Date: 20150722
Docket: A-406-13
Citation: 2015 FCA 170
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CORAM:
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PELLETIER
J.A.
GAUTHIER J.A.
SCOTT J.A.
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BETWEEN:
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PUBLIC
TELEVISION ASSOCIATION OF QUEBEC
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Appellant
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and
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MINISTER OF
NATIONAL REVENUE
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Respondent
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and
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IMAGINE CANADA
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Intervener
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REASONS FOR
JUDGMENT
SCOTT J.A.
I.
Introduction
[1]
This is an appeal brought by Public Television
Association of Quebec (PTAQ) pursuant to subsection 172(3) of the Income Tax
Act, R.S.C. 1985 (5th Supp.) c.1 (Act), from the confirmation by
the Minister of National Revenue (Minister) dated October 31, 2013 of a
proposal under subsection 168(1) of the Act to revoke its registration as a
charity.
[2]
The Minister’s basis for revoking PTAQ’s registration
pursuant to paragraph 168(1)(b) of the Act was that it had ceased to
comply with the requirements of the definition of a charitable organization as
prescribed in subsection 149.1(1) since it failed to devote all of its
resources to its own charitable activities.
[3]
The Minister’s second ground for rescinding
PTAQ’s registration under subparagraph 149.1(2)(c)(ii) was that
it made gifts to Vermont Public Television(VPT) which is not a qualified donee
and asserted the position taken by the Canada Revenue Agency (CRA) that
paragraph 7 of article XXI of the United-States-Canada Income Tax Convention
(the Convention) does not operate to render a US charity a qualified donee.
[4]
For the reasons that follow, I would dismiss the
appeal on the ground that PTAQ has failed to show that the Minister’s
conclusion that it was not devoting all its resources to its own charitable
activities is unreasonable. In view of the fact that each of the grounds put
forward by the Minister is a sufficient ground of revocation, it is not
necessary for me to deal with the second ground advanced by the Minister.
II.
Statutory framework
[5]
The Act in its subsection 248(1) defines a
registered charity as either: “(a) a charitable organization, private foundation or
public foundation, within the meaning assigned by subsection 149.1(1), that is
a resident of Canada and was either created in Canada or established in Canada,
or (b) a branch, section, parish congregation
or other division of an organization or foundation described in paragraph (a), that is a resident in Canada and was either
created or established in Canada and that receives donations on its own behalf”.
In either case, the organization must have applied to the Minister in
prescribed form for registration and must be at that time registered as a charitable
organization, private or public foundation.
[6]
Subsection 149.1(1) defines a “charitable organization” as follows: “at any particular time, means an organization, whether or
not incorporated, (a) all the resources of which are devoted to charitable
activities carried on by the organization itself”.
[7]
The Act also defines a “qualified
donee” in subsection 149.1(1). It states that a qualified donee is: “at any time means a person that is (a) registered by the Minister and that is … (b) a registered charity”.
[8]
The first ground for the revocation of PTAQ’s
registration raised by the Minister can be found in paragraph 168(1)(b)
of the Act which specifies that the Minister may, by registered mail, give
notice to a person described in any of paragraphs (a) to (c) of
the definition “qualified donee” found in
subsection149.1(1) that the Minister proposes to revoke its registration if the
person ceases to comply with the requirements of this Act for its registration.
[9]
Whereas the second ground for revocation
advanced by the Minister rests on paragraph 149.1(2)(c)(ii) which
states that: “The Minister may , in the manner
described in section 168, revoke the registration of a charitable organization
for any reason described in subsection 168(1) or where the organization …c)
makes a disbursement by way of gift, other than a gift made …(ii) to a done
that is qualified done at the time of the gift”.
III.
Facts
[10]
PTAQ was granted charitable status on November
15, 1990, with an effective date of September 21, 1990, its date of
incorporation.
[11]
The objects of PTAQ, as stated in its Letters Patent,
are amongst others:
1. To advance education through the production, distribution and promotion
of non-commercial television programs and films that are educational in nature;
2. To produce, distribute, sell and promote educational television programs
and films;
3. To acquire and sell the rights to educational television programs
and films;
4. To engage in joint ventures or other arrangements for production,
distribution and promotion of educational programming for broadcast or carriage
of non-commercial television;
5. …;
6. …;
7. …;
8. …;
9. …;
10. To solicit, collect, accept, receive, hold, invest, reinvest and
administer gifts, legacies bequests, devises, funds, benefits or trusts and
profits of any sort or nature, without limitation as to amount or value, and to
use, apply, employ, expend, disburse, or donate the income or principal thereof
and generally to devote the same to any purpose of the corporation.
