a court found a convent of cloistered nuns to be non-charitable in part because the organization could not produce any proof that its daily round of prayers offered anything of concrete value to the surrounding community: Gilmour v. Coates, [1949] A.C. 426. On similar grounds, the Division has turned down some environmental groups because they could not establish that their work would lead to any measurable improvement in the environment.

57. Any purpose that is illegal cannot provide a benefit to the country as a whole, nor can a purpose that is against public policy.

58. The courts also consider a political purpose to be incapable of satisfying the public benefit test, on the grounds that judges are unable to determine ahead of time whether a change of policy or legislation will tangibly benefit the country. Common law defines political purposes as those that:

• support a political party;
• support a socio-economic or political doctrine;
• seek to change public opinion on a broad and controversial social issue, such as abortion;
• seek to change, or resist change, to government policy or legislation.

Other requirements

59. In addition to having a charitable purpose that meets the public benefit test, there are a number of other common law requirements. I will briefly mention three.

60. First, there is the essential element of altruism: the organization must be established to help other people, not its own members. For this reason, groups formed from people who have come together to help themselves are ineligible. This extends to co-operatives, trade unions, professional associations, or any other group conferring benefits on its members.

61. Second, the organization must be established for exclusively charitable purposes. The organization cannot be half-in and half-out. This criterion most often comes into play with groups having a large social component in their activities, such as service clubs. Where the charitable aspects of an organization's work can be readily segregated from its other activities, a solution may be to establish a separate charitable trust for its charitable activities.

62. Third, the purposes for which the organization is established must not be broad and vague, but rather sufficiently precise in laying down what the organization can and cannot do, that the organization has no latitude to engage in non-charitable activities. Recently, the Federal Court of Appeal upheld the Division's denial of a registration in part because of the broad wording of the organization's corporate objects and the lack of focus in its activities:

• · The basic difficulty we find with the Society's application for charitable tax status is that its purposes and activities are so indefinite and vague as to prevent the Minister, and this Court, from determining with some degree of certainty what the activities are, who are the true beneficiaries of the activities and whether these beneficiaries are persons in need of charity as opposed to merely being in need of help. ... The Society, in our view, in being too many things to too many people has opened the door to purposes beyond the legal definition of "charity". (Vancouver Society of Immigrant and Visible Minority Women v. Minister of National Revenue, judgment rendered March 6, 1996.)

Conclusion (closing remarks)

63. Many approaching charity law throw up their hands at its complexity. The recent opinion of Hugessen J.A. is typical ("an obscure and not always consistent corner of the law": Vancouver Regional FreeNet Association v. Minister of National Revenue, judgment rendered July 8, 1996). However, the Charities Division has been making registration decisions on the basis of this body of law for nearly 30 years now. Its clientele includes many with no legal training whatsoever, and these "amateurs" have nonetheless successfully negotiated the path to registration. Indeed, we value these amateur applicants as offering a direct insight into what the general public currently senses as being charitable.[Footnote 15] Often enough too, these applications are easier to handle because their very lack of sophistication makes them more transparent and their intentions easier to grasp.

64. On the other hand, some amateur applications are so disorganized, grandiose, and nebulous that we have little alternative but to turn them down even though we suspect that there exists at their heart a potentially register-able entity. It is here particularly, I believe, that the legal profession can be helpful to an organization (and to the Division). In discussions with the organization's directors, you can aid the group to focus its efforts and develop a specific plan of action.

65. In doing this, you may find that the organization's purposes and activities are non-charitable in whole or in part, and there is consequently little point in sending in an application for registration. In preparing this paper, I reviewed a recent four-week period and identified 54 applications which the Division was doubtful would qualify. Some of these are described in Appendix C. Well over half these applicants appeared to fail on one or another of just three grounds:

• they were promoting a sport or sports;
• their purposes were broad and vague; and
• they were proposing to engage in unacceptable political activities.

66. Now I would submit that there is nothing particularly arcane about these three grounds, and I would urge you not to propose registration for a group that does not meet our requirements in these respects.

