Citation: 2008TCC3
Date: 20080103
Docket: 2007-4674(IT)APP
BETWEEN:
INTERNATIONAL CHARITY ASSOCIATION NETWORK,
Applicant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Rip, A.C.J.
Introduction
[1] International
Charity Association Network ("ICAN"),
in accordance with subsection 188.2(4) of the Income Tax Act ("Act"),
has applied for a postponement of a suspension by the Minister of National
Revenue of its authority to issue an official tax receipt for one year
beginning on November 28, 2007.
[2] On November 21,
2007 ("Suspension Notice"), the Minister pursuant to subsection
188.2(2) of the Act suspended ICAN's authority to issue tax receipts on
the basis that ICAN failed to maintain books and records and failed to provide
records or to provide access to records to the tax authority, contrary to
subsections 230(2), 231.1(1) and 231.2(1) of the Act.
[3] The CRA alleges
that ICAN failed to maintain and/or provide access to books and records
relating to receipts issued by it totalling $284,653,300 for donations of
non-cash gifts and disbursements of approximately $270,696,107. ICAN failed to
provide the CRA with documentation to explain, support or justify payments and
expenditures of $270,696,107 in the 2005 fiscal year that includes $26,372,685
in fundraising payments and $244,343,422 in charitable program expenditures.
The CRA acknowledges that although ICAN has provided access to some records, serious
deficiencies remain.
[4] On November 23,
2007 ICAN filed a Notice of Objection to the suspension declaring that it at
all times attempted to comply with requests by the CRA to provide information
and to make its books and records available to CRA representatives. ICAN says
it responded to questions by the CRA and submitted its records for review. The
applicant also claims it allowed the CRA to remove certain of its
records for review.
Statutory Provisions: Similar to
Injunction
[5] The relevant
portions of subsection 188.2(2), (4) and (5) are as follows:
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(2) The Minister may give
notice by registered mail to a registered charity that the authority of the
charity to issue an official receipt referred to in Part XXXV of the Income
Tax Regulations is suspended for one year from the day that is seven days
after the notice is mailed
(a) if
the charity contravenes any of sections 230 to 231.5; or
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(2) Le ministre peut, par avis envoyé en recommandé, informer tout organisme
de bienfaisance enregistré que son pouvoir de délivrer des reçus officiels,
au sens de la partie XXXV du Règlement de l'impôt sur le revenu, est
suspendu pour un an à compter du jour qui suit de sept jours l'envoi de
l'avis si, selon le cas :
a)
l'organisme a contrevenu à l'un des articles 230 à 231.5;
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. . .
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[...]
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(4) If a notice of objection to
a suspension under subsection (1) or (2) has been filed by a registered
charity, the charity may file an application to the Tax Court of Canada for a
postponement of that portion of the period of suspension that has not elapsed
until the time determined by the Court.
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(4) L'organisme de bienfaisance enregistré qui produit
un avis d'opposition à une suspension prévue aux paragraphes (1) ou (2) peut
présenter à la Cour canadienne de l'impôt une demande pour que soit reportée,
jusqu'à un moment déterminé par cette cour, la partie de la période de
suspension non encore écoulée.
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(5) The Tax Court of Canada may grant an
application for postponement only if it would be just and equitable to do so.
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(5) La Cour canadienne de l'impôt ne peut faire droit à la demande de report
que s'il est juste et équitable de le faire.
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[6] The power of the
court to grant a postponement under subsection 188.2(5) of the Act is
essentially a statutory injunction. Counsel for the applicant referred to the
procedure as a "form of equitable relief similar to an injunction".
[7] In Manitoba
(A.G.) v. Metropolitan Stores (MTS) Ltd., Beetz J., writing for the
Supreme Court of Canada, considered the reasons for judgment in American
Cyanamid Co. v. Ethicon Ltd.,
a decision of the House of Lords, and noted that a stay of proceedings and an
interlocutory injunction are remedies of the same nature and, absence any
statutory prescription, they have sufficient characteristics in common to be
governed by the same rules; the courts have rightly tended to apply to the
granting of interlocutory stay the principles which they follow with respect to
interlocutory injunctions:
The case law is
abundant as well as relatively fluid with regard to the tests developed by the
courts in order to help better delineate the situations in which it is just and
equitable to grant an interlocutory injunction. Reviewing it is the function of
doctrinal analysis rather than that of judicial decision-making and I simply
propose to give a bare outline of the three main tests currently applied.
The first test is a
preliminary and tentative assessment of the merits of the case, but there is
more than one way to describe this first test. The traditional way consists in
asking whether the litigant who seeks the interlocutory injunction can make out
a prima facie case.
[Authorities
omitted.]
. . .
The second test
consists in deciding whether the litigant who seeks the interlocutory
injunction would, unless the injunction is granted, suffer irreparable harm,
that is harm not susceptible or difficult to be compensated in damages. Some judges
consider at the same time the situation of the other party to the litigation
and ask themselves whether the granting of the interlocutory injunction would
cause irreparable harm to this other party if the main action fails. Other
judges take the view that this last aspect rather forms part of the balance of
convenience.
The third test,
called the balance of convenience and which ought perhaps to be called more
appropriately the balance of inconvenience, is a determination of which of the
two parties will suffer the greater harm from the granting or refusal of an
interlocutory injunction, pending a decision on the merits.
[8] In RJR-MacDonald
Inc. v. Canada (A.G.),
the Supreme Court of Canada confirmed the tripartite test as follows: the
applicant must establish first, a serious question to be tried, second, that
irreparable harm will result if the injunction is not granted, and third, that
the balance of convenience favours an injunction.
