Town Youth - Workshop: Meet the Bureaucrats

Reference Number
CES - 010

Date
March 25, 2000

1. I'm going to give you a brief description of what we, at the Charities Division of Canada Revenue Agency do, and why we do it!

2. As you may know, Revenue Canada became an Agency on November 1, 1999: we are now known as the Canada Customs and Revenue Agency (Canada Revenue Agency).

3. However, our function remains the same, as far as registering organizations that qualify as charitable. And this is definitely one of our principal functions.

4. Some of you may have applied and have been successful in getting registered as a charity. During the application examination process, as you may have experienced, there is a certain amount of documentation required, and the information you submit is reviewed in detail. When you receive your notification of registration, you become responsible for complying with operational rules that include:

• issuing receipts in accordance with the Income Tax Regulations.
• keeping adequate books and records [see Information Circular 78-10R3 Books and Records Retention/Destruction]
• spending a minimum amount, also known as the disbursement quota, on charitable activities.
• For a charity this is generally 80% of the amount for which it issued receipts in the previous year. (For a foundation the formula is more complex.)
• filing on an annual basis Form T3010, Registered Charity Information Return

5. There can be definite drawbacks to being registered as a charity. If you are not going to be issuing receipts to donors - perhaps because you receive all your funding from a government body or because you run programs that pay your operational costs, then maybe registration as a charity isn't for you. On the other hand, you may need to be registered to receive grants from foundations or other bodies that raise funds. Or you may need to seek charitable registration in order to be tax exempt.

6. I understand that many of you are either planning to apply for registration, or have applied and are either in some stage of processing or have been turned down.

7. If you've applied for registration and have been turned down, then you likely know that our job at the Charities Division is to determine if what you do is charitable as this term is understood in the courts (since the term charitable is not defined in the Income Tax Act).

8. There are four main categories for charitable registration - and an organization's activities may be a blend of one or more of these categories. They are:

• the relief of poverty
• the advancement of education
• the advancement of religion
• certain other purposes that are beneficial to the community as a whole in a way which the law regards as charitable.

This latter purpose includes such purposes as:

• the relief of the aged,
• relief of the sick and disabled,
• social rehabilitation (e.g., orphanages - but this sub-category is fairly restricted),
• protection of life, limb and property, (e.g., fire brigade),
• certain patriotic purposes (e.g., defense of the country),
• the prevention of cruelty to animals,
• the provision of facilities for community recreation,
• the protection of the environment,
• the promotion of industry and commerce generally, and
• municipal betterment and the relief of tax.

Not intended as a catchall, this category simply comprises purposes that have been held charitable as a result of previously decided cases, or else purposes that have historically been held charitable.

9. The applicant organization must be carrying on activities and/or programs that will achieve purposes that fall within the commonly accepted bounds of charity.

10. The documentation we request and you provide is what we base our decisions on. Every applicant must have a governing document that clearly sets out its intentions, describing its objectives in such a way that ensures the organization will only carry on certain activities and programs. This is important because, as some of you may have already experienced, if you have objects that are broad and/or vague, your organization will not qualify, even if its activities are all charitable. For example, if you offer training in life-skills and run a thrift shop as a training experience for teens, you will need objects to cover each of these specific purposes. But an object such as "to operate a workshop for youths" would not likely be acceptable because it could allow for many kinds of activities other than these, some of which activities may not be charitable. In this instance, we usually will ask the organization to reword its objects to restrict them to charitable purposes.

11. Depending on the organization, the governing document may consist of Letters Patent (an incorporating document), a trust document or a simple constitution. The objects or purposes in the governing document should describe as precisely and clearly as possible what the organization intends to achieve (or already achieves). The constituting documents should describe who the beneficiaries are; how the charity plans to benefit them, and why it plans to benefit them in that way. This must be clearly expressed in the constituting documents. It is not sufficient to attach supporting material in the application process that confirms this.

12. An applicant must also provide a detailed Statement of Activities describing how the objects are going to be carried out. For example, if you have as an object "to provide counselling for youth", you may have several activities and/or programs that you carry out to accomplish that objective. You may have a walk-in clinic where youths can go to seek advice in dealing with problems such as family abuse, peer pressure, etc. You may operate a crisis-line, and you may have a shelter for youth in distress. The first 2 activities would be acceptable under the object given, but the last activity would require another or different object in the governing document.

13. There is also a 2-part test: The courts, in deciding cases, have adopted the practice of examining both the stated objectives and the activities/programs that must both be charitable in order for an organization to qualify. The examiners often have to contact an applicant to obtain the information or documents needed in order to determine if that organization will meet the definition of a charitable organization according to the Income Tax Act. The Act requires that a charity devote all its resources to its charitable activities.