(Appeal Book, Vol. 1 pp.10-11)
[12]
On July 1, 1991, PTAQ entered into a
Fund-Raising Agreement (the Fundraising Agreement) and a Broadcasting Agreement
with Vermont ETV Incorporated (VPT), a public television station located in the
state of Vermont and a registered charity in the United States.
[13]
The Broadcasting agreement entered into by PTAQ
as principal with the agent VPT specifies in article 1:
1. Appointment
a) The Principal hereby appoints the Agent
its agent to produce or procure and to broadcast the non-commercial television
programs and films identified by the Principal in its annual list of
educational programs for television distribution (the “Programs”) copy of
which, for the 1991-1992 program year, is annexed hereto.
b) The Agent hereby accepts the aforesaid
appointment.
(Appeal Book, Vol. 7 p. 1417)
[14]
Furthermore, in article 4 of the Broadcasting
agreement, the relationship between PTAQ and its agent VPT with respect to Production,
Procurement and Broadcasting is delineated as follows:
b) The Principal shall prepare or have
prepared and shall submit to the Agent, not more than one hundred and twenty
(120) days and not less than ninety (90) days prior to the commencement of each
Program Year, a proposed list of Programs. The proposed list of Programs may be
based, in whole or in part, on recommendations made by the Agent to the
Principal. Within thirty (30) days of the receipt thereof, the Agent shall
furnish to the Principal a statement of the estimated costs of producing or
procuring, as the case may be, and of broadcasting each Program on the list
submitted by the Principal. The statement shall indicate, in addition to the
itemized estimated costs of producing or procuring the Programs and of
broadcasting them, the estimated total costs of delivering the Programs to the
public during the Program Year, including overhead costs which shall not exceed
15% of all other costs of delivering the Programs to the public, and shall be
accompanied by a proposed broadcasting schedule and a notice of any Program
which the Agent is unable to produce, to procure or to broadcast in the Program
Year. The Principal may, not less than sixty (60) days prior to the
commencement of the Program Year, amend the list of programs submitted to the
Agent, failing which it shall be deemed to have irrevocably directed the Agent
to produce or to procure, as the case may be, and to broadcast the Programs on
the most recent list submitted by the Principal, and such list shall constitute
the Principal’s annual list for the relevant Program Year of programs for
television distribution (the “Annual List”).
(Appeal Book, Vol. 7 pp. 1417-1418)
[15]
Article 5 of the Broadcasting Agreement defines
the obligations of PTAQ, the principal, for the payment of the programs
broadcasted by its agent VPT on its behalf.
a) Not more than thirty (30) days and not
less than ten (10) days prior to the commencement of each month of the Program
Year, the Agent shall submit to the Principal a statement listing the Programs
to be broadcast during the month as established by the Agent from the Annual
List and the estimated costs of producing or of procuring, as the case may be,
and of broadcasting each Program. The statement shall also indicate the total
estimated production, procurement and broadcast costs for the month and shall
be certified accurate by an officer of the Agent having knowledge of the
contents thereof.
b) Within then (10) days of its receipt of
the aforesaid statement, the Principal shall pay the Agent an amount equal to
the total estimated costs indicated in the statement.
c) Adjustments shall be made in the
following manner to ensure that the sum of the procurement, production and
broadcast costs paid by the Principal during the Program Year is equal to the
sum of the actual production, procurement and broadcast costs incurred by the
Agent hereunder.
…
(iii) The obligations of the parties to make
any adjustment pursuant to this paragraph 5 c) shall survive the expiration of
the term of this Agreement.
(Appeal Book, Vol. 7 pp. 1418-1420)
[16]
The Fundraising agreement entered into by PTAQ,
the principal, with the agent VPT defines the parties’ obligations with respect
to the direction and control of fund raising activities undertaken by the agent
(VPT) on behalf of PTAQ in articles 2 b), 3, and 5:
2. Fund-raising activities
…
2 b) The Agent agrees to promote the
Principal and, in particular, the non-commercial television programs and films
made available by the Principal and to inform prospective donors and donors of
its relationship with the Principal.
3. Direction by Principal
a) The Agent shall prepare and
submit to the Principal for approval a summary of proposed fund-raising
activities. The summary shall set forth:
(i) a schedule of fund-raising
activities;
(ii) a description of fund-raising
activities, including the medium and manner of such fund-raising activities and
any accompanying programs or films as well as the participation of any
celebrities or public officials;
(iii) a proposed budget for the
fund-raising activities.
