STAY OF EXECUTION: A PRECEDENTIAL WIN FOR A CHARITY AT THE FEDERAL COURT OF APPEAL
by Adam Aptowitzer
The charities community is well aware that the Canada Revenue Agency works to shut down charities it feels are deserving of such a punishment. In some circumstances, notably, but not exclusively, with respect to charities involved in tax shelters, the CRA works to finalize the charity’s revocation within thirty days of its Notice of Intention to do so (we have written on the issue before).
Four charities have in fact applied to the Federal Court of Appeal for what amounts to a stay in the finalizing of the revocation. All four of those charities lost. However, in a case we argued (Cheder Chabad v. HMQ) on an urgent basis before the Federal Court of Appeal the Court has for the first time granted such a stay. In this case, the Notice of Intention to revoke was dated July 5th, 2013 and the Minister proposed to finalize revocation by publication in the Canada Gazette delivered August 16th, 2013.
The case involves a mixed religious-secular school operating in Toronto. Readers may know that such schools are entitled to issue receipts for the portion of tuition paid towards religious studies. The actual calculation of this amount was one of the issues at the heart of the revocation. Another major factor was the valuations used by the charity in receipting gifts in kind.
Originally, the school asked the Court to halt delivery of the Canada Gazette until the merits of a longer stay could be heard. As it turned out the copies of the Gazette containing the revocation had already been printed and were set for distribution. However, as a result of the urgent motion being placed before the Court every copy of the Canada Gazette was recalled from distribution and destroyed, and publication of the Gazette was delayed until such time as the revocation could be extracted from the print and electronic version. This in itself seems to be without precedent.
The substantive matter was then heard before the Court and resulted in a ruling which clarifies the tests by which a charity may win a stay in the immediate publication of revocation. The first test requires that there be a serious issue to be tried, the second that irreparable harm will result if a stay is not granted and the third that the balance of convenience favored the applicant charity. The balance of convenience test refers to the fact that sometimes it is too difficult to put the genie back into the bottle.
The serious issue argument is rarely contested and the CRA agreed in this case as well that the matter was serious.
On the other hand, the Court’s consideration of the irreparable harm test was, in some ways, novel. Specifically, the Court had before it evidence of harm to third parties (i.e. the students) and used that to satisfy the test. Irreparable harm means harm will result which monetary damages cannot adequately compensate. But, the Court in this case noted that it is impossible to claim monetary damages from the Minister of National Revenue in the execution of his/her duties anyways, so the test would seemingly always be resolved in favour of the charity. Consequently, and for the first time, the Court found that of the three tests the balance of convenience test must be given the greatest weight. This in itself may prove very useful for charities facing similar dilemmas in the future.
Obviously, the balance of convenience test was also resolved in favor of the applicant charity. In this case again the inconvenience facing the various students outweighed the Minister’s duty to administer the Income Tax Act and potential damage to the integrity of the tax collection mechanism.
One imagines that the CRA only uses its ability to finalize revocation of charitable status in circumstances in which the charity wouldn’t meet the legal test for a stay – at least in the CRA’s judgment. Unfortunately the CRA’s decision to take precipitous action involves a calculation of aggravated non-compliance rather than the harm which might result to the charity and, more importantly, the beneficiaries that rely on it. One would hope that due consideration can be given to those charities which, though they may be accused of serious non-compliance nevertheless do good for others. This case will undoubtedly serve as a precedent for others, but one hopes that its biggest influence will be on CRA policy.