14. So what is charitable? I described the four main categories a few moments ago. But there are other considerations: each of these categories is, to a greater or lesser degree, subject to a public benefit test- which means that the purpose must also be of benefit to the public - and not just one segment of the public, for example, the employees of a business. However, it is acceptable for an organization to direct its activities at youth, as opposed to the whole community, provided that what it does is charitable and addresses problems faced by youth.

15. Other considerations include the absence of a political motive, and of course, a non-profit provision and no private benefit to members, officers, etc.

16. I'd like to discuss some of the ways that an applicant organization can help youth in order to qualify for registration.

17. To begin with, simply "assisting" youth is not enough to qualify as a charitable purpose. Providing relief to the elderly, the sick and the disabled, and youth, are all recognized under the fourth category I described earlier. For example, an organization that is directed at helping youths must address particular problems faced by youth. In other words, an organization's purposes must be logically stated so that a charitable purpose is reasonably implied, for example "to operate a home for the elderly", "to operate a community eye clinic", to provide tutoring lessons to high school students". This is why some organizations that help youth qualify, while others don't.

18. What's important is WHAT the organization is going to do, and that the purpose of the organization is charitable within one of the four categories described above. The purposes of the organization should be directed at alleviating a problem(s) faced by youth that falls under one of the 4 categories. To say you are just helping youth is not in itself enough to qualify as charitable. You need to show HOW you are helping youth with problems to deal with those problems.

19. Helping young people who have dropped out of school might be accomplished by providing tutoring, or counselling to encourage students to go back to school. Helping young people who are addicted to alcohol or drugs might be alleviated by providing rehabilitative services. These are examples of activities that would be acceptable for an applicant organization that is helping youth.

20. There are different types of assistance that could be provided under the 4 categories. Organizations that help youth that are poor will likely qualify, provided what they are doing is aimed at helping them with the effects of poverty. If an organization is formed to provide breakfasts at school for young people coming from poor families, then this purpose would qualify under the heading relief of poverty, since the main activity is aimed at alleviating a condition of hunger associated with poverty.

21. Under the advancement of education, an organization can be established to provide music scholarships for young people who want to continue their studies in the music field. Other possibilities include:

• job skills training and employment assistance organizations. An example of an object for such an organization would be: "to enable university students to gain practical business training and experiences, particularly in the areas of decision-making and business responsibility".
• citizenship/leadership skills. Skills that are used outside the classroom include outings and exchange programs, programs to develop positive emotional and moral maturity.
• life-skills training: Skills could include mentoring, anger management, how to cope with peer pressure, how to apply for a job, how to manage money.
• teaching skills: These could vary from classroom skills to school related skills such as teaching schoolchildren how to play soccer, or chess or a particular sport as a function of the school physical education curriculum.

22. A religious organization that provides religious training or a religious summer camp for young people would likely qualify under the heading of the advancement of religion.

23. There are several possibilities under the fourth category of "certain purposes beneficial to the community as a whole in a way which the law regards as charitable":

• community organizations for youth usually include a blend of activities such as counselling and healthy recreation in a workshop-type setting. An example of an object might be: "to establish and operate a community youth organization to provide crisis counselling, workshops, athletics, instruction in handicrafts and opportunities for healthy recreation in order to prevent and address problems of delinquency and substance abuse"
• detox/rehabilitation centres. Counselling services and programs aimed at helping drug users, alcohol abusers, etc. are charitable as providing relief to the sick and disabled.
• recreational facilities. While simply providing recreation would not qualify as charitable, providing a public facility for recreation might qualify, for example, a community centre where youths can play sports and games in a supervised environment [provided the playing of the sport does not eclipse the basic fact that this is a community facility for the use of youth or youth organizations at large].
• social activities. While social activities are not in and of themselves charitable, it may be that structured activities with a social theme could be acceptable, particularly if these activities are secondary to other programs that easily fall under one or more of the categories described above. An organization that provides training for young people in how to set up their own business, may also carry on some auxiliary social activities such as youth dances or theme nights provided those activities were overseen by responsible staff. The underlying purpose of the social activity must be charitable.

24. In the context of these social activities and programs, we will be looking at how the programs are conducted, who supervises them, how much supervision is provided, what the credentials of the supervising officers are. The key factor is that the activity has an interactive and formative aspect to it.

25. There are also different types of facilities that may or may not qualify as charitable. Bear in mind that there are many different combinations and variations and each one must be weighed on its own merits.