Applicant's Position
[9] ICAN declares that
at all times it maintained proper books and records. Certain records referred
to in the letter of November 21, 2007, including reports on certifications
by affiliated charities receiving property from ICAN, were never referred to
earlier by the CRA and ICAN argues that it be given a fair opportunity to
obtain such documents.
[10] Carol French, a
director of ICAN, and David Penney, a founder and consultant to ICAN, filed
affidavits in support of its application for postponement. Ms. Holly Brant, an
auditor in the Charities Directorate of the CRA, filed an affidavit in favour
of the respondent.
Affidavit of Ms. French
[11] According to Ms.
French’s affidavit, ICAN was established on August 17, 2000 and was
registered as a charitable organization, as defined by the Act, also on
August 17, 2000.
[12] Ms. French described
ICAN's activities in paragraph 8, 9, 10, 11, 12 and 13 of her affidavit:
8. The Applicant raises funds and
receives donations-in-kind of food, household goods and other items including
educational materials and licenses for the use of educational software programs
(the "Courseware") for use directly in the charitable activities it
carries on and for distribution to other organizations for use in their
charitable activities.
9. ICAN has 16 employees across Canada, only 3 of whom deal with the office administration. These 3 employees were the
personnel at ICAN that had to deal with all the requests for information from
the CRA that have been received by ICAN during the past year.
10. There are currently 367
agencies or organizations that receive such goods from the Applicant and are
dependant on the Applicant in order to continue to carry on their activities.
11. The Applicant operates as an
"umbrella organization" for other charities, soliciting, purchasing
and collecting donated items in bulk and distributing the items in smaller
quantities to ICAN Member Agencies. The Applicant also operates internet based
information exchange facilities to assist ICAN Member Agencies in operating
their own programs and communicating their information and requirements for
assistance to other ICAN Member Agencies.
12. The ICAN Member Agencies
include churches that operate food banks, schools and other organizations that
operate breakfast and snack programs for children, hostels and shelters for the
homeless, and organizations that run youth programs in troubled neighbourhoods.
The Courseware is distributed to computer training centres operated by ICAN as
well as churches, municipalities, community centres, correctional institutes
and other charitable organizations for the purpose of operating their skills
and job training programs.
13. Many of the corporations who
have already promised to deliver donations of food and household items to ICAN
require receipts from ICAN in order to record the donations of inventory in
their own accounting records. It is my understanding that while these
corporations do not claim a deduction for these donations as charitable
donations, the receipts are required in order to record the reduction in
inventory in their accounting records.
[13] If the receipting
suspension is not lifted, Ms. French deposes, ICAN and its agencies will suffer
irreparable harm in that ICAN will be unable to continue or complete its
programs during the suspension period. This, she claims, would affect meal and
food distribution to an estimated 750,000 people across Canada as well as training programs for the unemployed and underemployed and after school programs
in some Toronto schools. Also, she fears a number of ICAN employees will have
to be terminated. Mr. Penney agreed.
[14] Ms. French declared
that ICAN has provided its accounting records and provided access to its
records on a number of occasions — 15 person days according to applicant's
counsel — to CRA representatives in order to permit the CRA to audit ICAN as
well as others who were engaged as fundraisers for ICAN. ICAN retains
professional accountants to maintain its records. Furthermore, she adds, ICAN
has at all times maintained proper books and records "based on its
understanding of the requirements of the CRA and on accounting advice it has
received from its professional advisors".
[15] ICAN's Notice of
Objection, an exhibit to Ms. French's affidavit, advises that ICAN has a
limited staff, a small number involved in soliciting and receiving donations in
kind, determining needs of affiliates and distribution. "There is only a
few administrative staff who handles the issuance of receipts, bookkeeping and
records management."
[16] The Notice of
Objection reviews the flurry of correspondence between the CRA and ICAN from
October 30, 2006 to November 21, 2007. It is obvious that the CRA was not
satisfied with the responses it was getting from ICAN and its advisors. CRA's original
letter, dated October 30, 2006, from its Toronto East Tax Services requested
documents and records in connection with an audit by the CRA of Global Learning
Gifting Initiative ("Global Learning") for the 2004 taxation year. ICAN
complains that this letter "included 13 very detailed questions and
provided only 30 days for response". There were a number of people
required to be interviewed to reply to these questions and there was not
sufficient time to complete the questionnaire within the period of 30 days. In
a subsequent letter, dated November 26, 2006, ICAN's accountants, Sennet and Associates,
requested additional time to obtain the information. In another letter to CRA,
also dated November 26, 2006, ICAN states that Ms. French provided a response
to certain of the questions raised in the October 30th letter.
[17] In the suspension
letter of November 21, 2007, the CRA acknowledged ICAN's requests on October
30, 2006, February 26, 2007 and May 29, 2007 for extensions of time to
retrieve, organize and make available the records requested by CRA. CRA had noted
that ICAN's requests for an extension of time to answer the October 30, 2006
and February 26, 2007 letters were not received until 30 days after the charity
received the requests and that ICAN failed to specify the timeframe to make the
records available.
[18] The Notice of
Objection also refers to a CRA letter dated March 27, 2007 referencing the
Global Learning, and included 28 questions or requests which, in ICAN's view,
appears to be the same information that was requested in the October 30, 2006
letter. By letter dated April 11, 2007, Sennet and Associates asked for an
extension of time to after April 30th to respond to the letter. Upon reviewing
the letter of March 27, 2007, Mr. Sennet and ICAN's staff believed that the CRA's
request for information was an error since so much of the requested information
had already been provided, in their view, to the October 30, 2006 letter.