67. If the group appears to qualify and you submit an application, what can you do to smooth its passage? It is elementary to ensure that the application is complete, yet this is a message which it seems we have to keep repeating. Another thing to keep in mind is the need for examiners to feel comfortable with or to have trust in the materials they are reviewing. Examiners have highly sensitive antennae for indications that they are only being told part of the story. As well, there are a number of things that alert them to possible trouble:

• The objects for which the organization is established are the same as those used by another organization. Of course, this is not a problem when the two organizations are essentially identical, for example, two congregations of the same faith group. However, we do look at objects carefully (for reasons I will come back to below), and when we see the same wording being repeated constantly in organizations represented by a particular lawyer, the question arises whether this particular set of objects has any meaning for this particular applicant.
• The objects do not match the applicant's description of its activities or proposed activities. This is a variant of the previous factor. We suspect that the applicant has "borrowed" the objects of an existing charity, thinking this will facilitate registration. The upshot is the same; we can place no reliance on these purposes as a true statement of the applicant's goals.
• The directors listed are all members of the same law firm. To speed incorporation and registration, some firms name their partners or legal secretaries the first directors of the organization. If we get such an application, we are forced to question what weight to attach to its announced statement of activities since apparently its actual governing body has yet to be constituted.
• An incorporated applicant from Ontario does not have Letters Patent stamped with the Public Trustee's approval. We are forced to wonder why the organization is apparently trying to avoid the Public Trustee's office.
• An applicant, previously turned down, which disguises itself (perhaps by a change of name) and promptly re-applies in the hope of finding a more sympathetic examiner. Charity law may be antique; our computers are not.
• The applicant that is too eager to please or keeps changing its objects and activities on the basis of what it apparently thinks will satisfy us. Again, our problem is that we can have no confidence in what we are being told.

68. I believe the moral of the story is evident. Short-cuts can lead to long detours.

References

• Income Tax Act, R.S.C. 1985 (5^th supp.) c. 1.

APPENDIX A

• Application Form (T2050) for Registration

APPENDIX B

• Revenue Canada Publications Relating to Registered Charities
• (Dates indicate the publication date of the most recent version)
• Interpretation Bulletins
• IT-110 Deductible Gifts and Official Donation Receipts (1986)
• Special Release (1989)
• IT-111 Annuities Purchased From Charitable Organizations (1995)
• IT-226 Gift to a Charity of a Residual Interest in Real Property or an Equitable Interest in a Trust (1991)
• IT-244 Gifts by Individuals of Life Insurance Policies as Charitable Donations (1990)
• IT-288 Gifts of Capital Properties to a Charity and Others (1995)
• IT-297 Gifts in Kind to Charity and Others (1990)
• IT-407 Disposition After 1987 of Canadian Cultural Property (1990)
• IT-419 Meaning of Arm's Length (1995)

Information Circulars

• 75-23 Tuition Fees and Charitable Donations Paid to Privately Supported Secular and Religious School (1975)
• Information Letter (n.d.)
• 77-6 Registered Charities: Designation as Associated Charities (1977)
• 78-10 Books and Records Retention/Destruction (1989)
• Special Release (1995)
• 80-10 Registered Charities: Operating a Registered Charity (1985)
• 84-3 Gifts in Right of Canada
• 87-1 Registered Charities - Ancillary and Incidental Political Activities (1987)
• Information Letter (n.d.)

Forms

• T2046 Tax Return Where Registration of a Charity is Revoked (1995)
• T2050 Application for Income Tax Registration for Canadian Amateur Athletic Associations and Canadian Charities (1995)
• T2094 Registered Charities Application to Reduce Disbursement Quota (1989)
• T2095 Canadian Charities Application for Re-Designation (1991)
• T2140 Part V Tax Return - Tax on Non-Qualified Investments of a Registered Charity (1996)
• T3010 Registered Charity Information Return (1997)
• T3011 Application for Designation as Associated Charities (1996)

Other Publications and Guides

• P113 Gifts and Income Tax (1995)
• T4033 Completing the Registered Charity Information Return (1997)
• T4063 Registering Your Charity for Income Tax Purposes (1995)
• T4118 Auditing Registered Charities (n.d.)

APPENDIX C

• Examples of Organizations Unlikely to Qualify for Registration

The following 24 organizations are typical of those found unlikely to qualify in a recent four-week period. The wording below does not necessarily reflect the formal purposes for which they were constituted, but rather examiners' summary of their essential aims.

1. To promote golf through organizing a golf tournament for boys.
2. To honour past and present sports achievements by a town's citizens.
3. To promote soccer among members of a particular group.
4. To raise funds for a sports team.
5. To voice opposition to unreasonable restrictions on the recreational use of firearms.
6. To support the struggle of a particular group.
7. To assure the heritage designation of a particular building is maintained.
8. To propose zoning changes to preserve a park.
9. To educate young people about chastity.
10. To foster peace and non-violence in the community.
11. To help children in war-torn countries.
12. To promote and maintain a safe environment, creating opportunities for everyone to reach their full potential.
13. To conduct fund-raising and promotional events related to an entertainment industry.
14. To hold an annual festival to promote tourism.
15. To hold an annual festival focused on social, entertainment, and recreational activities.
16. To financially assist brides, grooms, and their families to arrange marriages.
17. To perpetuate the culture and traditions of a particular group.
18. To support ethno-cultural groups and encourage members to retain their culture.
19. To promote and support youth recreational activities.
20. To help the young and promote their talents.
21. To promote leadership skills among youth, business leaders, and the community.
22. To form a cottagers' association to improve a lake's environment.
23. To publish a newsletter providing information to various seniors' groups.
24. To construct and operate housing for adults.

