Date: 20121009
Docket: A-357-12
Citation: 2012 FCA 255
Present: STRATAS
J.A.
BETWEEN:
GLOOSCAP HERITAGE SOCIETY
Applicant
and
THE MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR ORDER
STRATAS J.A.
[1]
The
applicant, Glooscap Heritage Society, is a registered charity under the Income
Tax Act. The Minister has notified Glooscap that he will exercise his
authority under the Act and revoke Glooscap’s registration as a charity.
Glooscap intends to challenge the revocation.
[2]
Under
the Act the revocation can take place before Glooscap can challenge it. This
will be explained in more detail below.
[3]
In
this application, Glooscap seeks an order delaying the revocation until this
Court hears its challenge.
[4]
In
order to delay the revocation, Glooscap must satisfy the Court that it has met the
normal test for the granting of stays and injunctions: International Charity
Association Network v. Minister of National Revenue, 2008 FCA 114 at
paragraph 5. Glooscap must show it has an arguable case against the revocation,
it will suffer irreparable harm if the revocation is allowed to happen, and the
balance of convenience lies in its favour: RJR-MacDonald v. Canada (Attorney General), [1994] 1 S.C.R. 311.
[5]
For
the reasons set out below, Glooscap has not satisfied this test. Therefore, I
shall dismiss Glooscap’s application to delay the revocation of its registration
as a charity, with costs.
A. Preliminary matter
[6]
Initially,
Her Majesty the Queen was named as the respondent to this application. The
parties agree that the correct respondent is the Minister of National Revenue.
I agree and will so order. The style of cause on these reasons and my order
dismissing Glooscap’s application shall reflect this change.
B. Facts
(1) The
legislative scheme
[7]
When
the Minister concludes that a charity’s registration should be revoked, he
issues a notice of intention to revoke it: Income Tax Act, subsection
168(1). The revocation only takes effect when notice of it is published in the Canada
Gazette.
[8]
Where
the charity has not requested the revocation, the publication of the notice is
deferred for 30 days in order to allow the charity to challenge it: paragraph
168(2)(b). The challenge consists of the making of an objection and, if
necessary, an appeal to this Court: Act, section 172.
[9]
Any
time before the Court determines the appeal, the Court may extend the 30 day period
for non-publication of the notice of revocation. Before the appeal is brought,
the extension may be granted on the basis of an application brought under Rule
300(b) of the Federal Courts Rules. After the appeal is brought,
an extension may be granted by way of notice of motion within the appeal. See International
Charity Association Network (ICAN) v. Minister of National Revenue, 2008
FCA 62 at paragraph 7.
(2) The
basic facts of this case
[10]
Since
May 2005, Glooscap has been a registered charity under the Act.
[11]
At
that time, broadly stated, its objects were to research, study, exhibit, and
publicize artifacts and evidence relating to the history of the Mi’kmaq First
Nation in central Nova Scotia. In conjunction with the Central Nova Tourist
Association, Glooscap operates the Glooscap Heritage Centre and Mi’kmaw Museum.
The museum is located on the Millbrook First National reserve on the outskirts
of Truro, Nova Scotia.
[12]
Some
of artifacts and exhibits in the museum come from charitable donations. But the
bulk of the museum’s artifacts and exhibits – some 80% – are on loan from
another museum.
[13]
The
evidence filed before the Court suggests that the relationship between the
tourist association and Glooscap – an aboriginal/non-aboriginal partnership in
a tourism endeavour – is special and rare, and formed only after overcoming
initial resistance. Putting aside Glooscap’s involvement with the tax shelter,
described below, the evidence filed before the Court demonstrates that
Glooscap’s activities are socially worthy and important to the community.
[14]
But
in this application, Glooscap’s involvement with the tax shelter is central.
[15]
The
Minister alleges that from 2006 to 2011, Glooscap issued donation receipts in
the following approximate totals: $166,000 (2006), $0 (2007), $11,590,000
(2008), $13,312,000 (2009), $37,131,000 (2010), $54,985,000 (2011). This shows
a massive increase in donations since 2006 – ranging from 6,880% to over
33,000%.
[16]
The
Minister says this increase was due to Glooscap’s involvement, starting in
2008, with an illegitimate tax shelter known as the Global Learning Gifting
Initiative.
[17]
In
this regard, the Minister makes several allegations, largely on the basis of an
audit it has conducted. On this application, it is not the role of the Court to
determine whether these allegations are true. The Minister’s allegations, to
the extent they have a prima facie basis, are primarily relevant to the
assessment of the public interest under the balance of convenience branch of
the RJR-Macdonald test.