…
5. Records and Accounts
a) The Agent shall record the date
and amount of each donation received by it on behalf of the Principal and the
name of each donor. Such records shall be submitted to the Principal on
request. A statement of total donations certified accurate by an officer of the
Agent having knowledge thereof, shall be submitted quarterly by the Agent to
the Principal.
b) All donations received by the
Agent on behalf of the Principal shall be for the account of the Principal and
shall be deposited daily in a bank account established by the Agent and
approved by the Principal and in the name of the Principal.
c) No monies received by the Agent
on behalf of the Principal shall be applied for the benefit of the Agent unless
the Agent has first received a written authorization from or entered into a
separate contract with the Principal authorizing the transfer of monies to the
Agent.
d) All donations received by the
Agent from persons resident in Canada shall be deemed to be donations received
on behalf of the principal.
(Appeal Book, Vol. 7 pp. 1429-1432)
[17]
On October 4, 2007, PTAQ received a Notice to
Audit from the CRA, applicable to the fiscal periods that ended on June 30,
2005 and 2006.
[18]
Following the audit, on March 23, 2009, PTAQ was
advised of the auditor’s position that it was non-compliant with the provisions
of the Act, as it failed to devote all its resources to charitable activities.
More specifically: “The audit findings revealed that
the Charity’s only activity for the fiscal period ending June 30 2006, was
simply the purchase of a program package from Vermont ETV for airing on certain
television stations. The programs identified by the Principal were Caillou,
Arthur, The News Hour and the Nightly Business Report” (Appeal Book, Vol.
1 p. 53).
[19]
PTAQ filed written submissions in response on
June 22, 2009 arguing that The News Hour and the Nightly Business Report were
educational. PTAQ also asserted that: “VPT is a
commercial-free broadcaster that operates on funds from government grant, donor
support and through relationships like the one it has with PTAQ. PTAQ, at all
times, retains a high degree of control over its activities and it is
actively involved in choosing the programs that it sponsors. PTAQ’s Board of
Directors determines the programming choices that it purchases and has
control over the funds received from its donors” (Appeal Book, Vol.
1 p. 59) [Emphasis added].
[20]
The Charities Directorate of the CRA issued, on
August 23, 2011, a Notice of Intention to Revoke pursuant to paragraph 168.1(b)
of the Act. In that letter it is specified that: “It is
our position that the activities of the Organization cannot be reasonably
interpreted as “advancing education through the use, creation, publication and
distribution” of educational materials, particularly since the Organization
does not create or publish television programs but rather serves to facilitate
broadcasting of programming developed outside its control and direction”
(Appeal Book Vol. 4 p. 690).
[21]
On November 21, 2011, PTAQ filed a Notice of
Objection under subsection 168(4) of the Act in which it reiterated that “PTAQ, at all times, retains a high degree of control
over its activities and it is actively involved in choosing the programs that
it sponsors. PTAQ’s Board of Directors determines the programming choices that
it purchases and has control over the funds received from its donors” (Appeal
Book, Vol. 4 p.713) [Emphasis added].
[22]
On April 4 2013 the Tax and Charities Appeals
Directorate responded to the Notice of Objection filed by PTAQ. The CRA
reaffirmed its position that the funding of The News Hour and the Nightly
Business Report on business programs were not appropriate educational
programming and also raised a more important concern:
However, before we continue our review of
the above issue, we decided to inform you of another serious concern that we
identified when we reviewed the file. Even if it was not the principal issue
discussed by the CD in its correspondence, we are of the opinion that it is a
fundamental issue that has to be raised.
In order to comply with the provisions of
the Act, a charity must maintain ongoing direction and control over its
resources and its charitable activities. This means that the charity must take
decisions concerning significant issues related to its ongoing activities and
maintain a record of the steps taken, as part of its books and records, to
allow the Minister to verify that the charity’s resources have been used for
its own activities. Where the charity conducts activities through an
intermediary, it should be in a position to establish by credible evidence that
the activities are, in fact and in law, carried on by the charity itself. We refer
you to the CRA’s Guidance “Using an Intermediary to Carry out a Charity’s
Activities within Canada” (document attached).
…
In your representations, you indicate that
the Organization maintains direction and control over activities and the
funds received from its donors. In our view, this has not been demonstrated.