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Footnotes

[Footnote 1]

The proportion gaining registration is inflated somewhat because it includes applications or reinstatement of registration, submitted by organizations removed from the register for failure to file their annual returns. Nearly all these applications for reinstatement succeed. If only new applications are considered, the success rate would drop to around 65 per cent.

[Footnote 2]

Most of the Division's audits are carried out under contract by Consulting and Audit Canada. Occasionally, the Division will audit an applicant prior to registration.

[Footnote 3]

However, with organizations established to bring emergency relief to victims of natural disasters, the Division will try to provide same-day service. In other cases where the registration delay will seriously hurt an organization - for example, where a substantial donation will be lost if the organization is not registered before a certain date - the procedure is to write to the Assistant Director, Applications Examination Section, and request priority treatment. These requests are often denied; the Assistant Director has to have a good reason before interrupting the natural flow of work.

[Footnote 4]

You can obtain copies of all forms and other publications mentioned in the text by contacting the Charities Division or a tax services office. Please see the Revenue Canada entry in the Government of Canada section of the telephone directory for the telephone number of your local tax services office. Appendix B contains a list of departmental publications relating to charities.

[Footnote 5]

A registered charity's "branch, section, parish, congregation or other division" that collects donations on its own behalf can also be registered separately even though it has no governing documents to establish its legal existence (ss. 248(1), registered charity). Normally, we require a letter from the head body acknowledging that the branch is fully subject to the provisions in the head body's governing documents, but see Registering a Charity for Income Tax Purposes for further details.

[Footnote 6]

All statutory references in this paper are to the Income Tax Act.

[Footnote 7]

The exceptions are the charities we designate (see below) as private foundations that are not allowed to carry on any form of business activities.

[Footnote 8]

The Act actually uses the broader term "qualified donees." These are all the organizations listed in paras. 110.1(1)(a) and (b) to which a corporation may make tax-assisted gifts.

[Footnote 9]

Besides carrying on its own activities, a Canadian charity can also operate by making gifts to qualified donees. However, the only non-Canadian qualified donees are the United Nations and its agencies, a university listed in Schedule VIII of the Income Tax Act Regulations (i.e., one prescribed to have a student body which ordinarily includes students from Canada), and a foreign charity to which Her Majesty in right of Canada has recently made a gift. Because there are so few non-Canadian qualified donees, in practice almost all registered charities working outside the country have to satisfy the "own activities" test.

[Footnote 10]

Report of the Charity Commissioners for England and Wales for the year 1969. London: H.M.S.O., p 6.

[Footnote 11]

A summary of the caselaw can be found in Barralet v. Attorney General, [1980] 3 All E.R. 918, at pp. 924-5.

[Footnote 12]

The Division will now register FreeNets, but cautions that it is not prepared to register every computer service that is offered to the public, nor on the basis of the D'Aguiar decision does it recognize as charitable the provision of information - as opposed to a medium permitting the public to exchange information.

[Footnote 13]

Joseph Rowntree Memorial Trust Housing Association Ltd v. Attorney General, [1983] Ch. 159, at p. 174.

[Footnote 14]

In the United Kingdom, the Charity Commissioners in their 1989 Report (London: H.M.S.O., p. 15) have declined to follow the lead of the court in Re Laidlaw Foundation (1985) O.R. (2d) 549 and recognize the promotion of sports as a charitable means of promoting health. The Federal Court of Appeal has made clear that, for income tax purposes, the definition of charity remains based entirely on common law rather than the statutory definition found in legislation like the Ontario Charities Accounting Act: Toronto Volgograd Committee v. Minister of National Revenue (1988) D.T.C. 6192, Canada Uni Association v. Minister of National Revenue, [1993] 1 C.T.C. 46.

[Footnote 15]

The opinion of an organization and its supporters as to its charitable status is in no way determinative: In re Pinion, [1965] 1 Ch. 85 at pp. 105-6. However, the law of charity does reflect changing social needs and perceptions. Examiners accordingly have to be sensitive to these trends.