[18]
The
Minister’s alleges that the illegitimate tax shelter worked in the following
way:
● Each
participant made a cash payment to Glooscap.
● Each
participant then applied to become a capital beneficiary of the Global Learning
Trust.
● The
trust provided each participant with free courseware.
● Each
participant donated the courseware to a registered charity that was
participating in the tax shelter. In 2009 and 2010, participants donated the
courseware to Glooscap.
● Each
participant received an official donation receipt for the cash payment and the
donated courseware.
● Although
each participant purportedly donated the courseware at fair market value,
Glooscap issued receipts for the courseware that were typically at least three
times the amount of the cash payment the participant had made to Glooscap.
● Under
this arrangement, Glooscap kept very little of the cash payments from
participants. For example, in 2009, Glooscap retained 11.6% of the payments,
with the promoter of the scheme receiving 88.4% of the payments.
[19]
Following
an audit, the Canada Revenue Agency concluded, among other things, that:
● Glooscap
was not operating exclusively for charitable purposes as required under the
Act, and instead was operating for the primary purpose of activities benefiting
the tax shelter.
● Glooscap
improperly issued receipts for cash and courseware that were not valid gifts
under the Act.
[20]
In
an administrative fairness letter, the Canada Revenue Agency notified Glooscap
of its concerns and invited Glooscap to respond. In a responding letter,
Glooscap defended itself, urged that its registration as a charity not be
revoked, and advised that it had terminated its relationship with the tax
shelter.
[21]
After
some months, on July 17, 2012, the Canada Revenue Agency issued a Notice of
Intention to revoke Glooscap’s registration as a charity under the Act.
Further, the Minister has told participants in the tax shelter their deductions
arising from the scheme will be disallowed, and they will be reassessed for
back taxes, interest and penalties.
[22]
In
the oral hearing of this application, Glooscap advised the Court that it has
just filed an objection to the Minister’s Notice of Intention.
[23]
Assuming
that the Canada Revenue Agency maintains its position, Glooscap will soon be
able to challenge in this Court the Minister’s planned – or, by then, actual –
revocation of its registration as a charity. In the meantime, Glooscap wants
this Court to stop the Minister from revoking its registration.
C. Analysis
(1) Arguable
case
[24]
On
the first branch of the threefold test for a stay, Glooscap must establish that
there will be a serious question to be tried when it challenges the Minister’s
position in this Court. Although it has not filed its objection to the
Minister’s Notice of Intention, it has filed its responding letter to the
Minister’s administrative fairness letter.
[25]
The
threshold for seriousness is “a low one” and “liberal”: RJR-Macdonald, supra
at page 337; 143471 Canada Inc. v. Quebec (Attorney General), [1994] 2 S.C.R. 339 at page 358, per La Forest
J. (dissenting, with apparent concurrence on this point from the majority). Glooscap
need only show that the matter is not destined to fail or that it is “neither
vexatious nor frivolous”: RJR-Macdonald, supra at page 337.
[26]
Given
the low threshold for “arguable case,” the Minister has conceded that Glooscap
has met this branch of the RJR-Macdonald test.
(2) Irreparable
harm
[27]
Glooscap
submits that if its registration as a charity is revoked, it will suffer
irreparable harm. It points to reputational effects upon itself, the First
Nation with which it is associated, the First Nation’s business relationships,
and business collaborations between aboriginal and non-aboriginal communities.
It also says that potential donors to the museum will donate to other museums
that can provide a donation receipt, and they will not lightly come back.
[28]
Glooscap
adds that under the irreparable harm branch of the test, the Court is to look
at the nature of the harm – whether it can be remedied later – and not the
quantity of harm.
[29]
The Minister submits that the irreparable harm must be that of the
moving party, here Glooscap. Harm to third parties may be considered under the
balance of convenience branch of the test, but not under the irreparable harm
branch of the test. The Minister also points to the general, unparticularized
nature of the harm and the absence of proof of a real likelihood of harm.
[30]
On the law governing irreparable harm and on the record before the
Court, the Minister’s submissions carry some force.
