The CRA’s Charities Directorate continually develops and updates a variety of policies and guidance for public consumption that are presumably predicated on their own internal policies. It has an extensive list of policies available online that are aimed at registered charities, voluntary sector professionals, and (according to its website) its own officers. The CRA’s wording can be misleading, especially for those without a legal background, so let us be clear: CRA policies are not law.
It is easy to mistakenly think that they are. For example, one of the self-professed goals of the policies is “explaining the common law meaning of charity.” The truth is the policies merely explain how the CRA interprets the “common law meaning of charity”. Although the CRA is an agency of the federal government, it does not have a monopoly on the accurate interpretation of the law. If that were true, there would never be any sense in litigating disputes with them. These policies are useful insight into the assumptions the CRA works from in applying the law, but that is the extent of their authority.
Not only can the CRA wrongly interpret the law, it occasionally makes statements in its public guidance documents that seem like clear misreadings of the black letter of the law. We were recently reminded of this when we came across the following statement in a CRA policy on what constitutes an acceptable ‘related business’ for a charity to operate:
The Income Tax Act defines related businesses as including those businesses that are not related to the charity’s objects but which have substantially all those employed in the business serving as unpaid volunteers….The people “employed” in the business means the people the charity “uses” to operate the business. It includes those working for the charity under contract as well as the charity’s direct employees.” [Emphasis ours]
Here is the actual provision, for comparison:
“related business”, in relation to a charity or Canadian amateur athletic association, includes a business that is unrelated to the purposes of the charity or association if substantially all persons employed by the charity or association in the carrying on of that business are not remunerated for that employment; [Emphasis ours]
There are some obvious inconsistencies here. The provision uses the words “employee” and “employment”. These are terms that are clearly defined in that same Act in a way that clearly does not include contractors. The CRA is perfectly aware that employees and contractors are two wholly distinct legal categories with important tax ramifications, as many a small business has discovered in court. The provision also does not say “unpaid volunteers”. The CRA’s definition is not simply a restatement of the law, though it is framed that way; it is the law as filtered through various assumptions made internally at the CRA, and in some cases those assumptions seem to directly contradict the wording of the law.
That example is drawn from a law codified in a statute. But the law of charity in Canada is largely common law, meaning that it is cobbled together from a variety of court judgments and legal traditions. There is no statute in Canada that clearly states what is or isn’t charitable, or even what the test for charitableness is. This has the advantage of flexibility, but it also leaves endless vague areas which must basically be dealt with by way of individual judgment calls until an actual judge steps in to clarify (or, sometimes, muddle the issue even further). We leave it to the reader to imagine how much subjective interpretive work this requires on the pages of the CRA’s policies.
Of course, the rub is that going against the CRA’s policies, whether legal or not, will still put a charity at risk of attracting its attention. The truth is that the analysts who make day-to-day decisions at the Charities Directorate are not lawyers. They are bureaucrats, and their training and job description is to know and apply the CRA’s policies. They have their own guides, written by the CRA, that they are instructed to follow. The charitable view, if we may, is that this makes for a certain uniformity of policy that is understandably necessary for a large government agency. But their guides are still neither inarguable nor legally binding. This is an important distinction that every member of the non-profit sector would do well to keep in mind.
 See http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/menu-eng.html
 CPS-019, “What is a Related Business?” para 18-19, available at http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cps/cps-019-eng.html
 Income Tax Act, RSC 1985, c 1 (5th Supp), ss.149.1(1)