eCaseNote 2016 No. 03

Helping the Poor and Those with More: Risking Charitable Deregistration

Credit Counselling Services of Atlantic Canada Inc. v. Canada (National Revenue), 2016 FCA 193

Countering poverty is a noble and complex objective. A recent Federal Court of Appeal decision draws a distinction between poverty prevention and poverty relief that may not be apparent to all those engaged in anti-poverty work. Although the alleviation of poverty and the prevention of it may be interconnected goals, the benefits of charitable status may not accrue to organizations pursuing poverty prevention.

Credit Counselling Services of Atlantic Canada Inc. (CCSAC) was incorporated in 1993 and engaged in providing credit counselling services, an education outreach program and a debt management program. It aimed to prevent poverty through these activities. Charitable status results in significant tax savings, and in the year of its inception, CCSAC was informed by the government that it qualified as a registered charity under the Income Tax Act.

Twenty years later, the charitable registration of CCASC was annulled by the Minister of National Revenue on the basis that CCASC’s activities were not exclusively charitable. The CCASC challenged the decision in court.

The Heads of Charity

Not every socially beneficial activity can acquire charitable status. There are three main recognized charitable purposes: the relief of poverty, the advancement of education, and the advancement of religion. Additionally, there exists a fourth category that includes a variety of purposes that have been deemed in law to be of public benefit to the community.

A charity’s purpose must fall into one of these categories, and all of its resources must be dedicated to that purpose.

CCASC argued that poverty prevention was a kind of poverty relief. The relative nature of poverty makes it a slippery concept; the standard for poverty differs across regions, and measuring it is no easy task. Regardless, the word “relief” of poverty implies that the beneficiary of the charitable activities must currently be in a state of poverty—however defined—rather than merely at risk of falling into it.

The judge of the Federal Court of Appeal pointed out that there was no indication that CCSAC screened its clients so as only to assist the poor. The people assisted by Credit Counselling Services of Atlantic Canada included some who were employed and in the possession of some assets. For the judge, this was enough to indicate that CCASC was not exclusively pursuing the relief of poverty.

As well, the judge remarked that in the United Kingdom, the applicable legislation was amended by Parliament to explicitly include poverty prevention as a kind of poverty relief. He reasoned that if the task required Parliamentary action in the United Kingdom, he would be overstepping his role as a judge by accepting CCASC’s interpretation.

Defining Public Benefit

The CCASC also argued that the prevention of poverty could be considered charitable under the auspices of the fourth head of charity. To fall under the fourth head of charity, an organization must show more than a public benefit in a loose or popular sense; the benefit must be analogous to those purposes already recognized in law as charitable. If the stated purpose can be pursued in a clearly non-charitable way or for private advantage, the purpose cannot be deemed charitable.

The judge found that the CCASC failed this test. CCASC assisted individuals who clearly benefited financially from CCASC’s services, but this could be considered a private advantage, not beneficial to the community at large.

Lessons for organizations

Any charitable organization should be aware that its charitable registration is never a sure thing. CCASC operated as a registered charity for twenty years, and although its purposes and activities stayed consistent, the Canada Revenue Agency’s interpretation of its charitable eligibility changed. Since the Income Tax Act does not define charitable purposes or activities well, court decisions and legal doctrine are necessary to fully understand charitable eligibility. The Interpretation Bulletins and policy statements posted online by the CRA can help organizations stay up-to-date with how the CRA understands and applies its own rules. However, since these bulletins do not have the force of law, organizations that have access to legal counsel would be prudent to seek periodic input on charitable status retention.

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