By: Adam Aptowitzer
Over the years we have written many times of the constitutional truism that the responsibility for regulating the charity sector rests with the Provinces. It is only through the indolence of the Provinces in legislating in this area has the CRA become the regulator of charities in the public interest. From time to time, Parliament passes new rules which, although they may have dubious constitutional authority to do so, are important because proper regulation of the sector requires such a rule. The most obvious example are the ineligible individual rules (the “Ineligible Rules”).
Broadly, the Ineligible Rules attempt to exclude those who would be inappropriate from serving as directors of a charity. Amongst other grounds, are individuals who were, within the previous five years, convicted of an offence that is relevant to the operation of a charity. So, for example, an individual convicted of crimes against children could not be the director of a charity that services children. The rules extend far beyond this to include any financial offences, or even previously having served as the director of a charity that was itself revoked for ‘serious non – compliance’. (It should be noted that ‘serious non – compliance’ is not defined in the Act).
The prevailing opinion amongst charity lawyers is that these provisions are unconstitutional because the Federal government’s authority for legislating in the area is limited to those rules which are rationally connected to the imposition of an income tax. It is hard to see how these qualify. To make matters worse, charities cannot, by themselves, comply with the rules because of the difficulty in searching for an individual’s previous records, and so must rely on the CRA to let them know if an individual is, in the CRA’s opinion, ineligible to serve as a director.
The feeling that the CRA’s opinion on the matter could be overly broad, and result in misuse, was shared by Bob Wyatt of the Muttart Foundation with the Special Senate Committee on the Charitable Sector which recommended in its Report[1]:
That the Government of Canada review the “ineligible individual” provisions set out in section 149.1(1) of the Income Tax Act as part of a comprehensive review of the Income Tax Act provisions governing registered charities, other qualified donees and non-profit organizations.
So, it was surprising that Budget 2021 in fact broadened the use of the rule.
Budget 2021 proposes to amend the “ineligible individual” definition so that it includes an individual who:
- is, or is a member of, a listed terrorist entity; or
- in respect of a listed terrorist entity, was, during a period in which the entity supported or engaged in terrorist activities,
– a director, trustee, officer or like official of the entity; or
– an individual that controlled or managed, directly or indirectly, in any manner whatever, the entity.
The existing rule that requires the Canada Revenue Agency to only consider circumstances occurring within the preceding five-year period would not apply in relation to this measure.
Again, it is hard to argue that individuals who were previously involved in terrorist activities should be given the opportunity to corrupt the generous tax regime for charities to again promote nefarious purposes. On the other hand, by expanding the use of these rules the government has missed a golden opportunity to bring in the Provinces to legislate in what is constitutionally their jurisdiction for the benefit of all Canadians.
[1] https://sencanada.ca/content/sen/committee/421/CSSB/Reports/CSSB_Report_Final_e.pdf at page 125