ICAN responded to the March 27, 2007 letter on September 21, 2007.
[19] In the interim CRA
forwarded additional correspondence to ICAN. A letter of February 26, 2007 from
Ms. Brant was overlooked by ICAN, according to ICAN, "due to the confusion
that was caused by receiving so many letters from CRA and the administrative
burden imposed on the staff and accountant of ICAN in obtaining the information
to respond to the various and numerous requests for information".
[20] In any event, ICAN
denies that it failed to maintain its books and records. CRA questioned the payments
made by ICAN to Global Learning Systems Inc. ("Global Systems") for
fundraising services; according to CRA there were no documents supporting these
payments. ICAN declares that payments to Global Systems were made pursuant to a
contract between ICAN and Global Systems. The only copy of a contract that is
before me is an agreement dated November 19, 2004 between Canadian Charity
Association, ICAN's previous name, and Global Learning Group Inc. ("Global
Group") for fundraising services. The copy of the agreement is an exhibit
to Ms. Brant's affidavit.
The contract provides that ICAN pay to Global Group a base fundraising fee of
16.62% plus GST of the gross fair market value of cash donations and in-kind
donations raised and delivered by Global Group to ICAN. In-kind donations were
anticipated to exceed 75% of the total donations. Also, a based fundraising fee
was payable immediately to Global Group upon Global Group's delivery to ICAN of
the net cash donations and confirmation of delivery agreements for the in-kind
donations. An additional amount was payable by ICAN as an expense allowance to
Global Group to reimburse Global Group for reasonable expenses incurred by it
on ICAN's behalf, such amount not to exceed 100% of the GST rebate claimed by
ICAN on the base fundraising fees paid. ICAN declares that payments to Global
Group were made in accordance with the contract and there is evidence in its
bank records, made available to the CRA, that such payments were in fact made.
[21] In the Notice of
Suspension, CRA advises that ICAN's payments to Global Group should be
supported by invoices by Global Group and the lack of any such invoice
constitutes a failure by ICAN to maintain proper records of books and records.
ICAN disagrees with this conclusion stating that the contract reflected the
agreement to make the payments and the banking records demonstrated that the
payments were made. No invoices are necessary, according to ICAN.
[22] The Notice of
Objection also refers to payments made to "English Lake Group". The
CRA maintains, according to the Notice of Objection, that it is unable to
verify that payments were made to English Lake Group for duplication services
relating to courseware. CRA had requested a list of the date, serial number and
name of each unit of courseware that was distributed. ICAN states that it
provided copies of the bills of lading together with license numbers for all
the courseware and that the staff believed that this comprised all of the
requested information. However, what CRA really wanted, according to ICAN, were
copies of the invoices from English Lake Group. Once ICAN received this
clarification, it advised CRA on November 13, 2007 that copies of invoices from
English Lake Group were available; the CRA did not take up ICAN’S offer.
[23] There is also a
reference in the Suspension Notice to the distribution of software licences:
CRA complains that there is not sufficient evidence of the distribution of
software licences because ICAN does not record the name, address and other
information regarding the end user. Specifically, CRA complains that there is
no documentary evidence to substantiate that ICAN actually used the software
licences in charitable programs. ICAN in turn complains that it would be an
invasion of privacy to obtain such personal information from persons receiving
charitable assistance, in particular inmates of prisons. Also, according to
ICAN, it was only in the Suspension Notice that CRA asked ICAN to have reports
from its affiliates stating how the courseware was used and/or confirming that
it was used by an individual.
Affidavit of Mr. Penney
[24] In his affidavit Mr.
Penney confirms the charitable activity information contained in Ms. French's
affidavit and adds harms that ICAN "and the Canadians that it serves"
will suffer if the suspension is not postponed. He describes some of the
programs that would be affected by the suspension: Youth at Risk, Inuit First
Nations, Courseware licences, Job Skills Training, Brock Township Libraries and
Food Box Program.
[25] The Youth at Risk,
Mr. Penney states, operates in Toronto; it includes an "After-4 School
Program", the object of which is to get youth at risk back into school and
into educational programs that ICAN is able to offer. These programs started in
2005 and operate in 13 Toronto neighbourhoods. The material used by the program
included educational courseware that ICAN receives as donations. The youth who
participate in the After-4 School Programs have mentors to assist with
homework, teach music, dance and crafts.
[26] ICAN is also involved
in the process of assisting Inuit First Nations in Nunavut, establishing
education centres in five locations in Nunavut, according to Mr. Penney. Here,
too, individuals are initially trained, using the courseware licenses that ICAN
receives as donations. Individuals are educated with the courseware to be
trainers of others who, in turn, will train other Inuit, all the time using the
ICAN courseware.
[27] Mr. Penney also
states that ICAN is involved with major corporations in negotiations to
establish an education centre at which certain courseware licenses ICAN
receives as donations would be used to train individuals in job skills with the
corporations. Mr. Penney advises that the negotiations with the corporations
are nearing completion and ICAN expects contracts to be in place for delivery
of this program in January 2008. ICAN fears suspension of receipting privileges
will cause the corporations not to continue with the program. Mr. Penney
estimates the harm to Canada to be $250 million, the harm to individuals is also
substantial.
[28] ICAN has also
scheduled 120 new learning centres to open within the next 60 days of the date
of Mr. Penney's affidavit, November 30, 2007, he declares, in such places as
First Nations reservations, all of the John Howard Society and Elizabeth Fry
locations, the Salvation Army East Coast Educational program, Cornerstone
Family Resource Centre and local libraries. ICAN believes, Mr. Penney avers,
that ICAN will no longer receive donations of courseware and be unable to open
these learning centres.
