Fitting a Square Peg into a Round Hole
by C. Yvonne Chenier, Q.C.
Anyone who has submitted a T2050 application for charitable status and has been rejected by the Canada Revenue Agency Charities Directorate knows the process can be quite frustrating. We spend hours with our clients to fine tune their documents and research the law to ensure that their application is complete and accurate and will ultimately result in the charitable registration from the CRA that they require to carry on their good work. The CRA, it seems, is trying to streamline this process and offer help for those charity wannabes. The good news is that over the summer, a new guidance was released that offers a glimpse into the thought process at the Charities Directorate.
A few years ago the Canada Revenue Agency Charities Directorate published what it was then calling “model objects” for use by those creating their charity with the hopes of ultimately securing registration as such under the Income Tax Act. Those who have used these model objects (which were initially only one or two pages long) might have found them lacking in many respects and had difficulty in fitting their charitable cause into the delineated objects. Recently, the CRA not only released a new guidance “How to Draft Purposes for Charitable Registration”, (CG-019), they also greatly expanded their model purposes (sometimes called objects but now mostly called purposes) on their website.
If one logically follows the process outlined in the new guidance getting charitable status should be relatively simple. Be aware that the CRA cautions that “using model purposes, or applying this guidance, will not in itself guarantee that an organization is eligible for registration. However, drafting purposes according to the approach set out in this guidance, or using model purposes, should facilitate the CRA’s assessment of an organization’s eligibility for registration under the Income Tax Act. Organizations that describe their purposes in a different way may still be able to show that the purposes meet Canadian registration requirements.” Based on what is discussed in the new guidance, the steps are as follows:
1. The purposes of your organization should closely resemble one of the ones listed on the now eight pages of model purposes.
2. If your purposes as initially drafted do not fit into any on the list then you must refer to the guidance and make sure you pay close attention not only to the general information in that guidance (general requirements for a purpose to be eligible for charitable registration) but also the specific information about the three required elements of a purpose (as the devil is often in the details in these matters). Indeed the guidance cautions “when drafting charitable purposes, the recommended approach is to err on the side of precision”.
3. The next step for any potential applicant is then to sit back and review the stated purposes of their organization to ensure that there is no broad or vague purpose (or one that could be construed as such by the CRA) as that would be a showstopper for any charitable registration. The guidance states that “Broad means the purpose may allow for both charitable and non-charitable activities and/or the delivery of unacceptable private benefits. Vague means the wording may be interpreted in different ways.” This is a very difficult hurdle for many reasons, least of which is the plain truth in that most common words can be interpreted in many different ways. However a skilled draftsperson can overcome this hurdle with use of more descriptive and precise words.
4. The next step is to give special attention to your stated activities under each of your purposes. How you describe your activities can catch you off guard as there are many activities that even though innocently intended could lead to you carrying on activities that are not charitable. This too could be a showstopper for the CRA. Put your activities to your own test and if in your wildest imagination, what you say your activities will be could lead to doing something that is non-charitable then you need to restate them.
5. Once you have got through all the above steps and you have presented a clean and charitable organization with clear charitable purposes and only purely charitable activities then you must refer to the other issues that CRA discusses in their guidance that may catch you unaware and be grounds to deny you registration. These would include things like clauses contained in your incorporating documents or bylaws that might be frowned upon by the CRA as not acceptable for a charity, even though the provincial authority granting your certificate of incorporation allowed it or perhaps encouraged it in their legislation. Back to the drawing board you will have to go to call a meeting of your members to amend your articles and in some jurisdictions even make an application to Court to make some of these changes.
If one gets through all of the above steps and pays attention to the details then a properly filled in T2050 in line with the purposes and activities in either the model purposes or following to the guidance should get you a charitable registration in no time. However if there is any chance that in the wildest extrapolated dreams of the CRA your purposes or activities might lead you to do anything that is not charitable (in the eyes of the CRA but not necessarily at law) then it would be back to the drawing board for you. Because then what you would be trying to do is fitting a square peg in a round hole and that will get you nowhere with the CRA.
 For the service standards of the CRA charities Directorate see http://www.cra-arc.gc.ca/chrts-gvng/chrts/bt/tlphn_srvc-eng.html