Our understanding of how the Organization
operates is as follows:
· The Organization’s
only activity was the purchasing of a program package from Vermont Public
Television (VPT) located in the US. VPT’s broadcast signal reached, among
others, into bordering regions of Southern Quebec, including Montreal.
· …
· The Agreement
(copy attached) mentions at 1, that the Organization appoints VPT to produce or
procure and to broadcast the non-commercial television programs and films
identified by the Organization in its annual list of educational programs for
the television distribution for the 1991-1992 program year. The information on
file does not correspond to this procedure. In fact, the Organization selects a
program package at a predetermined price that is part of a program package
opportunities list presented by VPT, its agent (document attached).
· Also at 4b) of the Agreement, it is
said that the proposed list of programs that the Organization shall prepare and
submit to its agent may be based, in whole or in part, on recommendations made
by its agent. We are of the view that the evidence does not demonstrate that
the Organization has control over the selection of the programs…
· In the program
packages opportunities list presented by VPT, there are only total cost of the
packages while the Agreement stipulates at 5c) that adjustments shall be made
to ensure that the sum of the procurement, production and broadcast costs paid
by the Organization is equal to the sum of the actual production, procurement
and broadcast costs incurred by the agent. There is no detailed calculation or
any documentary evidence in compliance with paragraph 5 of the Agreement.
Therefore, there is no evidence that the Organization ensures that it is paying
fair market value for the services rendered.
· …
· Although an agency
agreement called “Fund-raising agreement” was signed in 1991 between the
Organization and VPT, all fundraising is done under VPT’s name. There is no
indication VPT is doing fundraising for the Organization.
· In VPT’s publicity,
there is no specific mention that VPT acts on behalf of the Organization when
broadcasting the selected programs or when doing fundraising.
· The Organization is informed by VPT
on how much money is raised. There is no indication that the Organization
maintained direction and control over its resources and that the steps
identified in the Fund-raising agreement were followed. There is no indication
that the Organization paid the fair market value for the services rendered by
VPT for fundraising.
In light of all
of this, we are of the view that the Organization did not demonstrate that it
meets the requirements of maintaining direction and control over its resources
and its activities…
…It seems that
the Organization is used to issue donations receipts for donations received by
VPT from Canadian donors. This is not acceptable. The “Fund-raising agreement”,
at paragraph 5d), even provides that “All donations received by the Agent from
persons resident in Canada shall be deem to be donations received on behalf of
the Principal.” This is not acceptable especially when there is no evidence
that VPT does any fundraising on behalf of the Organization.
(Appeal Book, Vol. 7 pp. 1307-1310)
[Emphasis added]
[23]
PTAQ responded on June 14 2013 and
addressed the issue of control of resources, specifying that: “Pursuant to clause 3of the Agency Agreement, and in fact,
PTAQ retains complete direction and control over the production,
procurement and broadcasting activities that VPT does on its behalf. Each year
in conformity with the agency Agreement, VPT prepares a list of programs that
it believes are educational and that support PTAQ’s mission. The list is
submitted to PTAQ’s Board who extensively review the list. While all
discussions are not reflected in the minutes of meetings, the PTAQ Board
retains complete control over the type of programming that PTAQ supports,
as appears from the affidavits of Mr. King, Ms. Ivory and Mr. Wyant, as well as
from the minutes of meetings submitted in support of the affidavits”
(Appeal Book, Vol.7 p.1348) [Emphasis added].
[24]
Further to a July 22, 2013 request from the CRA
for additional information, PTAQ forwarded a letter on August 30, 2013
addressing three issues: “(1) Control of educational
programming that PTAQ supports; (2) Control of the funds raised by PTAQ and
that are used to pay for the broadcasting of educational programming; and (3)
Control of fundraising activities undertaken by PTAQ’s agent, VPT” (Appeal
Book, Vol. 8 p. 1476).
[25]
The decision on that objection to revoke was
reached on October 21, 2013, when the CRA upheld the Minister’s proposal to
revoke the registration of PTAQ and issued a Notice of Confirmation. In its
letter the CRA concluded that:
While a
broadcasting agreement and a fundraising agreement exist between PTAQ and
Vermont Public Television (VPT), it has not been demonstrated that the
provisions of the two agreements were followed and respected. No documentary
evidence has been provided to demonstrate that PTAQ is monitoring the cost of
the broadcasting activities, the donations received and the fundraising, and
that it is ensuring that all of this is, in fact, its own activities. VPT is
only informing PTAQ on how much donations were received, what is the cost of
the broadcasting and the fundraising. PTAQ does not exercise direction and
control over any of these activities. We maintain that all the activities are
carried on by VPT and that PTAQ is only used to issue receipts for donations
received by VPT from Canadian donors.