[29] ICAN has also worked
with Brock Township Libraries, Mr.Penney explains, to create a model that
"empowers the library to continue to promote the joy of reading and the
essentials of literacy" in cases where libraries face increasing costs and
reduced government grants and donations. ICAN provided to the library
courseware licenses, online mentoring and market support. The library,
according to Mr. Penney, was able to offer digital literacy training to its
staff at no cost.
[30] ICAN also developed a
concept allowing the library to solicit relatively small donations to allow
need community members to use the courseware licenses for job skills training.
[31] Like Ms. French, Mr.
Penney referred to corporate donors providing food products to ICAN for
distribution to food banks.
[32] Mr. Penney described
the courseware licences that are donated to and distributed by, ICAN and their
use:
12. The courseware licenses that
ICAN receives as donations permit the user to access approximately 190 computer
courses with such subjects as: basic typing; training in word processing,
accounting (Quicken, Quick Books) the full Microsoft Suite (Windows, Word,
Excel, Access, Powerpoint, Office); training in advanced employment skills such
as internet core computing certification ("IC3"), Microsoft
engineering certification, A+ Certification (Microsoft programming), and
blogging certification; training in soft skills such as budgeting, employment
communication strategies, business writing; help for students including
Kindergarten to Grade 12 math, English and science; and many others.
13. ICAN obtains courseware
licenses from donors as gifts and issues each donor a receipt for the value of
the courseware licenses. The receipts are issued in accordance with the
Regulations and include a copy of the Deed of Gift and a Schedule indicating
the fair market value of the license as determined by a qualified appraisal.
The courseware licenses are then incorporated into various training programs
that ICAN either runs directly, such as the Broadview Skills and Training
Centre, the After‑4 School Programs and the education centres, or are
used in other educational and job skills training programs run by a number of
its 367 affiliates.
14. ICAN obtained valuations from
professionals to support the amount that is reported on the charitable donation
receipts that are issued.
15. In addition to these
valuations, it should be noted that the courseware licenses used by ICAN in its
programs are available for purchase over the internet at retail prices that
exceed the value that ICAN has been advised to use in issuing charitable
donation receipts.
Irreparable Harm to Applicant
[33] Both Ms. French and
Mr. Penney declare that if the receipting privileges are not revived, ICAN and
its member agencies will suffer irreparable harm and will not be able to
continue their programs or complete programs that had been undertaken or
committed from November 28, 2007 through 2008. Food will not be distributed,
proposed food distribution programs will have to be cancelled, training
programs for the unemployed will be terminated and after-school programs would
be at risk. ICAN may have to dismiss some of its employees.
Respondent's Position
[34] The CRA naturally
opposes the application made by ICAN.
[35] The respondent
submits that the sanction imposed by the Minister under
subsection 188.2(2) of the Act is warranted. The applicant does not
have a serious question to be determined by the Court and has not met its
burden of establishing that it would suffer irreparable or serious harm if the
postponement is not granted. Any balance of inconvenience favours the
respondent.
[36] The respondent
submits that the following facts support its position:
1) The applicant failed to
provide the CRA with documentation to explain, support or justify payments and
expenditures in the 2005 fiscal year that include $26,372,685 in fundraising
payments and $244,343,422 in charitable program expenditures.
2) The applicant has seriously
contravened the provisions of the Act in respect of its obligations to
keep proper books of account, more specifically, ss.230(2), 231.1(1) and
231.2(1) of the Act.
3) The amount the applicant has
failed to account for and justify though proper books of account is substantial.
4) The applicant is involved in
tax shelter arrangements which has led its operations to increase from $528,000
in total reported revenue in 2001 to $314 million in total reported revenue in
2005.
5) The applicant has not
substantiated whether it actually received most of the goods for which it
issued donation receipts.
. . .
7) The applicant has agreed to
issue donation receipts for transactions that do not qualify as gifts and has
issued donation receipts for more than the actual value of the property gifted.
Affidavit of Ms. Brant
[37] In her affidavit Ms.
Brant states that she conducted an audit of ICAN's operations for the fiscal
periods 2001 to 2006. As a result of ICAN's participation in tax shelters its operations
have increased from $528,000 in total revenue in 2001 to $314 million in total
reported revenue in 2005. According to ICAN's general ledger for 2006 and the
CRA database in respect of Canadian registered charities, Mr. Brant notes, ICAN
now ranks first in Canada in terms of the value of donation receipts issued in
2006. ICAN's general ledger for 2006 reflects that ICAN issued donation
receipts aggregating approximately $464 million. By comparison, Ms. Brant says
that the United Way of Greater Toronto issued $95,513,617 in tax-receipted
gifts in 2006. United Way of Greater Toronto employed in that year a staff of
165 full-time and 43 part-time positions. The majority of the applicant's
income is received from its participation in the Global Group tax shelter. In
2005 there were approximately 12,177 donors who participated in the tax shelter
resulting in approximately $248 million of courseware for which the applicant
issued official donation receipts. In 2006 there were approximately 22,674
donors, resulting in approximately $464 million of courseware donated and
receipted. A courseware was described by Ms. Brant as a one-time license to use
a software application whether or not on CD format.
[38] Ms. Brant describes
the Global Learning tax shelter in the following manner:
Donors participating in the Global
Learning Gifting Initiative tax shelter make a cash donation to a charity
called the Millennium Charitable Foundation ("Millennium"). Donors
then apply to the Global Learning Trust to become a beneficiary of the trust in
order to receive free courseware. A condition to becoming a beneficiary of the
trust is that they must have given to a charity within the past two years. The
donor receives the courseware from the trust and can chose to donate it to the
applicant at its fair market value. Typically, the courseware donated to the
applicant is valued at three times the cash donation made to Millennium.