[31]
To establish irreparable harm, there must be evidence at a
convincing level of particularity that demonstrates a real probability that
unavoidable irreparable harm will result unless a stay is granted. Assumptions,
speculations, hypotheticals and arguable assertions, unsupported by evidence,
carry no weight. See Dywidag Systems International, Canada, Ltd. v. Garford Pty Ltd., 2010 FCA 232
at paragraph 14; Stoney First Nation v. Shotclose, 2011 FCA 232
at paragraph 48; Canada (Attorney General) v. Canada (Information
Commissioner), 2001 FCA 25, 268 N.R. 328 at paragraph 12; Laperrière
v. D. & A. MacLeod Company Ltd., 2010 FCA 84 at
paragraph 17.
[32]
The reason behind this was explained in Stoney First Nation
as follows (paragraph 48):
It is all too easy for those seeking a stay in a case like this to
enumerate problems, call them serious, and then, when describing the harm that
might result, to use broad, expressive terms that essentially just assert – not
demonstrate to the Court’s satisfaction – that the harm is irreparable.
[33]
Finally,
only harm suffered by the moving party qualifies under this branch of the test.
As was said in Manitoba (Attorney
General) v. Metropolitan Stores (MTS) Ltd., [1987] 1
S.C.R. 110 at page 128, “[t]he second test consists in
deciding whether the litigant who seeks the interlocutory injunction would,
unless the injunction is granted, suffer irreparable harm.” It is “the
applicants’ own interests” that fall to be considered under this branch of the
test, not that of third parties: RJR-MacDonald, supra at page 341.
[34]
In
cases such as this, a modest modification of this principle has been made. The
interests of those who are dependent on the registered charity may also be
considered under this branch of the test: Holy Alpha and Omega Church of
Toronto v. Attorney General of Canada, 2009 FCA 265 at paragraph 17.
[35]
Glooscap
has adduced evidence from very well-placed deponents: the executive director of
the tourist association with which Glooscap is partnered, a multi-decade
councillor with the Millbrook First Nation reserve, and the general manager of
the museum. However, much of the evidence of harm given by these deponents
consists of sweeping, unparticularized assertions and declarations that
difficulties would arise that might result in actual harm.
[36]
Without
a better understanding of Glooscap’s overall financial situation and
fundraising ability, I cannot conclude that a loss of donations would result in
any irreparable harm to it or its activities.
[37]
Glooscap
submits that revocation of its registration as a charity will cause harm to its
relationships, particularly with non-aboriginal organizations, and these
injuries are not capable of later remediation. However, its evidence goes no
higher than to identify “jeopardy” or a risk to those relationships: see
paragraphs 11 and 13 of the Mingo Affidavit.
[38]
The
Court does accept that Glooscap will suffer some reputational harm. However, as
explained below, much of the reputational harm, especially in the donor
community, will be caused not by the revocation of Glooscap’s registration as a
charity, but rather by the reassessment of the donors to the tax shelter.
[39]
Ultimately
fatal to Glooscap`s application is the requirement that it establish
irreparable harm that is unavoidable, i.e., irreparable harm that
will be caused by the failure to get a stay, not harm caused by its own conduct
in running a clearly-known risk that it actually knew about, could have
avoided, but deliberately chose to accept: Dywidag
Systems International, supra at
paragraphs 14 and 16.
[40]
In
Dywidag Systems International, the irreparable harm was said to be the
disclosure of confidential documents. Often the release of confidential
documents causes irreparable harm. But in Dywidag, this irreparable harm was
avoidable: months earlier, Dywidag was invited to agree upon a confidentiality
order protecting the documents, but it did nothing.
[41]
In
this case, Glooscap knew about the sizeable advantages of registered charitable
status: exemption from income tax and the ability to issue receipts for
donations received. It was warned at an early stage that it might lose its advantageous
charitable status if it associated with this tax shelter. Part of that risk is
the very thing that has now materialized – the revocation of its charitable
status before it can challenge the revocation in this Court. Warnings about
involvement with this tax shelter came from the Canada Revenue Agency (two
emails and a meeting), Glooscap’s own lawyer (two letters) and its own auditor.
Glooscap’s auditor resigned, at least in part over the issue. There were also
warnings that involvement in the tax shelter would require an amendment to
Glooscap’s objects and the approval of the Canada Revenue Agency. Yet, knowing
of the risks, Glooscap chose to continue its association with the tax shelter,
and in fact renewed its association in 2009.
[42]
Glooscap
submits that it exercised good faith throughout. In support of that submission,
among other things, Glooscap points to confirmatory testimony given on
cross-examination of a representative of the Canada Revenue Agency. That may be
so, but the fact remains that at an early stage Glooscap knew of the risk of
the very harm that has eventuated here and it chose to run that risk.