(Appeal Book,
Vol. 1 p. 7) [Emphasis added]
IV.
Program Selection and monitoring costs of
programs
[26]
The minutes of the Board of Director’s meeting
and accompanying correspondence reveal that programming selection originated with
VPT. The minutes of a meeting held on October 12, 2004, state:
The Annual Fundraising Agreement between VPT
and PTAQ was reviewed and discussed by the Board. Information and background
materials along with a proposed 2005 agreement were presented to the Board for
their consideration. John King reviewed the proposal with the Board. The
summary of the proposal:
|
FY 2005
|
Estimated Funds
Raised in Canada
|
$768,865
|
|
blank
|
-Estimated
Fundraising cost
|
141,135
|
|
FY2005
|
Estimated cost
of programs
|
$617,660
|
Three program
packages have been proposed for the Board from which to choose. All packages
are consistent in providing educational, children’s, public affairs and
business programs. The choice of packages includes:
|
Package A
|
|
BBC World
News
|
|
The News Hour
with Jim Lehrer
|
|
Sesame Street
|
|
Package B
|
|
BBC World
News
|
|
Sesame Street
|
|
Arthur
|
|
Package C
|
|
Caillou
|
|
Arthur
|
|
The News Hour
with JimLehrer
|
|
Nightly
Business Report
|
(Appeal Book Vol.
8 pp. 1583-1584)
[27]
For the 2006 broadcasting year, the minutes of
the Board of Director’s meeting held on June 13, 2005, state:
… Lee Ann presented the proposed programming
packages (attached) for the Board to consider. After discussion of all three
packages, it was agreed that Package C would be the preferred package to
select. A motion was made by Joan Ivory, seconded by Jim Wyant to approve
Programming Package C for the Fundraising Agreement. At the September meeting,
Lee Ann will provide proposed fundraising targets and a confirmation of the
programming packages for the Board to consider.
…
PROGRAM PACKAGE
OPPORTUNITIES
Educational/Informational Programs@698
cdn/hr
|
Package A
|
Package B
|
Package C
|
|
BBC World
News (5hrs)
|
BBC World
News (5hrs)
|
Caillou (2.5
hrs)
|
|
The News Hour
(5hrs)
|
Sesame Street
(5hrs)
|
Arthur (5.5
hrs)
|
|
Sesame Street
(5hrs)
|
Arthur (5.5
hrs)
|
The News Hour
(5hrs)
|
|
blank
|
blank
|
Nightly
Business Report (2.5 hrs)
|
|
Package cost
of either A, B, or C
|
537,000
|
|
15% overhead
|
80,550
|
|
BROADCAST
TOTAL
|
617,550
|
(Appeal Book, Vol.
8 pp. 1575-1576)
[28]
In her letter dated July 15, 2005 the
Vice-President for marketing of VPT states:
… This is a follow up to our June 13th
board meeting when the listing of the program packages available for PTAQ’s
support in fiscal 2006 was presented. I was careful to choose only those that
will meet your mandate of non-commercial television that are educational in
nature … Since the board decision was to go with package C, which includes
Caillou, Arthur, the News Hour and Nightly Business Report, this letter
confirms this decision. Please note that all these packages have an individual
broadcast cost of $617, 550$ CDN.
…
PROGRAM PACKAGE OPPORTUNITIES
Educational/Informational Programs@698
cdn/hr
|
Package A
|
Package B
|
Package C
|
|
BBC World
News (5hrs)
|
BBC World
News (5hrs)
|
Caillou (2.5
hrs)
|
|
The News
Hour (5hrs)
|
Sesame
Street (5hrs)
|
Arthur (5.5
hrs)
|
|
Sesame
Street (5hrs)
|
Arthur (5.5
hrs)
|
The News
Hour (5hrs)
|
|
blank
|
blank
|
Nightly
Business Report (2.5 hrs)
|
|
Package cost
of either A, B, or C
|
537,000
|
|
15% overhead
|
80,550
|
|
BROADCAST
TOTAL
|
617,550
|
(Appeal Book Vol. 11 pp. 2202-2203)
[29]
In its forecast for the programming year 2007,
on June 26, 2006 a letter sent from VPT to James A. Wyant (PTAQ) indicates the
following:
As we near the end of fiscal 2006, I feel I
can make a prediction of how much VPT can raise for PTAQ in FY 2007.