[39] Ms. Brant states that
the applicant's income and disbursements are mainly comprised of gifts in kind;
the CRA questions the valuation and existence of the gifts. The CRA is also
concerned whether the applicant actually received most of the goods for which
it issued donation receipts.
[40] In the course of the
audit of ICAN, Ms. Brant concluded that ICAN does not conduct activities consistent
with its registered objects, more specifically:
a) Minimal information was provided
by the applicant regarding the applicant's operation of community computer
centres.
b) The applicant does not conduct
any activities to relieve poverty in developing nations.
c) The applicant does not develop
training and education programs for needy persons.
d) Despite having reported in its
information returns that it provides counseling and other similar services to
shelters, charities and non-profit organizations, the applicant has not
supplied counseling services to these entities.
e) Although the applicant reports
operating over 50 community computer centres across Canada, little or no
details were provided to the CRA to support that the applicant actually
maintains or operates the centres or that the services provided, if any, are
limited to needy persons.
f) Of the activities which we could
confirm, the information provided was wholly inconsistent with the volume of
activity being reported: the support of 367 member agencies, the operation of
50 community computer centres, $244 million in expenditures in 2005 and serving
over 20,000,000 meals. The information provided by the applicant did not
support this volume of activity.
[41] CRA is of the view that
ICAN is more involved in tax shelter agreements than in fulfilling its
charitable mandate. In 2005 and 2006, for example, the applicant recorded
receiving over $797 million in cash and property from its participation in tax
shelters, which represented 90% of its reported income. That is income coming
out of its income from both the tax shelters and charitable donations devoid of
the tax shelter. ICAN's 2006 information return has not yet been filed.
[42] Ms. Brant complains
that minimal documentation was provided to support ICAN's claim that the
software it said it received is shipped to computer centres for use by needy
persons. ICAN has reported disbursing more than $300 million in program
expenses related to the transfer or distribution of courseware in the years
2003 to 2005. However, there is no record of the transfer and distribution taking
place, to whom the courseware may have been distributed and for what purpose.
ICAN, says Ms. Brant, makes little if any attempt to verify the value of the
donations represented by the tax shelter promoters. The audit, she declares,
strongly suggests that ICAN has agreed to issue donation receipts for
transactions that do not qualify as gifts and has issued donation receipts for
more than the actual value of the property gifted.
[43] With respect to the
allegation that ICAN has issued donation receipts for more than the actual
value of the property gifted, Ms. Brant refers to ICAN's association with the
DGD Donation Program ("DGD"). Under this program ICAN issued in 2003
inflated official donation receipts for Tupperware that had been purchased from
DGD by the donors. Ms. Brant's audit disclosed that in 2003, ICAN issued
donation receipts in the amount of $726,199 for plastic containers purchased
from DGD for $135,968. DGD originally bought these containers for $25,000 plus
GST in December 2003. Attached to Ms. Brant's affidavit are copies of invoices
from DGD for plastic containers in the amounts of $2,675 and $2,000 and
official donation receipts from the applicant in the amounts of $13,684 and
$10,312, respectively, for the same two individuals on the same day. All of the
donors the CRA identified as having received such receipts were audited and
reassessed to reduce the amount of the credit claimed.
[44] The CRA, through Ms.
Brant, alleges that ICAN issued charitable donation receipts for property or
items it did not receive. For example, she states that in its 2004 fiscal year ICAN
issued $1.2 million in receipts for gifts of PET Scan Certificates. These
certificates entitled recipients to the diagnostic medical procedure at a
particular clinic. In exchange for a $35 donation, donors were to receive a PET
Scan Certificate valued at $1,000 which was then purportedly donated to ICAN in
exchange for donation receipts for the amounts of both the $35 fee and the purported
value of the gift certificate, that is, $1,000. Ms. Brant asserts that ICAN did
not provide to CRA the documentation relating to the clinic that issued the PET
Scan Certificate, details of the criteria used to determine eligible recipients
or whether the certificates were even received by or under the control of the
applicant.
[45] Ms. Brant reviewed the
contract of November 19, 2004 between ICAN and Global Group. Her analysis of receipts
issued for in-kind donations, the amount of gifts received from the Millennium Charitable
Foundation and the amount reported as fundraising fees by the applicant leads her
to conclude that in the 2004, 2005 and 2006 fiscal years ICAN did not pay
Global Group amounts provided for by the contract. Rather, ICAN remitted to
Global Group 90% of the cash donations it received from Millennium in its 2004
and 2005 fiscal years and 80% of these donations in 2006.
[46] Ms. Brant says that
ICAN has not provided the CRA with any documentation supporting the fundraising
payments made to Global Group, except to claim that a contract was signed and
payments were made pursuant to the contract. CRA requested in writing on July
12, 2006 that ICAN provide the books and records pertaining to the Global
Learning for 2005 and 2006. An auditor of the CRA reviewed the books and
records made available by ICAN on September 27, October 2, 12 and 15,
2007. The applicant was subsequently advised that it failed to provide the
records to support $26,372,685 in fundraising expenses paid to Global Group. Ms.
Brant therefore concluded that ICAN failed to provide CRA with documentation to
explain, support or justify payments and expenditures in its 2005 fiscal year
that include $26,372,685 in fundraising payments.