[43]
If
Glooscap blundered itself into involvement in this tax shelter, oblivious to
any real risk, the irreparable harm might not be fairly laid at its feet.
Similarly, circumstances such as mistaken advice, mistake as to the facts, trickery,
duress or unauthorized conduct by someone wrongly purporting to act for
Glooscap might cause a different view to be taken of the matter. But in this
case none of these circumstances are present.
(3) Balance
of convenience
[44]
Were
it necessary to proceed to this branch of the test, this Court would have found
that the balance of convenience lies against the granting of relief to
Glooscap.
[45]
This
Court recognizes the high significance and importance of the aboriginal/non-aboriginal
partnership in this case between Glooscap and the tourist association,
especially when viewed against the regrettable, often abysmal, sometimes unspeakable
events surrounding Canada’s history of aboriginal/non-aboriginal
relations: Report
of the Royal Commission on Aboriginal Peoples: Looking Forward, Looking
Backward, vol.
1 (Ottawa: Canada Communication Group Publishing, 1996).
[46]
As
mentioned in paragraph 37 above, the evidence offered by Glooscap falls short
of establishing a real likelihood that this partnership will fail or that the
broader aboriginal/non-aboriginal relationship will suffer if Glooscap’s
charitable status is revoked. That being said, the evidence does describe a
risk – albeit undefined, abstract and perhaps speculative – of that happening.
[47]
The
Court also accepts that if Glooscap’s registration as a charity is
revoked, the reputations of it and perhaps those associated with it will
suffer, with possible, undefined, perhaps speculative detrimental effects on
their businesses and activities.
[48]
However,
one would expect that the Minister’s reassessment
of all of Glooscap’s donors who participated in the tax shelter will cause
negative news to spread through all of the donor community, if not the wider
community. This will happen regardless of whether the Court grants Glooscap the
relief it seeks in this application.
[49]
Glooscap’s
evidence falls short of establishing that the museum will fail, or that its
educational mission will be detrimentally affected. No financial information
has been given that would allow such a finding to be made.
[50]
Putting
aside the donations involving the tax shelter, Glooscap has received only
$19,775 in total donations during 2007-2011, and no evidence has been provided
suggesting that the loss of this level of donation will cause any significant
harm.
[51]
On
the Minister’s side, is the public interest in enforcement – a matter deserving
of significant weight in this case. The Minister’s allegations in support of
revocation of Glooscap`s registration as a charity are supported, on a prima
facie basis, by the conclusions of the audit that appears in the record
before the Court. Therefore, the public interest in enforcement, as
contemplated by the Act, is in play.
[52]
Glooscap
seeks to prevent the Minister from revoking its registration, something the Act
permits the Minister to do at this time, subject, of course, to later
challenge. Where the moving party seeks to prevent statutory actors from
carrying out their statutory duties, a “very important” public interest
“weigh[s] heavily” in the balance: 143471 Canada Inc., supra at
page 383, Cory J. (for the majority); Harper v.
Canada (Attorney General), [2000] 2 S.C.R.
764, 2000 SCC 57 at paragraph 9; Laperrière v. D.
& A. MacLeod Company Ltd., 2010 FCA 84 at paragraph
12.
[53]
The
weight to be accorded to that public interest, already significant, is driven
upward by the sizeable amounts said to be in issue in this case: $116,999,482
given in receipts to participants in the tax shelter in 2008-2011, in
circumstances where valid non-tax shelter donations over the same period
totalled only $19,775. It is also driven up by Glooscap’s decision to involve
itself in the tax shelter despite the clear warnings it received.
[54]
In
assessing and weighing the public interest considerations in this case against
the considerations offered by Glooscap, I can do no better than to adopt the
words of my colleague, Sharlow J.A., in International
Charity Association Network, supra at paragraph 12 (2008 FCA
62):
The Minister takes the position, properly in my
view, that the public has a legitimate interest in the integrity of the
charitable sector. It is reasonable for the Minister to attempt to safeguard
that integrity by carefully scrutinizing tax shelter schemes involving
charitable donations of property and, where there are reasonable grounds to
believe that the property has been overvalued, by taking appropriate corrective
action. In the circumstances of this case, the Minister’s factual allegations,
while untested, are sufficiently serious to outweigh any advantage [the
charity] might derive from an order deferring the revocation of its
registration as a charity.
D. Disposition
[55]
For
the foregoing reasons, I shall dismiss Glooscap’s application to
delay the revocation of its registration as a charity. The Minister
shall have his costs of the application.
"David Stratas"
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