26. Drop-in centres/coffee houses/dance halls:

• Simply making an environment available where kids will be off the street is not sufficient to qualify as charitable.
• There must be programs in place.
• There must be adult supervision at all times.
• There should be staff available who are trained to deal with the problems of young people - such as alcoholism, dropping out of school, drug abuse, prostitution, etc.

27. Sports facilities:

• An applicant that simply provides a facility with the intent to promote a sport or sports for youths would not qualify. The fact that sports occupy young minds is not sufficient. By analogy, an organization that serves only non-alcoholic beverages may be a good thing, but to argue that it is actively fighting alcoholism is a bit of a stretch. Note that an organization for adults that was established to promote sports would not qualify either. A community centre, by contrast, usually provides a blend of activities - some of which include sports activities, but with an overall intent of healthy recreation.
• However, if an organization provides instruction in how to play a sport or sports to young people who would not otherwise have the opportunity, provided this does not involve structuring the activities to allow play for the sake of playing the sport, this purpose could be considered charitable.
• The issue is whether the activity is a learning experience (hence educational) as opposed to being purely entertainment or recreation for recreation's sake.
• Organizations with charitable goals that incidentally include sports are charitable - such as Boy Scouts and Girl Guides. Again, the issue is whether the playing of the sport is for the sake of the sport or to teach life skills such as leadership or team-building (educational activities).

28. Recreational facilities:

• Promoting healthy recreation for the public specifically through the provision of public amenities, such as a community center, is generally charitable but encouraging competitive sport through the provision of such facilities is not.

29. Community centres:

• Generally, the purpose of a community centre is to provide a multi-purpose facility for the use of the public-at-large.
• A community centre does not focus on providing structured activities, such as sports.
• A community centre is used equally by all groups in the community, i.e., Scouts, craft shows, aerobics, bingo hall, etc.
• A community centre with a sports focus has as its overall purpose to promote a healthy lifestyle through physical activity in general.

30. An organization primarily involved in organizing sports programs rather than operating a physical facility, may still qualify as a charity by promoting healthy recreation. Physical activity as either an educational activity or straight recreation is charitable. However, an organization that is promoting a sport because it claims it's healthy, is not charitable.

31. I hope this has given you a basic understanding of what kind of youth organizations may qualify as charitable and why others may not.

32. Remember that our decisions are based on the facts we are given. We need to conciliate the facts of the application with the existing case law. Charitable applications run the gamut from AIDS in Native communities, to community economic development in India, to theatre on ice, to approaches that challenge traditional medicine. As well, there is an infinite variation in the facts between one application and another - even when dealing with applications from organizations that may look similar. What we need is your help in assessing the application. Don't assume we know everything - we don't - and even though our questions may seem strange or prodding to you occasionally, bear with us, because the more information we have, the better we will be able to assess your application.

33. When we make a decision on charity in a novel case, we can only go so far. We can register new types of organizations only if there is a reasonable analogy with existing case law. For instance, while the Canada Revenue Agency might give some credence to registering an organization that reaches delinquent youth through programs of pick-up basketball in the inner city, we would probably be very reluctant to register something as blatant as a basketball camp. Acknowledging sports as a stand-alone purpose is too much of a sea-change for us to agree to. The courts, similarly, might not recognize the promotion of sport as charitable. They refused to recognize it in the past, but they might be willing to set down new parameters through which some sports activities might be acceptable. The law does evolve, albeit slowly.

34. I want to offer you something positive here so I would suggest that if you know of a registered charity that you think is doing something very similar to what you are doing, you may want to draw on their objects and purposes. But you must be careful because whatever your stated purposes are, that is what you will be restricted to doing. Moreover, we will be looking carefully at your statement of activities and programs, and one thing we will look at is whether these activities are consistent with the purposes in your governing document.

35. When we receive an application, it may be examined by several individuals before a decision is reached. An application is first screened by a group who may register an applicant if all of the documentation has been provided, and there are no issues as to whether or not the objects and activities are charitable. On the other hand, the applicant may be asked to provide more information or documentation for review. If it's clear that the applicant qualifies, we will register it. The applications that take the longest are those that fail to provide enough information to enable us to reach a decision. Sometimes we have to go back to the applicants several times before we have a clear enough picture to allow us to evaluate their purposes and activities, to compare them with existing case law, and reach a decision as to whether they qualify for registration as a charity.

36. At each step there are staff able and willing to help you with your application. When in doubt, feel free to contact us - and we have a toll free number as I'm sure you know - and let's dialogue so that we can do our job and help those organizations to get registered that need and deserve to be charities.