[47] Also in 2005, ICAN
reported issuing receipts totalling $248,037,041 for donation of courseware
licenses. The applicant also claims a disbursement of $244,343,422 related to
the distribution of the property to other organizations. According to Ms. Brant,
ICAN has not provided documentation to substantiate its claim that the software
was received by ICAN, shipped, used in charitable programs or that it was even
used at all. ICAN has also failed to provide the CRA, she says, with a listing
of the licenses distributed to the centres, a listing of the licenses converted
to CDs or the number of CDs distributed. CRA has made numerous requests, she
says, that ICAN provide access to its books and records in accordance with
section 231.1 of the Act. More specifically, ICAN was asked to provide
documentation relating to the Global Learning Gifting Initiative in 2005 and
2006 and the $26,372,685 on fundraising expenses paid to Global Group in 2005.
[48] CRA submits that in
failing to provide the CRA with the documentation referred to in the
immediately preceding paragraphs, ICAN has seriously contravened the provisions
of the Act in respect of its obligations to keep proper books of
account. This failure not only prevents the Minister from determining whether
the applicant is pursuing charitable activities, but also raises the concern
that hundreds of millions of dollars in disbursements are not being properly
accounted for. CRA submits that this contravention warrants a Notice of Suspension.
[49] The CRA suggests that
no irreparable harm will be suffered by ICAN if its application is denied and
the harm alleged to be suffered by third party charities and benefices is
unsubstantiated and speculative. There is evidence, according to CRA, that the
applicant has the means to carry out most of its programs and that there is
little cost to the applicant for doing so. On a balance of inconvenience, the
Crown submits, this case favours the respondent in light of the restraint of
government action and the harm to the public confidence in the government's
supervisory role of the registered charitable sector if this application is
successful. The public interest also favours the denial of the application as
the receipting practices of the applicant are the cause of tens of thousands of
audits relating to taxpayers participating in the tax shelter program in which
ICAN is involved.
[50] To support the
respondent's position that any balance of inconvenience is on its side, Ms.
Brant cites ICAN's general ledger as of December 31, 2006 which records a
multi-media inventory of $575,633,643. This inventory includes courseware. A
copy of the applicant's general ledger for the 2006 fiscal year was included in
her affidavit. She adds that ICAN's general ledgers for the 2003 to 2006 fiscal
years discloses that it paid no more than approximately $10,345 in postage and
delivery costs for the whole period. In some years the cost was nil, she adds.
ICAN paid $251,000 in replication costs in 2005. There were no other
replication costs in the other years.
[51] Ms. Brant advises
that she was informed by the Tax Avoidance Division of the CRA and verily
believes that the donors who participated in the Global Group tax shelter and
received donation receipts from the applicant in 2004 have been audited and
proposal letters with a view to reassess have been sent to most, if not to all
of these people. The Tax Avoidance Division also informed her that the CRA was preparing
audits of the 12,177 donors who participated in the program in 2005 and the
22,674 donors who participated in 2006. The CRA proposes to deny the entire
amount of the donation.
[52] The tax shelter
continues to be promoted by Global Group. Ms. Brant states that the probability
of ICAN's donors being audited and reassessed is extremely high, given the past
practices of the CRA in respect to the Global Group tax shelter program. She
declares that any potential donor for the 2007 taxation year is most likely to
be audited and reassessed.
[53] If the suspension is
postponed, Ms. Brant is concerned that the CRA would suffer serious harm by
being precluded from effectively ensuring compliance with the Act and
the safeguard of charitable funds. It is the CRA's position that the
application, scope and effect of subsection 188.2(2) will be eroded by a
postponement of the applicant's suspension and the postponement would lead to
the restraint of government action in serious cases such as this one where the
management of charitable funds in excess of $270,696,107 cannot be properly accounted
for or explained.
[54] Finally, according to
CRA, it would not be just and equitable to grant the relief sought by the
applicant as it has not demonstrated that the current situation results from
circumstances beyond its control or that it has suffered any inequity.
[55] It is not my task to
determine whether ICAN carried on activities that may lead to the revocation of
its status as a registered charity. Rather, I must determine whether on the
affidavit evidence before me, it would be just and equitable for me to grant
the application for postponement. However, it is quite clear from the evidence
of both parties that ICAN's activities play no small part in the CRA’s motives
to get access to ICAN’s records and books of account. The amounts of income and
disbursements in question are quite substantial. The Act requires ICAN
to maintain records and books of account to enable the Minister, among other
things, to determine whether the amounts of income and the issuance of
receipts, and the amounts of disbursements comply with the requirements of the Act
for a registered charity and that ICAN has not contravened section 149.1 or
any other provision of the Act. Records that CRA are entitled access to include
invoices, receipts, vouchers, valuation reports, that is, documents that permit
the CRA to confirm that the charity's income and disbursements are properly
accounted for.
[56] In the application at
bar the CRA claims it has not been able — or permitted — to properly examine
ICAN's records and books of account and the Minister has therefore suspended
ICAN's receipting privileges for one year.
Law: three part test
[57] In RJR-MacDonald the
Supreme Court of Canada confirmed that the three-part test be applied to
applications for interlocutory injunctions as well as for stays in both private law and Charter cases.
i) Serious Question to be Tried
[58] In RJR-MacDonald the
Supreme Court of Canada asked:
What [...] are the indicators of "a serious
question to be tried"? There are no specific requirements which must be
met in order to satisfy this test. The threshold is a low one. The judge on the
application must make a preliminary assessment of the merits of the case. . . .
Once satisfied that the application is neither
vexatious nor frivolous, the motions judge should proceed to consider the
second and third tests, even if of the opinion that the plaintiff is unlikely
to succeed at trial. A prolonged examination of the merits is generally neither
necessary nor desirable.