In view of this I feel we can predict that
VPT will be able to raise $711,204 CDN at a cost of $142,241 CDN. Please feel
free to call me with any questions or I will be ready to discuss any of this
during the next PTAQ meeting.
I will soon be sending you a proposal for
various program packages that will meet the PTAQ mandate. We can discuss the
individual packages at the next PTAQ board meeting on July 11th.
(Appeal Book Vol. 8 p. 1564)
[30]
In a second letter sent on June 29, 2006, VPT
indicated:
As promised, I am sending you a listing of
the program packages available for your support in fiscal 2007. I was careful
to choose only those that will meet your mandate of non-commercial television
programs that are educational in nature.
…
Please note that all of these packages have
an individual broadcast cost of $568,963 CDN. This amount added to the cost for
fundraising for PTAQ ($142,241 CDN) will equal the amount VPT feels they can
raise for PTAQ in the coming year…and as previously stated in my letter of June
26, 2006.
PROGRAM PACKAGE OPPORTUNITIES
Educational/Informational Programs@698
cdn/hr
|
Package A
|
Package B
|
Package C
|
|
BBC World
News (5hrs)
|
BBC World
News (5hrs)
|
Caillou
(3hrs)
|
|
The News
Hour (5hrs)
|
Sesame
Street (5hrs)
|
Arthur (5.5
hrs)
|
|
Sesame
Street (5hrs)
|
Arthur (5.5
hrs)
|
The News
Hour (5 hrs)
|
|
Blank
|
Blank
|
Nightly
Business Report (2.5 hrs)
|
|
Package cost
of either A, B, or C
|
494,750
|
|
15% overhead
|
74,213
|
|
BROADCAST
TOTAL
|
568,963
|
(Appeal Book, Vol. 8
pp. 1565-1566)
[31]
For the year 2007 programming, the minutes of a
meeting of the Board of Directors of PTAQ held on July 11, 2006, disclose the
following:
Lee Ann Lee presented the proposed
Fundraising Agreement for FY2007 between PTAQ and VPT as well as the proposed
programming packages for the Board’s consideration. (See attached materials).
Based on the FY2006 results, it is projected that VPT will raise approximately
$711,204 in Canadian dollars at a cost of $142,241.
The proposed underwriting packages included
Package A, B and C for the Board to choose from. The Board reviewed the
packages and after a discussion agreed that Package C would be the most
appropriate, but that The News Hour with Jim Lehrer should be replaced with
Sesame Street. The rationale was that PTAQ had an educational emphasis and that
Sesame Street would be a more appropriate program that a U.S. News program.
(Appeal Book vol. 8 p. 1560)
[32]
For the selection of programming for 2008, a
letter from Lee Ann Lee, vice-president marketing for VPT, dated June 6, 2007
specifies that:
…Please note that all of these packages have
an individual broadcast cost of $576,275 CDN. This amount added to the cost for
fundraising for PTAQ ($144,069 CDN) will equal the amount VPT feels they can
raise for PTAQ in the coming year… and as previously stated in my letter of May
30, 2007.
…
PROGRAM PACKAGE OPPORTUNITIES
Educational/Informational Programs@698
cdn/hr
|
Package A
|
Package B
|
Package C
|
|
BBC World
News (5hrs)
|
Foreign
Exchange (.5)
|
Foreign
Exchange (.5)
|
|
Nightly
Business Report (2.5hrs)
|
The News
Hour (5hrs)
|
Nightly
Business Report (2.5 hrs)
|
|
Arthur
(5.5hrs)
|
Sesame
Street (5 hrs)
|
Sesame Street
(5 hrs)
|
|
Dragonfly TV
(.5)
|
Caillou (2.5
hrs)
|
Arthur (5.5
hrs)
|
|
BLANK
|
Dragonfly TV
(.5) cancelled
|
BLANK
|
|
Package cost
of either A, B, or C
|
501,109
|
|
15% overhead
|
75,166
|
|
BROADCAST
TOTAL
|
576,275
|
(Appeal Book, Vol.
8 pp. 1550-1551)
[33]
This manner of selecting programs and setting
fundraising targets continued on over the years. Over the ten year period
covered by the minutes, PTAQ modified one of the packages selected on three
occasions for broadcast years 2007, 2011, and 2013 by replacing one of the programs
in a package selected with another (see letter dated August 30, 2013 from PTAQ
to Tax Charities Appeals Directorate in Appeal Book, Vol. 8 pp. 1478-1479).
