Several years ago, we argued a case to the Supreme Court of Canada. In the Guindon matter the director of a charity (and not incidentally its legal advisor) was fined for signing tax receipts, which turned out to be false, in circumstances which amounted to ‘culpable conduct’. The Act defines culpable conduct as:
…conduct that is tantamount to intentional conduct, or that shows an indifference as to whether the Act is complied with, or that shows a wilful, reckless or wanton disregard of the law.
When the matter was initially before the Tax Court, Justice Bedard held that:
Because “culpable conduct” should only be found to exist in strong cases of gross negligence, I am of the opinion that evidence of mens rea is necessary in order to make a finding of “culpable conduct.” Furthermore, the courts should be looking in such cases to find conclusive proof of culpable conduct.[1] [2]
It is against this backdrop that Budget 2021 has expanded the CRA’s ability to suspend or revoke a charity’s registration if it provides statements to the CRA in support of its registration that are found to have been in made in circumstances amounting to culpable conduct. Of all that we have read in this year’s budget, or indeed in many others, these provisions are most troubling.
It should go without saying that charities should not be able to intentionally lie about their affairs in order to preserve their charitable registration, but many charities are simply ignorant of the laws and the CRA interpretations of the law. By importing the definition of ‘culpable conduct’, Parliament may have imposed a positive responsibility on the charity and its representatives a responsibility to ensure certain basic knowledge of that most complicated statute – the Income Tax Act.
The clear response to this concern is to point out that Guindon requires that the maker of the statement have a certain level of intention in making misleading statements to the CRA, but the context of charity appeals effectively neuters this objection.
It should be remembered that the vast majority of charity sanctions are revocations (in fact suspensions are so rare as to be almost unheard of), and that appeals of those revocations go to the Federal Court of Appeal. As the entire charity bar has pointed out many times, the Federal Court of Appeal is not a trial court and it does not weigh or test evidence. Rather, its job is to apply the current standard for determining whether the CRA’s decisions were made in accordance with the law. There is no room to adduce new evidence and precious little to challenge whatever is amassed in the file before the Court.
In this environment, particularly where there is no room for oral testimony, how could one ever make the case that the statement was made innocently and not with a guilty intention? Fundamentally then, the current situation simply allows the CRA to make the allegation that that a false statement, any false statement[3], was made to the CRA in circumstances that were not entirely innocent (keeping in mind that the charity should have known better is not entirely innocent) and revocation is almost assured.
Our system of charity regulation is broken, well and truly broken. And when Parliament cynically takes advantage of this broken system to impose true barriers to justice, we have to go back to the drawing board and rethink our method of regulating the sector.
[1] https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/30972/index.do?q=guindon#_ftn8 para. 94.
[2] Mens Rea is the legal term for a guilty frame of mind.
[3] Keep in mind the recent case where the CRA disallowed receipts issued to a donor that used his middle name rather than his first name – https://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/495401/index.do.