[59] Among the reasons the
CRA opposes ICAN's application is that ICAN does not have a serious question to
be determined. Respondent's counsel claims that ICAN has acknowledged, in a
letter to CRA dated November 5, 2007, that it does not maintain invoices and
detailed computations supporting an amount of $26,372,685 in fundraising fees.
It has also acknowledged that it does not maintain a record of the recipients
or use of the $244,343,422 of courseware it claims to have distributed in 2005.
Finally, the CRA’s audit of ICAN raised questions of whether ICAN received
gifts equal to the value entered as the amount on receipts issued.
[60] ICAN's reaction has
been that it has maintained proper books and receipts based on "its
understanding" of the CRA requirements and on advice of advisors.
[61] A charity's ability
to issue receipts to donors for income tax purposes is its lifeblood. Prohibiting
ICAN from issuing receipts for a year will probably affect its activities. On
the other hand, even a charity with the most altruistic and humanitarian
activities is subject to the Act's requirements to maintain proper books
and records and permit the CRA to examine these documents to ensure that such
activities are being carried out properly and within the confines of the Act.
The quality, quantity or nature of charitable activities of a registered
charity do not trump the requirements of the Act. Status as a registered
charity is conditional on the charity observing statutory requirements granting
its status.
[62] I am prepared to find
that there is a serious issue to be tried. However, ICAN has to satisfy me that,
assuming the Minister was correct in concluding that books of account and
records, or access to them were not available to permit his officials to
administer the Act, it will suffer irreparable harm if the suspension continues
and that the harm to be incurred by the Crown if the suspension is postponed is
less than the harm to be incurred by ICAN if the suspension is not postponed.
ii) Irreparable Harm
[63] The irreparable harm
test is described in RJR‑MacDonald as follows:
At this stage the only issue to be decided is
whether a refusal to grant relief could so adversely affect the applicant's own
interests that the harm could not be remedied if the eventual decision on the
merits does not accord with the result of the interlocutory application.
"Irreparable" refers to the nature of the
harm suffered rather than its magnitude. It is harm which either cannot be
quantified in monetary terms or which cannot be cured, usually because one party
cannot collect damages from the other. Examples of the former include instances
where one party will be put out of business by the court's decision; where one
party will suffer permanent market loss or irrevocable damage to its business
reputation; or where a permanent loss of natural resources will be the result
when a challenged activity is not enjoined. The fact that one party may be
impecunious does not automatically determine the application in favour of the
other party who will not ultimately be able to collect damages, although it may
be a relevant consideration.
[References omitted.]
[64] The onus to prove
irreparable harm lies with the applicant. In Eli Lilly and Co. v. Novopharm
Ltd.,
the Federal Court of Appeal stated that:
It is trite law in our Court that a plaintiff
seeking an interlocutory injunction must establish with clear evidence that it,
as opposed to another person or party, will suffer irreparable harm.
[65] In RJR-MacDonald the
Supreme Court of Canada stated that the following should be examined:
. . . whether a refusal to grant relief could so
adversely affect the applicants' own interests that the harm could not
be remedied if the eventual decision on the merits does not accord with the
result of the interlocutory application.
[Emphasis added.]
[66] Applicant's counsel
submitted that I must only consider the effects of any postponement of the
suspension on the parties before me. She stated that I need not be concerned
with any harm to taxpayers; I need only be concerned with the CRA since this
application is not a constitutional or Charter matter. The affidavits of
Carole French and David Penney stress the irreparable harm on third
parties, the member agencies of ICAN and its potential beneficiaries, that
weigh on ICAN. Potential ICAN donees, as well as taxpayers, will be affected by
my decision and their interests have to be considered. If ICAN is as important
to these third parties as Mr. French and Mr. Penney say they are, then they
would definitely be affected.
[67] Unfortunately, the
applicant introduced no evidence from its member agencies describing how the
suspension of receipting privileges would affect them. There are no exhibits
from any third party to either affidavit that corroborate that any third party
would be affected as adversely and significantly as described by either Ms.
French or Mr. Penney. I do not know, for example, how much any agency depends
on ICAN to operate. Is ICAN's contribution to an agency modest or substantial?
What proportion of the agency's income comes from ICAN? In other words, what is
the significance of ICAN's contribution to any one agency? ICAN has not met the
burden of proof incumbent on it to demonstrate irreparable harm on its side.
[68] That the applicant
may have to lay-off employees in the event the suspension continues can hardly
be said to constitute irreparable harm to the applicant, although it would
surely harm the affected employees.
[69] On the other hand,
Ms. Brant's descriptions of amounts of income collected by ICAN and
disbursements to Global Group and receipts given for PET Scan certificates are
disturbing. I note Ms. Brant's allegation that the receipts for courseware
donations equalled three times the value of the donor's original gifts. ICAN
claims that professionals valued the gifts donated to it but no valuations were
attached as Exhibits to the affidavits of Ms. French or Mr. Penney. These
valuations normally would have been among ICAN's records and readily available.
I also note that Ms. Brant's reference to over 30,000 taxpayers who purportedly
made donations to ICAN and whose tax returns have been, and are being, audited.
The public interest is an important consideration in deciding whether to
postpone the suspension.
[70] I do not sympathize
with ICAN's plaint that it employed only limited staff to run its office and, I
assume, to maintain its records and books of account. This is not a reason that
it may have poor records or absence of records. This only demonstrates that the
maintenance of records and books of account was not a priority to ICAN. Over
half a billion dollars came into the charity's coffers, yet according to the
CRA, ICAN apparently did not hire sufficient people to record and maintain its
records and books and account. That CRA was given access to some books and
records does not assist ICAN. The books and records must be a complete record
of what transpired and the evidence before me suggests that the CRA may have
had problems in completing its audit because of insufficient or poor documentation.
iii) Balance of Inconvenience
[71] The third test, who
would suffer greater harm, was described by Beetz J. in Metropolitan Stores,
supra, as "a determination of which of the two parties will suffer
the greater harm from the granting or refusal of an interlocutory injunction,
pending a decision on the merits".