V.
Fundraising Target
[34]
The records with respect to fundraising such as the
Share Group Fundraising Script for Vermont Public Television, (Appeal Book,
Vol. 11, p. 2200) and Vermont Public Television sample fundraising letter, (Appeal
Book, Vol. 11, p. 2206) indicate that VPT was conducting its own fundraising
and merely assigning Canadian donations to PTAQ.
[35]
There is no evidence in the record that
fundraising events conducted by VPT were approved or directed by PTAQ. Nor is there
any evidence that PTAQ was setting specific fundraising targets for its agent.
Rather the extracts from the July 2005, June 26, 2006, June 29, 2006, July 11,
2006 and June 6, 2007 letters reproduced above confirm that the fundraising
targets were determined by VPT who informed PTAQ’s board of the amount it
estimated could be raised yearly from Canadian donors.
[36]
The 2005-2006 Expense Summaries found in Appeal
Book, Vol. 11 at pp. 2198-99 indicates that VPT assigned PTAQ a 24.41% share of
its fundraising and administrative costs. The 2005 Estimate of 25.2% in the
Fundraising Cost Breakdown, (Appeal Book, Vol. 8, p. 1579) is nearly equivalent
to the average percentage of VPT’s Canadian membership.
[37]
A complete review of the minutes of thirty Board
of Directors meetings of PTAQ held between September 23, 2003 and March 13,
2013 reveals that a detailed fundraising costs breakdown was only provided on
one occasion on June 13, 2005 (Appeal Book, Vol. 8 p. 1594). Quarterly
fundraising updates were presented to the Board on some occasions, see for
example: September 23, 2009, December 9, 2010, April 19, 2011 (Appeal Book,
Vol. 8 pp. 1503, 1516, 1518) but there is no evidence that certified quarterly
statements of donations received were ever presented or that detailed reports
on fundraising activities were presented.
VI.
Issues
[38]
The issue in this appeal can be described as
follows:
1.
Was PTAQ carrying on its own charitable
activities through an agent or was it merely a conduit for VPT?
VII.
Standard of Review
[39]
As determined by this Court in Prescient
Foundation v. Canada (National Revenue) 2013 FCA 120, [2013] 5 C.T.C. 25 [Prescient]
at paragraph 12, in an appeal from a decision of the Minister confirming a
proposal to revoke the registration of a charity brought pursuant to subsection
172(3) of the Act, extricable questions of law, including the interpretation of
the Act, are to be determined on a standard of correctness while questions of
fact or mixed fact and law including the Minister’s exercise of discretion
based on those facts warrant a review based on a standard of reasonableness.
[40]
As the issue in this appeal is a question of
mixed fact and law, consequently the standard of reasonableness applies.
VIII.
Analysis
[41]
In Canadian Committee for the Tel Aviv
Foundation v Canada 2002 FCA 72, [2002] 2 C.T.C. 93 [Tel-Aviv] the
Court recognized that a charity can conduct its charitable activities through
an agent, the Court stated at paragraph 40: “Pursuant
to subsection 149.1(1) of the Act, a charity must devote all its resources to charitable
activities carried on by the organization itself. While a charity may carry on
its charitable activities through an agent, the charity must be prepared to
satisfy the Minister that it is at all times both in control of the agent
and in a position to report on that agent’s activities” [Emphasis added].
[42]
The Court in Tel Aviv also established at
paragraphs 27 and 28 that the onus lies on the charity to establish that its charitable organization
status should not be revoked.
[43]
In the case of Bayit Lepletot v Canada
(Minister of National Revenue) 2006 FCA 128, [2006] 3 C.T.C. 252, at paragraphs
5 and 6, the Court reaffirmed the principle that not only is it incumbent on
the charitable organization who uses an agent to show that the agent is
carrying on the work on its behalf but that proof of control over the
activities of the agent is necessary to establish that the charitable works are
those of the charity and not those of the agent.
[44]
The jurisprudence is clear, the onus lies on the charitable organization to
overturn the Minister’s assumption and in order to do so; it must adduce
evidence that it is carrying on the charitable works on its own behalf and not
merely acting as a conduit. The control over the agent’s activities is a key
element to establish that it maintained direction and control over its
resources.
[45]
In the present case the Minister decided to
revoke PTAQ’s status as a charity based on the evidence that PTAQ was not
exercising direction and control over VPT.
