By: Adam Aptowitzer
For many years the Income Tax Act contained a method by which certain foreign universities could attain ‘qualified donee’ status in Canada. That standing effectively amounted to being a Canadian registered charity. This allowed Canadian donors a tax credit for donations to these schools, and for Canadian charities to transfer funds directly to the foreign university. Mostly, these universities were treated differently than registered charities, but new changes to the Income Tax Act impose onerous requirements on these foreign universities – if they want to continue to benefit from their Canadian status.
Previously, the Federal Cabinet could add or remove foreign universities from the list of “Prescribed Universities” (colloquially called Schedule VIII Universities). This was done on the basis of relatively easy to satisfy criteria. But the recent Federal budget has eliminated the prescribed university mechanism leaving a registration (and importantly a deregistration) mechanism in place for such organizations. This system will grandfather Prescribed Universities in as Registered Qualified Donees but immediately imposes on them all of the same requirements as other registered charities.
Subsection 149.1(4.3) of the Income Tax Act states:
(4.3) The Minister may, in the manner described in section 168, revoke the registration of a qualified donee referred to in paragraph (a) of the definition qualified donee in subsection (1) [i.e. grandfathered Prescribed Universities] for any reason described in subsection 168(1).
And subsection 168(1):
168 (1) The Minister may, by registered mail, give notice to a person described in any of paragraphs (a) to (c) of the definition qualified donee in subsection 149.1(1) that the Minister proposes to revoke its registration if the person
(a) applies to the Minister in writing for revocation of its registration;
(b) ceases to comply with the requirements of this Act for its registration;
(c) in the case of a registered charity or registered Canadian amateur athletic association, fails to file an information return as and when required under this Act or a regulation;
(d) issues a receipt for a gift otherwise than in accordance with this Act and the regulations or that contains false information;
(e) fails to comply with or contravenes any of sections 230 to 231.5; …
Together these provisions make it clear that foreign universities can be revoked for any of the same reasons as registered charities.
The system of rules imposed on registered charities are complex and are imposed both on the collection of revenue and its spending. In theory, all of these rules now apply to foreign universities. The most frustrating element of this situation is that the Canadian regulatory regime was designed specifically to ensure the integrity of a system that gave registered charities special tax status in Canada. There may be no equivalent justification to impose these rules on foreign entities – particularly as these universities may well be subject to onerous, and potentially conflicting, laws in their home countries.
One would also have to assume that, as a percentage of total revenue, Canadian donations account for a small percentage of total revenue of a foreign university so why should the CRA be allowed to impose the Income Tax Act (and CRA’s own rules) on the entirety of a foreign organization’s operations? And more to the point, why would such an entity accept their imposition?
We have to imagine the CRA recognizes these philosophical questions and will be reasonable in its exploration of the activities of foreign universities. Many of these institutions are world renowned with budgets that are in the hundreds of millions of dollars, to revoke them as foreign universities in Canada would make Canada look foolish and not the universities. Moreover, absent any compelling connection with a Canadian donation we see no reason why the CRA would have any particular concerns with the operations of a foreign university. Nevertheless, we await further clarification from the CRA or Parliament about the extent to which Canadian tax rules are applied to the Harvards, Oxfords and Stanfords of the world.