[72] Applicant's counsel
argues that harm to public confidence in the CRA should only be taken into
account in constitutional cases. I have touched on this earlier. The
consideration of harm to public confidence is admissible in the present case,
precisely because it is the public's confidence in the CRA to oversee
registered charities that is at issue. This directly affects the respondent and
should be taken into account. Public authority cannot be prevented from
exercising its statutory powers that are of public interest.
[73] In RJR‑MacDonald,
the Supreme Court observed:
The decision in Metropolitan Stores,
at p. 149, made clear that in all constitutional cases the public interest is a
'special factor' which must be considered in assessing where the balance of
convenience lies and which must be "given the weight it should
carry". This was the approach properly followed by Blair J. of the General
Division of the Ontario Court in Ainsley Financial Corp. v. Ontario
Securities Commission, (1993), 14 O.R. (3d) 280, at pp. 303‑4:
Interlocutory injunctions involving a challenge to
the constitutional validity of legislation or to the authority of a law
enforcement agency stand on a different footing than ordinary cases involving
claims for such relief as between private litigants. The interests of the
public, which the agency is created to protect, must be taken into account and
weighed in the balance, along with the interests of the private litigants.
[74] The Court explained:
. . . In the case of a public authority, the onus of
demonstrating irreparable harm to the public interest is less than that of a
private applicant. This is partly a function of the nature of the public
authority and partly a function of the action sought to be enjoined. The test
will nearly always be satisfied simply upon proof that the authority is charged
with the duty of promoting or protecting the public interest and upon some
indication that the impugned legislation, regulation, or activity was
undertaken pursuant to that responsibility. Once these minimal requirements
have been met, the court should in most cases assume that irreparable harm to
the public interest would result from the restraint of that action.
[75] Browne L.J. in Smith
v. Inner London Education Authority, considered the public interest in
these words:
He [the motion judge] only considered the balance of
convenience as between the plaintiffs and the authority, but I think counsel
for the authority is right in saying that where the defendant is a public
authority performing duties to the public one must look at the balance of
convenience more widely, and take into account the interests of the public in
general to whom these duties are owed. I think this is an example of the
'special factors' affecting the balance of convenience which are referred to by
Lord Diplock in American Cyanamid Co v. Ethicon Ltd.
[76] While the respondent
is not a regulator of charities per se, the Act charges the CRA
with the responsibility of protecting the public interest by ensuring the
compliance of registered charitable organizations with the Act.
[77] Also, one cannot
ignore that registered charitable status confers special tax treatment to the
charity. In ensuring compliance of registered charities with the Act,
the CRA is acting in the interests of the public — by protecting a degree of
public confidence in the charitable sector as well as by protecting potential
taxpayer donors.
[78] The balance of
convenience (or inconvenience) is in favour of the CRA. To postpone the
suspension in the circumstances would handcuff the CRA's capacity to administer
the charities' provisions of the Act, to ensure compliance and protect
public interest. ICAN has been aware for some time that the CRA was questioning
its management of its books of account and records. On May 29, 2007, CRA sent a
letter to ICAN listing suspected areas of non compliance by ICAN, including
books and records. CRA described deficiencies it found in ICAN's books and
records. The suspension letter of November 21, 2007 was not a bolt from the
blue. ICAN's directors knew, or ought to have known, the serious problems ICAN
was having with CRA. I am not impressed with the affidavits in support of
ICAN's application. A good portion of the affidavits in support of the
application describing ICAN's importance to various umbrella organizations has
an air of hyperbole. Ms. French and Mr. Penney assert the importance of ICAN to
the operations of several organizations and programs but no one from these
organizations or programs corroborates ICAN's view of its own importance.
[79] It is not just and
equitable to grant the applicant's application for postponement of the
suspension to issue official tax receipts. The application is dismissed.
Signed at Ottawa, Canada, this 3rd day of January 2008.
"Gerald J. Rip"
Note
Section
188.2 of the Act provides for a temporary suspension of receipting
privileges; it is not at all similar to the provisions of section 168 which
provide for an actual and permanent revocation of the charity’s registration.
During the one year period the "suspended" charity has the
opportunity to put its books of account in proper order and assemble its
records. If the charity is successful in doing so within the year it may make
an application pursuant to section 188.2 and, if successful, continue its
activities.
However, a charity
seeking to have its suspended receipting privileges restored faces a relatively
lengthy delay before the situation may be resolved. The suspension under
section 188.2 is for a maximum of one year. Subsection 188.2(4) deals only
with a postponement of a portion of the period of suspension. For the
suspension period to be cancelled, assuming the suspension is confirmed on
objection, the charity would have to file an appeal. Unless the charity invites
the Minister to immediately confirm the suspension, as suggested by
respondent's counsel as one way of speeding up the process, it would take at
least 91 days before the charity could appeal the suspension to this Court and
then further delays would transpire until a reply to the notice of appeal is
filed and discoveries are held before the appeal is heard. Ms. Schusheim, appellant's
counsel, estimated that it could be close to the one-year suspension period
before the appeal is disposed of. And if the charity puts its books and records
in order, say 3 months after suspension, the time to have the suspension cancelled
when the year is even shorter, unless, of course, the CRA consents to the
cancellation.
Parliament
may wish to consider a summary procedure permitting a charity to contest a
suspension.
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