[46]
Clause 1 of the Broadcasting agreement appointed
VPT as PTAQ’s agent for the production or procurement of non-commercial
programs. The extracts from the minutes of the Board of Directors reproduced
above do not indicate any form of control over the choice of programs offered
to PTAQ by its agent. Rather, they reveal that VPT presented “predetermined
packages” to PTAQ every year. The record establishes that PTAQ modified the packages
offered on only three occasions over the years. PTAQ always selected the option
it would fund from the program selection initiated by VPT.
[47]
With respect to the cost of the programs the
Minister took the position that PTAQ failed to exercise proper control over the
cost of the broadcasting activities. The extract from the minutes and the
exchange of letters reproduced above (see paragraphs 26 to 37 above) indicate
that notwithstanding variations in the number of hours in different packages, the
cost remained the same. PTAQ was presented with a single total cost estimate
applicable to all the packages offered which always corresponded to the amount
VPT forecasted it would receive from Canadian viewer’s donations. More
importantly the minutes above show that VPT never supplied detailed breakdowns
of its broadcasting costs nor did PTAQ raise any questions or monitor these as
called for clause 4b) of the Broadcasting agreement.
[48]
In light of clause 5 of the Broadcasting
Agreement, the Minister concluded that PTAQ failed to adduce evidence
establishing that it exercised monthly financial monitoring and control of
expenditures or adjustments to account for the final costs of broadcasts that
it funded. The minutes of the Board of Directors are silent in that respect.
[49]
The Minister equally concluded that the terms of
the Fundraising Agreement were not followed as PTAQ didn’t provide evidence
showing how it directed or controlled any of the fundraising activities or that
VPT conducted separate fundraising on PTAQ’s behalf. Moreover, in the 2005 and
2006 fiscal years, VPT assigned PTAQ a 24 % share of its fundraising and
administrative costs and this amount coincided with VPT’s Canadian membership
during those years.
[50]
Clause 2 b) of the Fundraising Agreement
specifies that VPT should promote PTAQ to viewers and prospective donors. No
evidence was adduced to establish that VPT did in fact promote PTAQ to
prospective donors moreover the fundraising documents in the record indicated
that VPT was conducting the fundraising activities on its own behalf (see
paragraph 34 above).
[51]
Contrary to clause 3 of the Fundraising
Agreement, VPT only provided PTAQ with estimates of how much money would be
raised in a fiscal period. The extract from the minutes of the Board of Directors
of PTAQ do not reveal repeated monthly or quarterly monitoring of fundraising
activities against an approved schedule or that a description of fundraising
activities was ever presented. The board of PTAQ was informed each year of the
amount VPT believed it could raise which became the annual budget. But there is
little evidence of quarterly reporting by VPT or monitoring by PTAQ except for
the instances mentioned in paragraph 37 above.
[52]
Under clause 5 of the Fundraising agreement, PTAQ
should have been receiving records quarterly statements regarding the amount of
donations received. The minutes indicate reporting on amounts year to date from
Canadian sources on some occasions but no systematic monitoring against
pre-approved budgets. The minutes do not reveal the production of certified
quarterly statements of donations or that PTAQ requested same or that it was
exercising any form of control over the donations received or on the allocation
of fundraising expenses as called for by the Agreement.
[53]
Both the fundraising and broadcasting agreements
called for the production of reports and a monitoring of activities that if
followed would have established direction and control over VPT.
[54]
In order to succeed in this appeal, PTAQ needed
to show either that the Minister’s factual conclusions with respect to the lack
of control and monitoring of its agent are unreasonable or that the conclusions
he has drawn that PTAQ is acting as a conduit for VPT is not reasonable.
[55]
Based on the evidence outlined above, I conclude
that it was reasonable for the Minister to determine that PTAQ failed to
maintain direction and control over its resources as it did not devote all its
resources to its own charitable activities. The provisions of the broadcasting
and fundraising agreements were not followed or respected. PTAQ has not adduced
evidence that it exercised proper control over the activities of its agent by
demonstrating how it monitored the cost of the broadcasting activities, the
donations received and the fundraising. It has not established how the Minister
erred in coming to the conclusion that PTAQ is only used to issue receipts for
donations received by VPT from Canadian donors, as the documentation contained
in the record does not overturn the factual findings noted above with respect
to the broadcasting and fundraising agreements.
[56]
For these reasons, I would dismiss the appeal,
with costs.
"A.F. Scott"
“I agree.
J.D. Denis Pelletier J.A.”
“I agree.
Johanne Gauthier
J.A.”
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